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Streaming Killed The Video Star

Netflix LogoIn 1981, MTV famously launched itself by playing the Buggles video “Video Killed The Radio Star”. While this prediction didn’t come true, radio’s influence in the music business was certainly diminished. MTV had come up with a new business model that disrupted radio’s dominance. The record industry would face an even more disruptive force as Napster and the mp3 brought file sharing the to the masses. Apple’s suggestion that we “Rip. Mix. Burn.” and carry “1,000 songs in your pocket” brought a new business model to the music business. Record companies have yet to fully adapt.

Surprisingly, other areas of the entertainment and media businesses have been slow to learn from this experience. Netflix started offering its DVD by mail subscription service in 1999. Apple starting selling movies through iTunes in 2006 and Netflix Instant Watching launched in 2007. Fast forward to last month when Blockbuster entered bankruptcy protection in the United States. With all of this recent history to learn from, why didn’t Blockbuster buy Netflix for $50 million when it had the chance? Why did it keep opening costly stores when it could see the landscape changing?

I think this has a couple of lessons for entrepreneurs. First of all, your business model is not safe. It might not be technology or the internet that makes it irrelevant. It could be lower priced labour in China. It’s not good enough to react to things after they have happened. Blockbuster tried to start a DVD by mail service to compete with Netflix. It was too late. Entrepreneurs have to be alert and proactively respond to a changing environment. Business owners don’t have to be paranoid about what the competition is doing but they have to at least notice the storm clouds on the horizon. Be ready to make changes to your business model if the situation warrants it.

David can slay Goliath. Many large corporations don’t see change coming and if they do, they cannot move fast enough to take advantage of it. Blockbuster was saddled with rent on 4,000 physical stores, which led to year after year of billion dollar losses. By the time they saw the writing on the wall, they couldn’t change fast enough to stave off bankruptcy. Blockbuster once accounted for 40% of movie studios’ revenues and an upstart like Netflix has managed to out manoeuvre it.

What will be next? Indigo continues to build new bookstores while digital books come on strong. Cable and satellite companies continue to force packages of channels on their customers while Apple, Google, and Netflix offer à la carte services. Upstarts like Roku are getting in on the action by offering hardware to deliver this content. A startup can succeed against a entrenched competitor if it offers a unique value proposition.

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Watch out for venture financing scammers

We’ve all had the emails. Either a Nigerian prince wants to send you money or a British relative has died and willed their fortune to you. All you need to do is send a small amount of money as a sign of good faith and your fortune will be delivered in a few days. It doesn’t take too much brainpower to know that these are scams. In the world of venture financing, these scams exist and are quite a bit more sophisticated. This blog is about how criminals try to separate you from your hard-earned money and what you can do to protect yourself.

Springfield was talked into a monorail by Lyle Lanley. Scammers bank on you not being any smarter than Homer Simpson.

Entrepreneurs can be especially vulnerable to these criminals because they lack fundraising experience. The criminals take advantage of entrepreneur intelligence in other areas. One scam had a relatively low fee (about $16,000) for an incredible amount of financing ($100 million). An entrepreneur versed in statistics could determine that it only has to have a 0.016% chance of being real to be worth the gamble. This is exactly what the criminal wants you to think. Plus, once you write the first cheque, expect delays and other fees to pop up.
These criminals hate when you get advice from professionals. When confronted with this, these scammers start talking about “state-of-the-art” financing techniques and barrage you with made up buzzwords. By doing this they are trying to discredit your expert. They want you to believe them instead of your expert. When I sat in on one of these conference calls, the scammer used an analogy of his high net worth mystery benefactor was like my rich uncle, lending me money so I could buy a car. His analogy broke down when I asked what was in it for the rich uncle.
The following are some tactics used by these scammers:

  • These schemes rely on getting you into a hasty decision. They will have very tight timelines, forcing you to a decision before you have thought about it.
  • They will try to make you feel stupid for doubting them. They use terms like “I don’t want you to miss out on this opportunity of a lifetime.”
  • They don’t have any information available, like a client list, a functioning website (they might have one “under construction”), or an office with a street address.
  • They don’t state how they get paid or how the other parties in the transaction benefit.
  • They focus on the one person in the organization that can authorize payment, yet doesn’t have the experience in detecting the scam.
  • If they feel they are close to closing a deal, they will barrage you with phone calls and emails.
  • They will never meet with you in person.

If a shady character using these techniques has approached you, don’t agree to pay them for anything. Ask for a client list. If you suspect criminal activity, report them to law enforcement. The RCMP and FBI websites have more tips on detecting scams and information on how to report them. Just don’t let them pressure you into a hasty decision.


WestJet’s Competitive Advantage

Carrying on from last week’s blog “Finding Your Competitive Advantage,” this week we look at how WestJet found success by finding its niche in the airline industry.

WestJet is a unique case because it was able to position itself as a company that offered both lower prices and better service than its competitors. That’s something many businesses would like to accomplish but easier said than done. Back in 1996, West Jet took a look at its main competition, namely Air Canada, and found a segment in its market that wasn’t being served adequately by the airline industry. This reflects the importance of knowing your target market and understanding customer “pain” points. West Jet identified this segment as families that travelled with children by a vehicle. This segment was not prepared to pay more than $200 an individual to reduce travelling time. But given an option of flying for less than $100, WestJet realized that these travelers would choose to fly at these prices to reduce the “pain” of driving long distances. But it wasn’t as simple as saying that reducing prices would translate into business success. WestJet’s financial analysis indicated that they would be able to generate a profit at these prices but only if costs were controlled and the company would have to start small. In order to control costs, the company decided to invest in one type of aircraft to serve main cities in Canada instead of investing in different models of aircrafts needed to reach all cities and communities. Although this reduced the size of their target market, it reduced WestJet’s costs and, as a result, they were able to offer lower prices than their competitors. WestJet also decided to formulate a superior customer service plan. They had noticed that the competition did not have great customer service and this was an area that could be improved on. So, in short, that was the company’s plan. Reduce rates and increase customer satisfaction.

At that time WestJet didn’t know whether their business plan would translate into success. We all know WestJet succeeded in its venture but it doesn’t seem like they did anything special. They lowered prices and increased customer service. Sounds simple, right? But back in 1996 they were the only company to realize that the “family segment” was an unserved market in the airline industry. They realized an unmet need and developed a model to serve this need.  They studied their competition and realized that there was room for customer service improvement. They found a niche position in the airline industry and developed a model that would allow sufficient margin for profits. There was a lot of planning involved before the venture began and, as a result, WestJet uncovered a great opportunity. So before you go out and declare lower prices and promise to increase customer satisfaction, remember, take the time to research and understand your target market and competition. It will help you decide how to position yourself in the marketplace and develop the right business model. Good luck in finding your edge!

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When is the right time to go for funding?

When starting a business, a common problem is a lack of cash. In fact, many of our clients believe simply having enough funding would solve their problems. While it can be partially true, this kind of thinking can be disastrous for a startup. Here’s why.
What lenders and investors look for
When assessing lending or investment opportunities, different groups have different decision criteria. They all, however, require a strong chance at recovering their investment. For this, each opportunity must satisfy for the lender or investor:

  • There is a compelling market opportunity.
  • The entrepreneur has a plan in place to exploit the opportunity.
  • The plan is realistic and thoroughly vetted.
  • The management team is the right one for the business. It has the skills, drive and experience to make the business successful.

Even if the rest of the application is great, any one of those requirements can kill funding. Notice that nowhere in these requirements is a mention of the entrepreneur’s need to buy groceries or pay rent. If you appeal to anybody except family, friends or fools based on economic need, you will come up empty. If that’s not bad enough, it gets worse.

If funding applications were a matter of filling out some forms and getting an answer in the mail, it wouldn’t be too bad to apply for funding before you are ready. The reality is funding applications are completed by people and these people make judgments and talk to each other. Think of applying for funding as offering to bake a cake with the lender’s flour, eggs, sugar and flavouring. Nobody is going to want to pay for a bunch of ingredients mixed together that doesn’t resemble a cake. Plus, all it takes is one bad application for your reputation as a bad investment (chef) to be made.

If this was the cake you paid for, you'd fire your chef. But by prematurly applying for funding, you are trying to pass off eggs and flour as cake.

Another bad outcome of premature fundraising is it is extremely difficult to hide your desperation. If you do get funding, the terms will be bad enough that you will regret agreeing to them.

Applying for funding too early can be like dealing with this guy.

So what should you do? The friends, family and fools route can give you a bit of breathing room while you develop your business. Find alternative financing through odd jobs, savings and equity. In addition, do more with less. Think of how to develop the business without funding. The more progress you can make before you seek funding, the more valuable your business will be.
Finally, before you apply for funding, pitch your proposal to trusted friends or associates. This includes sharing your business plan with them. This outside perspective can alert you to blind spots that every entrepreneur is susceptible to. You need somebody that will give you straight answers, not just praise. This should allow you to put your best foot forward in your search for funding.


Finding Your Competitive Advantage

Before investing in a business, one of the most important things to identify is your competitive advantage. Answer the question “why would customers choose your product/service over competitor offerings?” What makes you stand out from the competition? I’ve found that not enough thought goes into what a company’s real competitive advantage is and many companies are actually operating without one.

Think about your business. What is your competitive advantage? To determine the answer you first need to identify your target market, your competition and yourself.  The following provides a list of questions to help get you started.

Target Market: Its important to understand your market and how you plan to approach customers. Ask yourself the following.

  • What market segment are you targeting and why?
  • Who are your customers and why would they choose your product/service?
  • What are your customer demographics?
  • Where are your customers located?
  • What are your customer purchasing habits and buying trends?
  • What customer needs are being fulfilled by your business? What are your customer needs?
  • How often do customers purchase your product/service (daily, weekly, monthly, etc.)?
  • What marketing tools will you need to advertise to these customers?

Competition: Understanding your competition is key. Learn from their mistakes, what they do well and how you can differentiate yourself from them. List companies trying to do the same things as you and identify the following about your competitors.

  • What is their business model?
  • Who are their customers?
  • What are their strengths and weaknesses?
  • How strong is their brand?
  • How well are they performing? (profit margins, revenues, expenses, etc.)
  • Would you purchase their product/service? Why or why not?
  • What is their competitive advantage?
  • What competitor would you model yourself after and why?

Yourself: You need to understand your own business offerings and the things that make your company unique. Answer the following.

  • What are your strengths and weaknesses?
  • What is your business model?
  • What are your company goals and objectives?
  • What product/service are you offering and why?
  • What makes your product/service different?
  • Why do you think you can compete successfully?

These questions will help you determine your competitive advantage or whether you need to rethink your business model. Often, you realize that the things you thought were unique to your company are not really unique. The most common things we hear are “my company offers the best service, our prices are the lowest, or our quality is superior.” But how can every company truly claim this? A lot of businesses think they have a competitive advantage but can’t support it after some research. Take a closer look at your business and answer the questions above. You might just be competing head-to-head with your competition without a real strategy.

Next week we’ll take a look at how West Jet established a competitive advantage in the airline industry.


Our Experience With 99 Designs

The website 99 Designs allows people to post design requests for logos, print, stationary, and websites. Designers then submit their designs to a contest where the purchaser picks a winner and pays them a fee. This blog post is about our recent experience with a design project we posted on this service.

We posted a design brief to have a logo designed for another project we are working on. A design brief is a one page description of what the purchaser is looking for. It is possible to upload files to provide examples, but instead we provided links to websites that had an appealing design.

The following is a summary of our costs for the project:

Design Contest Listing Fee $39.00
Prize Money for Winning Designer $310.00
Prize Handling Fee $46.00
Upgrade: Promote project to designers external to 99designs $19.00
Upgrade: Private Project $39.00
Total $453.00

Entries came in slowly at the beginning. To encourage more submissions we increased the prize and guaranteed payment. This meant that we would pay  out the prize whether we picked a winner or not. If we didn’t pick a winner, the money would be split among all entrants.

Prize Money for Winning Designer $90.00
Prize Handling Fee $13.00
Total $103.00

In total we paid $400.00 to the winning designer and $156.00 to 99 Designs. There were other options available but $99 for a tweet to 99 Designs’ followers seemed a bit rich to us.

We received 99 design submissions, but about 50 of them were unique. Some designers would submit 4 or 5 versions of a design, often with just a colour change to distinguish them. Of the 50 that were unique, some of these were just derivatives of designs that had already been posted. We had no difficulty narrowing the contest down to the final 8 designs that we had our friends vote on. It was easy to eliminate about 50% of the designs because they were laughably bad. The remainder were eliminated because they didn’t match up well with the brand image we were trying to create.

The site offers a feature where people can be invited by email to vote on up to 8 designs. People voting in the poll can’t see existing votes so the influence of the other participants is eliminated.

Other components of the site are not as well designed. The site doesn’t do a good job of explaining how the service works and what the guidelines are. This should be part of the sign up process but instead we had to go digging through the help section to find out the basics. Communication with the designers could be made better. There is central stream where all of our comments were posted along with a few comments by contest participants. Later on, we found comments from designers that did not show up in the main stream and some of our own comments had disappeared.

If we were to hold another design contest we would make the contest blind so that designers could not see the submissions of other designers. I think this would cut down on the amount derivative work we saw. Unfortunately, this option is not available to people using the service for the first time.

There are a few caveats to using this service. You are responsible for making sure that the winning design is not ripping off someone else’s trademark. 99 Designs will only take down designs it gets complaints about. There is also a concern about whether asking designers to do “spec work” is ethical. This is a big issue in the design community which would take its own blog post to throughly explore.

Overall, this is a valuable service but it is not as easy to use as its marketing might suggest. Professionally trained designers would make up the minority of the community that submits designs to the site. It’s important to go into a contest well educated because you won’t be getting the professional advice a design firm would provide.


Some Tips For Successful SDTC Applications

The Federal Government’s Sustainable Development Technology Canada (SDTC) Tech Fund is designed to help technology developers get funding in the hard to finance pre-commercialization phase. This $550 million fund supports technology supporting “products and processes that contribute to clean air, clean water and clean land, that address climate change and improve the productivity and the global competitiveness of the Canadian industry.” The program doesn’t require repayment and the Government doesn’t take ownership of the intellectual property or an equity position in the company. In addition, they promote the companies they invest in. On the surface, this seems like an ideal program. However, it isn’t for everyone. Before you invest significant time and effort, here are a few things to consider.

The Tech Fund requires joint submissions between firms or with research or educational institutions. If you have developed your technology in-house, you have to balance the value of this funding with the requirement to join in a collaborative arrangement.
In their vetting process, the SDTC review panelists assess the business feasibility and the technical feasibility of proposed technology. They will ask specific questions of how your technology works. In addition, you are not allowed to know the identity of these panel members. SDTC gives assurances that all information is kept confidential, but you have no way of knowing that your information is secure.
This funding doesn’t require payback, but could build some cost into your startup. The biggest issue is the time required to qualify for and receive funding. It takes several months to get through the process and this can slow down your commercialization efforts.

The target area for the SDTC Tech Fund

If the funding potential outweighs these issues, you should proceed with the application. Here are some things to keep in mind as you work your way through the process.
Because this is “free money,” there is lots of interest and therefore lots of competition for this funding. The SDTC representatives advise that this funding application is like fundraising in the private sector. The first stage has a straightforward template to complete but the next rounds require significant business and technical expertise. Assemble your team or hire your resources before you start. Approach this fundraising just like as if you are contacting VC firms.
The SDTC Tech Fund managers are looking for the best bang for the buck they can get. Instead of return on investment, the return they are looking for includes cleaner air, soil and water as well as economic activity in Canada. They also earmark parts of the fund for different goals, like biofuels. Be sure to state all of the environmental benefits your technology can support. It will give you a greater chance of being funded.
For the right companies, the SDTC Tech Fund can provide funding to get them to the next level. If you think your company is a fit for this, you should apply. Keep in mind the caveats stated above. It can be good practice for your company when you raise funding for commercialization. Remember, this is a long process and can be grueling. Make sure you assign the time and resources to give yourself the best chance for success. The deadline for the next round of submissions is October 10. For more information contact SDTC.


What’s Better, Infallible or Successful?

While working with a client recently, an interesting issue arose. While generating reports, I was given specific instructions on what information was to be shared. More to the point, I was told what was not to be shared. The concern was the information would cast some people in a poor light. In other words, the reputations of these individuals were put before their performance. This dynamic is the enemy of real progress and can be fatal. It harkens back to a bygone era where information was scarce and those who controlled its flow wielded great power. It comes from the wrong belief that the way to become successful is to be infallible. This means always being right and never changing viewpoints. We hold our politicians to this standard, and as a result, we get governance by ideology instead of common sense.

Not a typical mission statement, is it?

This infallibility myth is borne of the era of confrontational work environments, where any mistake or mishap is perceived as a result of weakness of intellect or character. Large companies dealing with organized labour provide many examples of this. When unexpected things occur, the standard reaction is to find and punish the guilty party. This kills innovation because the pain of failure outweighs the good feelings of breakthroughs. A former coworker of mine aptly described this as “A kick in the ass is worth the same as 10 pats on the back.”
When we look at the world of science and technology, we see improvements faster than most of us can keep up with. Scientific discovery doesn’t seem to be impeded by information hoarding or protecting reputations. Why is that? Why does science succeed where many organizations stagnate and fail?

Want progress? Act like these guys.

I could go into a dissertation on the wonders of Six Sigma, Lean and Theory of Constraints, but instead I will point to one of the best shows on TV, Mythbusters. Each week, Adam, Jamie and the build crew test myths from movies, TV, the Internet and popular culture. When they take on a myth, they always state beforehand what they think the result will be. They then build experiments to test the myth. The interesting thing here is they are only right about 50% of the time. Even more telling is how genuinely happy they are when proven wrong. As Adam often says “We have a result.” To me, this shows where science succeeds where many organizations fail.

Without scientific discovery, we wouldn't have computers as nice as this.

So how can you make use of this great advantage? First, check how susceptible your organization is to the infallibility myth.

  • When an unexpected event occurs, is the first reaction of your people one of covering their tracks?
  • Is your workplace unofficial motto “Nobody moves, nobody get’s hurt?”
  • Is your product or service offering essentially unchanged over several years?
  • Does your customer service scorecard measure only complaints and defects?
  • Are new ideas treated with skepticism or derision?

If you answer yes to one or more of these questions, you may have an infallibility myth problem. This is a deep-seated cultural problem and won’t change overnight. The best way to crack the ice is to stop acting infallible. If one of your ideas blows up in your face, admit to it. More importantly, try to find the lesson in the failure. In addition, deal with mishaps with your employees as failures of the system, instead of personal failures. Finally, look for the upside in these events. You may stumble upon the next big thing for your organization.


Managing the Construction of Your New Home

So you’re building a new house and decide to manage the project yourself instead of going through a builder. The downside is the risk of hiring bad contractors and the time investment required to manage the project. However, the benefits are great as well. You drastically cut builder costs and can potentially build a better home designed specifically for you and your family. Here are some tips for successfully managing the construction of your new home.

Plan and prepare: Outline the entire project before you begin. Determine who will be involved in the project, estimated costs, and at what stage and time contractors will be needed. If you’re new to building you probably won’t know details of the construction process but its not complicated. Ask around and talk to people you know with more experience. Your local development office may also help you find information on how to get started.

Hire a good architect: Your first task will be to get professional blueprints developed. Don’t underestimate the importance of a good architect. Your entire house will be built according to these blueprints so take this process seriously. Good architects are generally more expensive but they are worth the extra cost and can save you trouble down the road. I’ve learnt that experienced architects pay attention to details and cover every aspect of the house so you run into less “last minute” changes or decisions to make. Seasoned architects will also give you tips to avoid costly mistakes. Keep in mind that architects have different styles so its important to speak a few of them to find someone that better suits your specific needs. And remember, don’t settle for someone just because of pricing. The amount of money you save will be minor relative to the total cost of the finished house. It’s an investment worth making.

Shop around: Before you hire a contractor for a specific trade, make sure that you “interview” a few different people. It’s important to do this for several reasons. (1)You get a range of quotes to better assess what the fair market rate is. (2)You have a better chance to find someone you think you can work with. (3)You have more flexibility in hiring someone who is available according to your schedule. (4) You have more negotiating power. (5) You learn different things from each contractor.

Don’t pay upfront: From my experience, never pay the full fee upfront. Infact, most contractors I’ve work with will arrange payments according to how much work is completed so no upfront payment is required. Pay in stages and always holdback payment until the job is 100% complete. Talk to a few different contractors and you’ll figure out a payment method that is fair for both sides.

Treat your contractors well: Bring them coffee, learn from them and most importantly pay them on time. If you expect a job to get done well and on time, then remember to return the professionalism and make timely payments as well.

Mistakes happen, don’t freak out: It’s like any other business, even the best of contractors make mistakes. The important thing is too ensure that the contractor corrects the mistake. That’s why it important to holdback payments.

Be organized: Once the project begins, its pertinent to be organized to ensure your project goes as smoothly as possible. You need to be able to juggle contractor schedules with supplier availabilities at each stage of construction while dealing with unexpected time delays. Allow yourself room for error. Talk to your suppliers and order materials a couple days in advance to ensure your contractor has what they need to do their job. Keep the lines of communication open with your suppliers and contractors. From the supplier side, you’ll need to know what lead-times are for material availability and deliveries. On the contractor side, you’ll need to find out contractor availabilities, what stage they can begin and what materials they will need. Your schedule won’t always workout as planned, but if you’re organized you can avoid lengthy delays and keep thing going at a steady pace.

Managing any project can be tough and building a house is no exception. Just remember to organize, plan and prepare. I hope these tips help. Good luck and happy building!


Some advice for new MBA Students

Last week I was asked to address the incoming MBA class at the Edwards School of Business at the University of Saskatchewan. I was one of the speakers along with Peter MacKinnon, President of the University of Saskatchewan and Daphne Taras, the new Dean of the Edwards School of Business. While their comments were welcoming to the program, mine were more of sharing experience. I think that these tips are applicable to anybody entering into a business program. These tips are a result of my own experience as well as several of my classmates.

A candid photo of me at convocation.

The MBA is different from your undergrad degree
Many undergrad degrees have a structured learning model where the instructor lectures and the students listen and ask some questions. Assignments, term papers and exams entail the actions and measures of learning. MBA programs are much more interactive, where you do the reading and then actively engage in the discussion. Case studies are used extensively in the MBA.
Another adjustment needed for many comes in the depth versus breadth of information. Students from science backgrounds have a hard time with this because they are used to being world-renowned experts in their narrow field. Managers are always faced with decisions with less than perfect information. Learning to do this well should be a major goal of any MBA student.
You are now a business manager
Some students wait until they get a few classes down to start thinking like a business manager. Why wait? The more practice you get, the better you will become.
The MBA is your laboratory
An academic environment is the best place to try new ideas and see what works. It is ideal because your primary objective at school is to learn. The best part about this is nobody dies, nobody goes broke and nobody gets fired.
Don’t over compete for school awards
Every program has student awards that are given out at the end of the year. Regardless of the prestige of these awards, nobody outside the program cares about them. It’s fine to work hard to be worthy of the award, but you shouldn’t resort to tactics that will set you at odds with other students. Tony Hsieh didn’t care who won the awards at Harvard, but he did care who he could work with. Remember, the person you are competing with today could be your business partner tomorrow.
Share your experience and teach what you know
Any good manager knows that in order to be successful, you need to be able to lead people. Leaders teach. Regardless of the size of the school you attend, you will know more about some topics than the instructors and your classmates. Share this information freely. Your classmates benefit from your experience and you benefit from being seen as somebody with knowledge and the ability to communicate.
Networking is as important as the work you do
With very few exceptions, a MBA degree from your chosen school does not guarantee employment at your dream job. If you are the ideal candidate for your dream job, it doesn’t matter if your employer has never heard of you. This can be hard work for introverts, but it pays huge rewards.
If you are only doing this for the letters behind your name, don’t bother
I phrased this last tip as a “dirty secret.” It means that it is possible to get by doing the minimum to get the diploma. This is a terrible strategy that should only be pursued with an online degree, where nobody will have to work with you. The reasons why this is a bad strategy:

  • Your reputation with the faculty and students will take a beating.
  • As a graduate, you carry the reputation of the school with you. A graduate with no skills reflects badly on all alumni.
  • You are already investing a lot of time, money and effort into this. Your family also pays for this in your reduced time and possible reduced family income. You owe it to them and yourself to get the most out of the program that you can.

Other than these tips, I recommend that you find a good coffee shop nearby and to have fun. Best of luck in school!

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