Say No to a Million Dollars – Again

Last March, a pair of entrepreneurs from Toronto surprised viewers by turning down a potential investment of a million dollars on the show Dragons’ Den. In this week’s episode showcasing entrepreneurs who have been given a second (and in one case, a third) chance on the show, the same pair turned down yet another offer of a million dollars.

Brian Crozier and Joseph Iuso have now presented their business, UseMyBank, twice on Dragons’ Den asking for the exact same investment, at the same valuation – $20 million. The first point of contention is therefore the fact that their previous valuation a year ago was clearly wrong – a company that does not change in value over the course of a year is quite unusual.

Once again, they turned down the offer, which was for a 50% equity stake in the company, or a $2 million valuation. Clearly, the difference in opinion as to the value of the company was quite high. What I found interesting, though, is the fact that they got any offer at all.

When I wrote my previous review of their pitch, I looked at their website and was not impressed. The current website, though, is a lot more sleek and polished, which was a significant problem with the prior version of the site. However, based on my research, at the time of their most recent presentation, sometime mid 2010, they were still using the old website, which did not bolster confidence. Various technical details about their current site also leads me to question their credibility with the volume of exposure they claim to be getting.

At a more fundamental level, I do not believe that the market wants their product. With the increasing number of stories of fraud, the use of a credit card, or any kind of intermediary service, can help reduce the risk of fraud. If someone uses my credit card, I can dispute the charge with the credit card company before I actually pay any money. With a debit service, I need to dispute the charges after the money has left my control. While some people may accept the risk, more people will look for ways to use existing intermediaries to handle their online transactions.

The fact that they turned down the offer is not surprising – it was a massive difference in valuation, even worse than last year. The fact that they are still in business, and claim to have high transaction rates, and yet continue to seek an investment of 20% of their income for the previous year, however, begs questions as to their true ability to run a proper business.

New Business from Old

A question pondered by owners of businesses is how to fit new ideas into existing businesses, or whether the new idea should be the basis for a new business. Often, the new idea arises from an existing part of a business, or is being developed using resources from the existing business. Perhaps it is only because of the current business history that the idea even has potential, for example, if it will be marketed using existing channels to similar customers.

However, if the new product or service is sufficiently different from the existing business operations, then trying to run with it within the existing business structure may not make sense. Even if legally this is possible (that is, you are not operating with a regulated industry which may object to running the two businesses together conceptually), there could be other reasons to run them independently of one another.

For one thing, isolating the two business operations from one another, when being run within a single business entity, becomes difficult, if not impossible. There is a strong bias toward using existing resources for the new venture, which can negatively impact existing operations.

Second, determining the true value of the business can be difficult, since there is no clear demarcation between businesses.

However, the mere existence of an independent business entity does not mean that the business will be any easier to manage, nor does it ensure that true measures of costs and income will be any easier to calculate. However, if the business succeeds, then spinning off the business to be operated independently, or to be sold, or to acquire an investment, becomes a lot simpler to do.

The advice I would suggest, though, is a cross between the two. Internally, consider the business to be separate, operating off its own accounts, with its own books, and “renting time” for any shared resources with other parts of the business. That way, even if the same people are working on the new idea, their contributions can be measured accurately.

If, after some time, it is determined that the business will succeed, then the effort can be made to set up a proper corporate structure for the business which will further isolate the separate business units. If the business does not succeed, then there has been no harm done, and the idea can be easily discarded.

Goals for 2011

Last year, I continued my tradition of posting and reviewing my goals from the previous year, as well as inform you of my new goals. Like last year, I haven’t had a perfect batting average on my goals, but I’m okay with that.

First, my goals for 2010 were accurate as of the time of writing, though priorities changed over the year, and with good reason. To recap the goals, and my current status with them:

  • Learn PHP and Zend to a reasonable degree of proficiency – this has gone well, and while I would hesitate to call myself an expert on either, I am comfortable programming a web application using those technologies. I’m still working on getting the turn-around time down, but it’s moving in the right direction.
  • Launch Client Data Tracker – this has not happened, because priorities change. The project turned out to be significantly larger than I anticipated, and I put it on the side because I didn’t feel I could do the project justice.
  • Continue side development until I’m doing in excess of 30 hours a week of billable time – this has happened, and I’m now working solely on a contract basis. Happily, I’ve been able to leave the corporate setting.
  • Complete the work required for – this has not happened, though we learned a lot of interesting pieces of information and technology working with it.

Overall, 2010 was a good year for business, and looking forward, 2011 looks like it will be even more exciting:

  • Launch the product I’m working on for my primary client before the end of the first quarter;
  • Learn the intricate details of a fairly large industry to determine how to be able to carve out a niche in it;
  • Solidify my knowledge of certain technologies I use frequently to the point I would call myself an expert.

What are your goals? Do you have a way to measure yourself against them?

Why Not to Compete Based on Price

It can be tempting at times for a business owner to contemplate competing based on price – that is, offering a product or service at a price lower than their competition. The net result of this is hoped to be a quick influx of customers who will take advantage of the lower price, and then remain customers even when the lower price might no longer hold true.

In reality, for many businesses, this can break the bank and drive the business under. The reality is, competing based on price is simply a game of chicken – each competitor lowers their price in turn, until the last business standing takes all the customers. This is a very costly way to eliminate the competition, assuming you win, and there’s no assurance that another competitor won’t arrive to repeat the cycle.

That being said, this does not eliminate the offering of discounts or sales, but the reason should not be simply to be competitive. As an example, a chiropracter might offer a 20% discount on your first session because you’re a new customer. A printing company might offer a 10% reduction in the printing price for orders of over 10,000 prints. In other words, the reason for the discount is not in order to be cheaper, but because there’s another benefit to the provider to giving that discount.

Additionally, even if you intend to give a discount to the client, make sure that you inform the client of the value they’re getting before they’re informed that you’ll give them a discount. Once the subject of price comes up, you won’t be able to negotiate based on anything else. As well, if you’ve assigned a particular value to your work (e.g. $75 per hour), then you can always offer a lower price later, but you cannot raise it. If you start negotiating price too early, then you risk being trapped with having lowered your price below what the client would have paid, had you explained the value you provide in advance.

Compete based on value. As a business, you offer a mix of quality, service, and price. If you fix quality and service, then the price you should be offering should be set as a direct result. Offering a Rolls Royce for $30,000 will immediately make the potential buyer doubt its authenticity or quality. If the quality or service is higher, then the price MUST be higher too. Lowering your price will negatively impact your credibility, and thereby be unlikely to benefit you in any way regardless.

Question: How do you Measure Progress?

In a recent course on writing business plans, there was a discussion about the creation of milestones and objectives, and ways to measure them. What methods do you use to measure progress, and to set appropriate milestones for your business?

Goals for 2011

As I mentioned last week, goals need to be SMART: Sustainable, Measurable, Actionable, Realistic, and Timely. In a discussion with a business coach, though, a valid point was made regarding goals. Goals need to be measurable and timely in order to be considered goals. Not necessarily good goals, but they are, in fact goals.

However, when goals have actions attached to their outcome – that is, being able  to take an action to bring the goal to fruition, then they are practical goals. If the goals are not realistic, then there is no chance of them coming to be.

Finally, if a goal is not sustainable, then it is a foolish goal. For example, if a business has a goal of selling a particular number of units, and the product is faulty, maintaining that goal is foolish. It can do more long-term damage than the short-term benefits. Selling 1000 units which eventually get returned achieves nothing.

The reason I asked about having written them down or telling people is because there is a potential benefit to sharing that information. Writing down goals makes it less likely that the details are forgotten (perhaps conveniently). Sharing the goals with other people means that when you see those people, and have to explain why you have yet to achieve the goal, can be a motivating factor.

However, having spoken to several people who’ve made goals to lose weight or quit smoking, they’ve pointed out that if people know about your goal, they can nag you about it to no end. The nagging does not increase the likelihood of reaching the goal, and tends to be more frustrating to the goal-setter than anything else.

If you choose to share your goal, I suggest that you be careful about who you share the goal with, to ensure that it will be someone who will help you reach the goal, not hinder you.

Landing Pages and Business Strategy

When a recent posting on Facebook directed me to a page screaming free and asking for an email address, I immediately questioned the author of the post’s integrity in suggesting the link to their associates on Facebook. The page read like a marketing scam aimed solely at getting email addresses, with no indication as to what the email address would then be used for. Instinct suggested that the purpose was to send email blasts or the like, which in social media is akin to standing at a downtown corner with a bullhorn shouting out your message.

Perhaps the author was unaware of the implications of their message, though I find that unlikely, and suspect that author was perfectly aware of the implications of the appearance of the landing page. The result was a marketing pitch that had all the appearances of a scam.

If you’re in business and looking to design your website, there are better ways to get people’s email addresses and communicate with your target market than to offer them something free before you’ve convinced them that value exists. As such, there are a few fairly simple rules to follow when designing your site:

  1. Keep the design simple, with subdued colors. The page shouldn’t appear to be shouting its message, but rather to be displaying its message in a cool and calm manner.
  2. Provide information, or something of value, without asking for anything in return. This can be pages of your site with tips and suggestions, a public blog, or a free PDF that can be downloaded in a single click.
  3. When asking for an email address, explain what you’re going to do with it – what kind of emails will you be sending, how often, and will you share the address with anyone?

Failure on any of these might gain you addresses in the short-run, but you will find that people will either ignore your emails when they start arriving each morning, mark them as spam (which eventually can impact people who actually read your emails as well), block you, or report you. As well, if the people who’ve given you their emails are active on any of the social media sites, they may pass along the information about your practices to their friends.

Perhaps this is the confusing aspect to this form of marketing. Your website is a place where you can post information about yourself, what you’re selling, and your expertise. Social media is a place where you can interact with your target market. However, pushing a hard-sell at your target market is little different from being an aggressive telemarketer – and most people have learned how to block such people out of their lives.

Willing to Say No

I belong to a small network of businesses each of which provides similar and related services, though it is rare for any of us to compete directly with one another. This allows us to forward projects and clients to each other with little risk of losing the client.

A few days ago, the owner of one of those businesses came over to me to ask if I could take on working for one of his clients, who had been looking to extend one of their websites to a new market. I took a quick look at what was needed, and realized that while part of the project fell within my area of expertise, a major component did not. I was also aware that he had another option – his network of vendors included someone with expertise in this particular area, though that vendor’s prices were significantly higher than my own.

However, I didn’t feel that I could justify working on his project, or at least, not on the portions outside my area of expertise. While I was confident that I could complete the project, there were two reasons not to take on the work:

First, the amount of time it would take me to do the work would be much longer than if he used the other vendor, and ultimately might have cost the client more.

Second, I didn’t really want to learn how to do the portion of the project that I didn’t currently know how to do.

I declined the work, and he asked if I could do the part of the project which I did know how to do, to which I accepted. By declining one part of the project, at the risk of losing the other part of the project, I gained the trust of a client.

Sometimes, the gains of saying no to a client are known almost immediately, and sometimes, you just have to trust that the gains will come. When you inform a client that something falls outside your area of expertise, they will either ask you to do it anyhow, ask you to find someone who can do the work, or find someone else themselves. In any of these situations, you stand to gain – either immediately in the form of being able to subcontract work that you might otherwise not have been able to do, or in the long run with customer referrals.

When you gain the trust of a client, it will last longer than any satisfaction they get on a given project. It will translate into more business, references for more work, and many other long-term gains. But to gain this kind of trust, you need to teach yourself to be able to say no.

Striving for Perfection

I recently read an interesting comment on the pursuit of perfection:

The amount of effort required to bring something from “good enough” to “perfect” is rarely worth it.

My initial reaction to this, as well as the reaction of most people I repeated this to, was that clearly the author doesn’t take pride in a perfect piece of work. Reflection, though, indicates something a little different.

Define the term “good enough”.

For me, that may translate to one level of quality, to you, another. That level of quality that you consider to be “good enough” is what you should be striving for. That is, it should meet all the needs of the work being done, and leave you with some level of satisfaction that you have done a good job.

However, perfect is not subjective. Perfect means that an objective assessment of the work would conclude that there is nothing lacking in the job. While there are certainly jobs where the the subjective assessments need to come close to perfect (for example, safety procedures at a nuclear powerplant), most jobs do not. There is some degree of quality that is subjectively required.

The amount of work to bring a project from good enough to perfect will often far out-weigh all other effort for the project, though the benefits can rarely justify it. For my clients, they expect a certain level of quality. I do my best to exceed that expectation by producing something better for them. However, I rarely insist on perfection, because my clients in general don’t want to pay for that.

They want to pay for a certain level of quality, and that’s good enough for them. For personal and professional reasons, I do my best to exceed that level. However, perfection will rarely make a difference.

It should be noted that if working harder on a project to produce a better outcome would have a tangible difference, then the definition of good enough may need to be adjusted. But that’s just subjective.