Competition and Anti-Trust Law

In the markets of the past century, there have been various attempts to achieve the following – to increase the amount of competition in any given market. The reason for laws to govern this is simple – when a small group of individuals or companies controls a segment of the market, they can drive up prices without restraint.

Such laws which prohibit business practices preventing the creation of competition have existed since Roman times, where it was illegal to prevent ships from making deliveries of grain. Currently, the laws are used to ensure that it is not only large companies that are able to enter a given market, that mergers and acquisitions do not reduce the amount of competition, and that cartels, whereby different companies get together and form a group, are banned in many countries.

The laws differ between each country, but the fundamentals are the same. If you want to start a business in a particular field, that is your right, and existing companies cannot stop you. You are not allowed to infringe on their patents, trademarks, and copyrights, but you can create a similar product and compete. You are not allowed to get together with your competition and agree on a price for your goods. You are not allowed to buy out your competition if that would give you complete control over the market segment.

The reason the laws are referred to as anti-trust laws are because in the early 19th century, trusts were often utilized as a means of controlling competition. While trusts on their own are perfectly legal, the use to which they were applied was not. As a result, various Acts (the Sherman Act, the Clayton Act) where passed to prevent such practices.

Site Review – Business Plans

Bplans.com

This is a relatively short post, as the site in this case speaks for itself. Business Plans is owned and operated by Palo Alto Software to help other entrepreneurs run better businesses. Their site contains many tools, tutorials, and templates for standard business documents, and will help you answer questions about your startup expenses and your cash flow projections. However, most of their templates are connected to business plans, as their name implies, although you might be surprised at how much falls under that category.

Check it out if you need any templates or other such resources. They have templates for the vast majority of business types, and if you can’t find an exact match, chances are, there are a few that are close enough to be combined to give you what you need.

Sorry for the short post, back to normal for Friday’s release.

Lessons from an Image Fiasco

If you pay attention to news from Toronto, you are likely to know about the various publicity problems that have been plaguing the Toronto Transit Commission, a.k.a. the TTC. A favored target of negative criticism for many years, their recent cost overrun with a street car line coupled with a fare increase, followed by major service disruptions, all paled to the recent images and videos of various employees not working when they should be – sleeping, grabbing coffee, or just plain being rude. Capping this is the fact that Adam Giambrone, the current chair of the TTC, is running for mayor in the 2010 elections.

Sleeping TTC Collector

The picture that triggered the controversy

In reality, not every employee of the TTC is rude or incompetent. In fact, most are pleasant and do their jobs well. Having been a rider for many years, however, I can relate to all the incidents reported in the news, and can think of my own stories of gross incompetence by a TTC employee. As a result, hearing about recorded incidents of such incompetence strikes a chord with me and other riders, who immediately sympathize with the rider who took the picture.

There are, as a result, many lessons to be learned from what is happening now with the TTC, which is the point of this article.

First Response

When an incident affecting the public perception of a company occurs, it is necessary to provide a response to the public in order to limit the potential harm that can occur as a result of the incident. Here’s what the TTC had to say about the sleeping collector agent:

ATU 113 Statement on picture of TTC Collector

TORONTO, Jan. 22 /CNW/ – The following statement is issued by Bob Kinnear, President of ATU Local 113, which represents Operating and Maintenance employees of the Toronto Transit Commission:

There have been many media enquires about a picture taken at 10:00 p.m. on January 9 of a TTC Collector described as “sleeping” in the booth. The TTC is conducting an enquiry on this and until this is completed the union will have no comment on the matter except this:

Whatever the outcome of the enquiry, it is very discouraging that the picture taker and, apparently, other customers, made no attempt to determine if there was anything wrong with this TTC employee. A simple knock on the glass might have determined if the Collector was, in fact, asleep, or whether he was unconscious as a result of some medical problem. The reports that passengers were laughing at him as they passed by the booth makes this even more disturbing.

The union will comment further at an appropriate time.

This response is problematic for several reasons – it places blame on the public for the actions of its own employees, and makes assumptions that no one did, in fact, try to wake the sleeping agent. I don’t know whether or not anyone did, but the first statement released should have started with something more along the lines of:

Sleeping on the job is not considered to be acceptable by the TTC except in extenuating circumstances. We are investigating the incident, and will keep the public notified of our progress.

What this statement does is not accept fault for what happened, but explain that if the story is in fact as described by the rider, action will be taken accordingly. This is the first part of response to an incident – making assurances about the internal policies regarding the behavior triggering the incident, and indicate that the incident is being investigated. Placing blame before the investigation is complete is unacceptable (in either direction).

Second Response

Within a little while, perhaps as a result of the bungled handling of the first incident, a video of a driver taking a 7 minute break during his bus route for use of the washroom and to get a coffee was posted on YouTube. This was quickly followed by several more videos and pictures of similar incidents.

This time, the response from the TTC was better:

A TTC bus operator has been suspended pending an investigation into the circumstances surrounding a video purportedly recording the operator taking a seven-minute washroom break and buying a coffee at a doughnut shop at 3:00 a.m. last Friday. As the matter is under investigation, Local 113 of the Amalgamated Transit Union will not be commenting on this incident or on any other matters that may bear on it.

Here, the action is directed against the employee. Granted, in this case, the driver in question was reported to have been verbally abusive to the rider, as well as allegedly making statements that the union would protect him. However, the union was learning from the first incident to not comment at length until more information is available.

Had this been the response to the first incident, perhaps there would not have been the level of public outrage, and perhaps the second incident would never have gained the level of attention that it saw.

Chain Reactions

The problem currently facing the TTC is actually quite difficult. While understanding what led to the current scenario is simple (a bungled first response followed by a second incident before the tumult over the first had died down), figuring out what to do now is much more difficult. This is the problem with chain reactions – once it has been started, breaking the chain is quite difficult.

This is the age of information freedom and social media. You need to act, not react, and you need to relate to the masses, not inform them. People expect interaction, not information. When something gets out of hand like this, you need to rein in control and start working to resolve the problem without letting it get worse in the process.

In the specific example covered in this article, the first thing to do is to make a very public announcement about a zero tolerance policy – if future incidents are reported, they will be dealt with immediately and severely. While this isn’t to mean that it’s blanket approval for a witch hunt, it needs to tell the employees that while discipline may have been lax in the past, it will no longer continue that way, and the union will not be able to protect them any longer from the result of gross misconduct.

Next, they need to look to the reactions to determine the root causes of the negative publicity. Fare hikes during the worst recession in decades is obviously an unpopular move, but if the result was better service, it might have been overlooked (not likely, but it’s possible there would have been less negative feedback). As such, they need to listen to the feedback and try to find some ways of visibly improving services.

The Lesson

What can be taken from all this is that when the public is against you, it’s more important to look at the source cause of the problem, rather than deal with the various symptoms as they appear. Failure to do so can result in the appearance of additional symptoms faster than you can deal with them, and get the public completely against anything you have to say, whether justified or not.

Lights are on in Dragons' Den

This week on Dragons’ Den on CBC the deals returned to normal – entrepreneur comes on the show, demonstrates his product, and leaves with a deal. Or perhaps, it wasn’t quite that simple.

Lightbulb in Pina Colada

Courtesy of WarriorWriter on Flickr.com

Robert Simoneau of Saint Laurent, Quebec, came on the show representing his company, Posilight. His company has developed a product which, if not completely innovative in nature, has an interesting application. They manufacture light bulbs for refrigerators in stores which use a large number of LED lights to provide directed light with higher energy efficiency. He had, at the time of the show, secured trial runs in two large grocery stores.

He was asking for $75,000 for a 10% stake in his company. Jim Treliving, thinking of his company Boston Pizza, commented that merely using the efficient lighting in his stores could recover the full investment in a single year. Robert Herjavec, though, couldn’t get excited about a light bulb, and bowed out.

Kevin O’Leary, acting typically aggressive, tossed an offer on the table. Trading equity for royalty, Kevin offered to invest for an 11.5% royalty until the investment was paid back, reducing to 5% thereafter. In addition, there would be 1% equity. Jim quickly offered to join him, followed by Brett Wilson.

With three of the Dragons in on the deal, Robert Simoneau tried to get Robert and Arlene Dickinson to join the deal. However, Robert was not interested. Arlene, however, decided that this would pose an interesting marketing challenge, and liked the idea in general, and so she tossed her hat into the ring. That put 4 dragons together on a deal which was rapidly accepted.

What’s interesting about this deal is the nature of the product that caught the interest of 4 dragons. The product doesn’t have to be exciting. It doesn’t have to be a market leader. It just has to strike the right chord with the investors. Having solid numbers behind you when presenting make it easier to seal the deal.

Business is Business – Take it Personally

To anyone who thinks that I am referring to something they said or did, be aware that the incident triggering this article did not, in fact, involve me in any way. A story was told to me in which some of the topics in this article were brought up, and I therefore decided to write this.

It’s been a crazy week, and not just for me, but for many of the people with whom I have contact with on a daily basis. One of the common themes of this week made me think of a saying: Business is business.

Business is Business

Courtesy of T-KONI on Flickr.com

I suppose what that saying is to be interpreted as is that when it comes to business, it’s not about the people involved. What matters is the context and the content – the participants, however, can be swapped around without any implications (okay, maybe not, but you get the point). We’re told not to take such things personally – it’s about business.

In reality, few people can actually deal with business this way. At some level, there is still personality involved – and there needs to be. A motivated and driven person will interact differently than someone complacent. If you compare two such people in similar situations (professional of course) you will see them act differently. The personality of the people involved is what makes and breaks deals.

What this also means is that what is said in a professional environment will ultimately be taken personally. Whether that impacts the context is not relevant – regardless, it has had an effect on the two (or more) people involved and their ability to interact.

For this reason, it is crucial that despite the saying that business is business, one needs to be cognizant of the potential ramifications of the things they say, and how they might be perceived by someone else. This is the reason that we are also told to act like professionals – always be polite (even, or especially, when we don’t want to), always stick to the subject at hand (even if the person did talk about you at the water cooler last week), always give the benefit of the doubt.

Site Review: Alltop

I recently had my site added to Small Business on Alltop (scroll down to the bottom – I’m not the last site on the page, but close). This got me thinking about the concept of the site itself, and what it represents.

Alltop, all the top stories

First, for those of you who don’t already know, Alltop is essentially an online magazine rack that displays the latest 5 posts from each magazine (a.k.a. website or blog) in the selection. Those sites are organized by category, and there are thousands available to choose from. You can make a custom page that includes those sites that you’re interested in from the selection available, so that you don’t have to keep searching for them.

In some sense, you might call Alltop a big RSS reader with twist – each feed has been manually reviewed to ensure that it fits within the scope of the site. Yes, you could build your own, and it might not even be that hard – but Alltop is already there, someone else’ responsibility to keep it working, and works really well!

What’s the revenue model? It’s actually quite simple – advertising. Alltop is ranked just over 2,700 according to Alexa globally, so they have more than enough traffic to make this a viable model. There are over 750 topics, each with its own page with available advertising. On the Small Business page, for example, there are 2 large advertising blocks currently populated. A quick look at their advertising page reveals that they accept two sizes of ads, but no pricing information.

Unfortunately, at the moment you’re limited to seeing sites that have been already approved for Alltop in your personalized page. However, you can always submit another site for consideration, and the current selection is quite diverse.

The one other feature that seems to be missing is the ability to search for a particular site. For example, despite the fact that the title of my blog is listed as “Elie Kochman on Business and Networking”, searching for Elie does not turn up any results.

All in all, a great website, with a couple of additional features that may eventually make their way into the site.

Avoiding Layoffs at All Times

I was reading an interesting pair of articles on CNN (here and here) regarding 15 companies which have, despite poor economic conditions, managed to avoid laying off any members of their workforce. The stories were varied from one another, but there were still some common ideas behind all 15 companies.

You're fired!What struck me as being most interesting about these companies was the fact that it was recognized that a company’s most valuable assets are not any hardware or equipment it may own, but the people who work there every day. For that reason, these companies have looked to cut expenses in areas other than headcount.

The result of this is increased loyalty – in one case (NuStar Energy) employees showed up to work the day after a hurricane wreaked havoc on their city, destroying the homes of some employees. The employees are loyal to their employers, and will therefore go to greater extremes to help the business survive.

Investing in your employees is the only way to gain permanent loyalty. No, you don’t need to pay them more (another company froze merit-based pay increases for 6 months and still made the list of 15). But you do need to demonstrate that keeping the employees productive is important.

Another example is Mercedes – the car manufacturer’s CEO and executive team (28 people) took a salary reduction in order to avoid layoffs. This was following other reductions to costs, resulting in a stronger company in which the employees are loyal to the company, and costs have been brought under control.

What these companies demonstrate is that even in tough times, it is not necessary to reduce headcount in order to survive. Other costs can be reduced, employees can have their workloads redefined to make them more productive to the bottom line. When the economy rises, the companies that managed to maintain the loyalty of their employees will find themselves much better positioned to grow in the new economy.

Collecting Accounts Receivable

A while back, I wrote an article about Managing Accounts Receivable, focusing on management from the perspective of growth of a business. In today’s article, I’m going to discuss collections and getting paid for the work you’ve done.

In order to give yourself the best possible chance of being able to collect, you need to ensure that you have a clearly worded contract, in which it is outlined what you are to deliver to the client, the amount to be paid by the client, and how and when that money is due. In case of dispute, such a document will play a crucial role in determining whether or not you can collect your money.

Collecting moneyAssuming you have such a document, and the client is not making the proper payments, you should attempt to open communication by asking the client, politely, why the payments have not been made.

It may be an honest error (in one case, the client had assumed an invoice I sent him had been copied to his bookkeeper, when in fact it hadn’t been). In that case, the question regarding payment can be quickly resolved.

It might be an issue of timing – the client was deferring payment for cash flow reasons, and had forgotten to inform me that the payment would be late.

It could be related to cash flow and ability to pay – the client might not have the funds to pay the invoice, and is embarrassed to discuss it. In that case, by opening conversation, you can work out an alternate payment schedule to ensure you get paid.

Last, it could be that the client has no intention of paying. If this is the case, regardless of the reason, you need to look to other options other than merely talking to the client. (You also need to get rid of the client – read my article Firing Customers for more information on that topic.)

First, you can choose to write off the money owed as a loss. While this doesn’t regain any of your money, it does keep you from having to pay taxes on that money, which at least keeps you ahead of any future expenses on that particular account.

Second, you can hand over the funds to a collections agency. The cost here is usually a percentage of the money recouped by the agency, often as high as 50% of the money paid. Going this route is often not worthwhile to small businesses, as it generates very negative views of your business in the eyes of potential clients.

Third, you can sue the client. Here in Ontario, if it’s a relatively small amount (as of this writing, the maximum is $25,000), then you can sue them in Small Claims Court, and you don’t need a lawyer. In this case, you may be given the option of seizing the assets of the client to pay for the amount owed. However, the amount of effort involved is significant, although the direct cost is not, since the client may be ordered to pay the court expenses if you win the case.

Whatever option you choose, and each case needs to be handled on its own, you need to remember to always act professionally, and to assume that every document and e-mail that you handle may end up one day in court. If you treat the client with respect, and give them alternatives to defaulting on payment, you may find it easier to get your invoices paid.