Paul Wallbank – Brilliant Communications

Author: Paul Wallbank

  • The Rumsfeldian business plan

    The Rumsfeldian business plan

    There are known knowns; there are things we know we know.
    We also know there are known unknowns; that is to say we know there are some things we do not know.
    But there are also unknown unknowns – the ones we don’t know we don’t know.

    – Former US Defense Secretary Donald Rumsfeld

    For business owners, the “unknown unknown” is always lurking – the risk of being caught by something we couldn’t see coming is one of the reasons investors and business owners accept higher returns than putting their money on deposit with a bank or taking a safe clerical job at the same financial institution.

    Being able to respond quickly to the unexpected is an important factor in a business’ survival and that flexibility is what gives the small, lean enterprise the advantage over big corporations that can’t move rapidly in the face of change.

    One of those “unknown unknowns” are changes to the market, the story Groupon is a great example where the owners of an older failing business decided the “group buying” model was a market worth trying.

    This is what we should understand when writing a business plan, that there are “known knowns” such as rent, “known unknowns” such as customer demand and “unknown unknowns” such as market changes, recessions and natural disasters.

    “Known unknowns” are always an interesting group as we tend to assume when doing the sums on a new business idea that there is a level of demand and all costs are immediately identified. Often, once we’ve set the business up we find that we’ve miscalculated our costs and sales, sometimes happily and often not.

    This is why it’s not worth spending too much time diving into detail on a business plan as all of us almost certainly will get the numbers wrong due to the “unknowns” in the equation.

    Those “unkowns” often bite us in other ways as well in that what we think we know turns out to be an “unknown”, often we overestimate our own abilities which turns what should be a manageable “known unknown” into a high risk “unknown unknown”.

    When choosing a business partner, it’s worthwhile noting what they know about themselves – if your future business partner doesn’t know they are knucklehead at marketing or accounting while being a star salesman or programmer, then all your trying to convince them that you should hire in a marketer or accountant and let them focus on their strengths will fall on deaf ears and your partnership is probably doomed unless your strength is being a diplomat.

    Having an idea of what is unknown is a great strength in business, it allows you to properly evaluate risk and be flexible in face of the unexpected. Of course, knowing the “unknown unknowns” such as sports results and share movements is the whole reason match fixing and insider trading is so lucrative.

    Risk, and the reward for taking it, is the basis on which a capitalist economy is built. We shouldn’t be afraid of the unknown but acknowledge the unknowns are out there, identify those unknowns we can see and have the skills, flexibility and financial reserve to deal with those we can’t.

    Dealing with the unknowns is what really marks the successful business.

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  • Choosing a business partner

    Choosing a business partner

    The continuing fights between Mark Zuckerberg and the Winklevoss twins over their share of Facebook shows choosing partners to help you establish, fund and grow a venture is one of the toughest things in business.

    Good partners are a formidable combination. Together two, three or more well matched businesses partners with complementary skills can give a startup huge advantages. Warren Buffet and Charlie Munger at Berkshire Hathaway are a good example of business partners whose skills and personalities build on each other.

    Sadly those perfect partnerships are rare and all too often the differing personalities coupled with the financial and emotional strain of starting a business lead to the partners falling out. So what is it that makes the perfect business relationship?

    Complementary strengths
    All of us have weaknesses, in business these can manifest themselves in things like an inability to see bigger trends, too much focus on detail and – probably the most common of all – a boredom with doing paperwork and accounts.

    The best partnerships are where each party adds something to the team, one partner might do the “big picture” strategic work while another focuses on the detail orientated operations. If you can find one that loves doing the books, marry them and do everything you can to retain them in your business.

    Tolerance of weaknesses

    The flip side of having complementary skills is that each partner has to be tolerant of the others’ weak spots. In any relationship, business or personal, that understanding of a partners’ weaknesses is essential to success.

    Respect
    All of the partners have to respect each others views and strengths. The moment one partner feels they are not being valued, even if it is only a perceived lack of respect, the relationship is heading for the rocks.

    Equal contributions
    In many small businesses, the biggest cause of friction is one partner not putting in an equal contribution. If all parties aren’t putting in their fair share of labour or capital then the arrangement is going to hit problems, particularly if the venture is successful as we’ve seen with the Facebook disputes.

    Unequal contributions hurt, particularly in small businesses where one partner may have contributed a far greater slice of their capital or time than others. This is often the problem where some of the partners are working full time on the business while others have corporate jobs and can’t put in the hours required to be equal partners.

    Some friends of mine had a falling out over what was looking to be a successful business when one of them found they couldn’t continue to juggle a successful corporate career with a running a start up as a part time job. The others in the partnership were running the new venture full time and were severely unimpressed with the threat to several years hard work on their part when they too could have been chasing a big business salary.

    The worse possible small business partnership is where one of the partners subsidises the business from their other income, another friend of mine subsidised a cleaning business for two years while his partner forgot to put in invoices or quote for new work. When the business folded, my friend was out much of his savings from those two years.

    Mismatch of expectations

    People go into business for all sorts of reasons; some for love, a few to build empires and others with the expectation of becoming billionaires. Many of us find ourselves building businesses because we’re unemployable anywhere else. Having a common vision of where you want to the business to go is also essential or again the partnership will fall apart over those disagreements, often at the worst possible time.

    A business partnership is very much like a marriage and can be just as expensive to undo, choosing the right business partners can make the difference between a middling small enterprise and a fantastic success. The right partners are a great asset to your business, but choose carefully.

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  • The global online sales battle

    The global online sales battle

    Gerry Harvey’s and Bernie Brooke’s Fair Go for Retailers campaign drawing attention to the GST treatment of online overseas purchases is part of broader battle being fought around the world between multinational corporations, governments and small business. How it is resolved is going to affect all of us.

    Last week, while Australians were focused on their major retailers campaigning for changes to GST rules, Internet retailer Amazon wrote to its Illinois affiliates warning that should the state legislature pass a law imposing sales tax on Internet purchases, the company would cut off their partners in that state, just as they already have in Colorado.

    The actions of the Colorado state government, the Illinois proposal and Amazon’s ruthless response are just the latest phase in a longer term struggle between borderless online retailers and those governments, and businesses, limited by their physical locations.

    What’s making this particularly acute in the United States is state governments are struggling to balance their budgets and sales tax is the one of the few avenues they have to raise revenues in an economy where incomes and property markets continue to stagnate, if not fall outright.

    That balancing act isn’t just confined to the US, the UK government has increased VAT rates from the beginning of the year for the same reason and is facing discontent over increasing tax burdens, particularly on fuel prices.

    For the moment the UK government and customs authorities seem to be fairly relaxed about the leakage of VAT income that has seen some British supermarket chains shipping online orders from their Channel Islands branches to avoid local taxes in the way Gerry Harvey and Bernie Brookes proposed last December when the floated the proposal to move their online stores offshore.

    The British public hasn’t shared their government’s sanguine response with organisations like UK Uncut blockading stores accused of dodging taxes or owned by alleged tax avoiders.

    Governments aren’t the only ones affected, while in Australian it’s the retailers who are publicly worried about their loss of sales at present, other sectors, particularly those providing business to business services, are even more at risk.

    Last month The Economist described how US law firms are seeing high margin but relatively low skilled work moving offshore to India and it’s likely those contractors are offering similar services to Australian law firms and corporate clients.

    Online bidding sites such as Freelancer.com, O-desk and 99 Designs are offering almost every business support service imaginable, from virtual offices to logo design. Anyone competing locally against foreign contractors on those sites starts from exactly the same GST disadvantage as Harvey Norman, Myer and the local shoeshop.

    The power of international retailers and service providers like Google and Amazon to avoid taxes and deliver lowest cost products to customers are challenges to both businesses and governments.

    Julia Gillard’s and Bill Shorten’s almost condescending responses to the retailers shows the politicians are somewhat more in tune with the public mood than the retailers. But we can be sure that should the porridge in Australia’s Goldilocks economy start going cold, then Treasury will start looking for those lost GST dollars.

    While we can criticise Gerry Harvey, Bernie Brookes and the others behind the “Fair Go for Retailers” campaign for being out of touch and failing to respond to obvious threats to their markets, most businesspeople – and politicians – shouldn’t think for a moment they are immune from the same forces the retailers are complaining about.

    Few of us, whether we run businesses or not, will be untouched by these forces realigning the global economy. We all need to understand what these changes mean to our livelihoods and investments, lest we get caught out like Australia’s big retailers.

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  • Trusting the web

    Trusting the web

    The US court orders demanding Twitter and others hand over Wikileaks related information may have killed the cloud computing trend.

    Paul Carr in Techcrunch raised his concerns about how this has affected his views on storing his personal life and details online. He’s not alone.

    Cloud computing relies on trust and confidence; for us to use it we have to trust our data is safe, secure and confidential. That many of us are even suspicious that Google and Amazon have quietly handed over the Wikileaks details shows how that trust has been eroded.

    The behaviour of the US cloud providers shows most will buckle under the slightest political and government pressure, let alone a letter from the FBI of which the New York Times claims over 50,000 are sent each year.

    That tens of thousands of these orders are made each year in the US alone – and we should have no doubt that governments in other countries are just as eager to seize online details – shows how insecure our information is in the hands of third party providers.

    This is more than just activists who have upset the US government; in the event of a trade dispute, spurious copyright claim or a simple case of political malice or opportunism a businesses’ service could be shut down, often without any warning, due process or appeal.

    Which is exactly what Amazon and various other cloud service providers did to Wikileaks.

    Cloud services offers great business advantages, particularly to small and startup enterprises. But the Wikileaks shutdown scandal shows the managements of many cloud computing providers are untrustworthy cowards.

    For many businesses it will still be worthwhile sticking with cloud services for the convenience, cost and scale however it’s also important to keep in mind these providers cannot be trusted and a backup plan has to be available should they fail.

    The data we keep online has to be considered as well, it appears we cannot trust cloud services with our critical business and personal information so we need to be discriminating about exactly what we put online, this includes social media services like Facebook and Twitter.

    Cloud service providers have to prove they deserve our trust, right now it’s difficult to see how they can regain it.

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  • The entrepreneur’s biological clock

    The entrepreneur’s biological clock

    In backpacker circles, when you turn thirty people ask “what’s wrong this guy? What you can get away with in your twenties, you can’t get away once you’ve passed the big “three-oh”. It’s not dissimilar to the “biological clock” many women in their thirties confront as they perceive their days of easily having children are coming to an end.

    A similar phenomenon exists in the business world, both for employees and business owners, that there are age limits on what someone can easily do. Like the backpackers, it’s more a perception than a reality.

    Once upon a time you were past it at fifty years old. Through the 1980s, 90s and the early part of this century that “past it” age contracted, along with the deskilling of the workforce, to 45, then 40 then 35.

    In the eyes of many in the corporate world today should you not have an established corporate career path by your mid-thirties then you are well “past it” and destined for a middling career and income.

    With entrepreneurs a similar quandary exists, once over forty there’s a feeling that the aspiring business owner should just stick to buying the local doughnut or lawn mowing franchise. Startup land is no country for old men.

    The underlying cause of  this view is the belief every successful business founder is rich beyond their dreams by thirty – Bill Gates and Mark Zuckerberg come to mind – that’s clearly silly given most businesses never come close to the successes of Microsoft or Facebook  but it’s a persistent one nevertheless.

    When the entrepreneur turns thirty, things begin to get tricky; sleeping on a friends sofa, working eighteen hour days and living on instant noodles isn’t an option when you have kids, partners and mortgages. At the same time, family, friends and potential employers start to ask “if this guy’s so good, how come he isn’t a millionaire?”

    To make things more difficult, risk adverse peers start bragging about how their safe, well paid job is allowing them to buy second homes or go on holidays most business owners can’t contemplate.

    Probably the hardest thing though is that the doors of the corporate world start slamming shut; for a 40 year old entrepreneur who has been running their own businesses for 15 years, it’s difficult to get a job in the business world and any position available won’t recognise the skills developed in running your own enterprise.

    Similarly, the warning to anyone with a decent corporate career who chooses to leave their safe office job to run their own business is usually “how can you risk throwing all of this away?”

    Risk is the difference between the ages; once you’re over 40 with there being little prospect of a plan B involving returning to a nice corporate position, then the cost of failure is a lot higher.

    In some ways this can be better; an individual staring down the prospect of a long, poverty stricken retirement has a very good incentive to get their business right and doesn’t have time to waste on speculative or “me-too” projects.

    The idea there’s an age limit to launching new, innovative businesses and products is silly, but it’s a persistent one nevertheless. The great thing though with being your own boss is you don’t have to pay attention to other people’s dumb ideas and this one is a dumb as it gets.

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