Many people fail when starting companies. Many people fail because they do not know the drill. They have no clue whatsoever how to build a company and walk away with multi-millions in the end.
Let me shed the clouds for you. When starting a company, your main aim should be to create something better. Something bigger, something lighter, something faster etc.
Even something cheaper (even though I encourage people to focus on the value instead of the price difference. People want stuff that works, cheap stuff rarely work for long).
The keyword here is: "Something different".
Creating something different is not the hardest part. That's the simple part. Everyone can dream up something weird. It just requires a great imagination. Some people have this skill, some people don't. But most of us do have it.
The hard part comes when we are to prove the commercial side of things. When you have come up with the newest (and obviously best choice) product, then you want to sell it. You want to make a mint on it. But how? What is the path?
The path is this (my way):
1) You buy a DM (Direct Marketing) list. Say 10,000 unique names. You need to buy a specialized name list only. Because you want a targeted crowd. A crowd that is clearly in to your kind of products because they usually buy this kind of product from time to time. If you can offer them a better deal, then you have business. Then you have income.
2) Step number 1) is what I call "proving the commercial concept". You have proven to the world that people are willing to purchase your product for the price you have set.
3) Step number 1) leads to step number 3) which is licensing. As soon as you have proven your product in the market, then you have a smashing hit to license abroad. In foreign countries. On this stage your ultimate aim is to sell a license to existing companies in your field. You want these companies to pay you a minimum guarantee amount (order a certain amount of products) every quarter so as to guarantee an on-going cashflow stream. If these companies purchases more than the minimum guarantee, fine (great even). If not, you still have a guaranteed order amount to expect. You get companies on guaranteed amounts by giving them exclusive rights to their particular market. You secure that particular market for them. That is a great value for the distributor.
4)On step number 4) you are in a position to contact an investment bank like Merrill Lynch, JP Morgan etc and tell them you have this company you want to sell. Then have the investment bankers sell your company to the highest bidder (investment bankers usually contact existing companies who are looking for companies to purchase. The more bidders the higher the price you might get).
Say you have $5 Million in pure profits each year (due to the many licensees you will gather), if you have an investment banker on board selling your company, you will be able to get at least 10 times profits (that is $50 Million pre-tax). Why is that? The investment bankers are prone (due to them making more money on it) to contact strategical buyers. That is, buyers interested in synergies before short-term profits. Strategic buyers pay more for companies due to the possibilities they see, that other investors (who are looking for ROI pure and simple) can't see.
One example of this is the Ebay VS Skype deal, where Ebay paid somewhat 30 Billion SEK for Skype. Making the owners of Skype pretty loaded on money. Skype had 50 Million SEK in turn-over (not pure profit) at the time of sale. According to the newspapers. That is the magic of great investment bankers, a buyer with eyes for synergies and a big, fat buyer account.
So the formula in short, is:
1) Test the product/service in a small DM campaign. If it sells, go to step 2). If not, test a new product/service.
2) License the deal to foreign countries on exclusive distribution terms.
3) Find an investment bank to sell your company to a strategic buyer.
4) Exit.
Start over with something new and live of the money you have gathered. Live on 1/1000th of the after-tax sum and you will have money for 1000 months (or 83 years). Money for the rest of your life even if the next company went belly up.
As Mark Cuban said: "You only need to be right once". And he meant in business.
måndag 29 september 2008
torsdag 26 juni 2008
Business tip of the day
Tip of the day is:
Set high prices on your products and services and give unique selling points to what the customer will be getting after they have paid. You will sell only to a few customers, but you will also raise the profit level you will be getting. And at the same time, you will gain a lot of free time to actually enjoy the money you make.
How is that for a tip? Enjoy.
Set high prices on your products and services and give unique selling points to what the customer will be getting after they have paid. You will sell only to a few customers, but you will also raise the profit level you will be getting. And at the same time, you will gain a lot of free time to actually enjoy the money you make.
How is that for a tip? Enjoy.
måndag 23 juni 2008
Geo arbitrage
Geo arbitrage has become a little bit of a new hype word. What Geo arbitrage means is: currency difference in living standard between different countries. More or less.
This means that, if you live in Sweden like me, for every 1 SEK you can recieve 10 times more in purchasing power in Kenya. That means you don't even have to amass one million SEK (or approximately 60,000-70,000 USD) in order to be regarded as a millionaire in Kenya. In Kenya you are considered a millionaire with only 100,000 SEK (or approximately 6000-7000 USD). At least if you use the SEK/Kenya shilling comparison. You have to look at the difference between your currency and the Kenyan shilling in order to see what you can gain yourself.
So why do I bring this up? What is the great thing I want to display here? Simple:
If you make 1000 SEK in Sweden and then spend in Kenya as a resident you will have the purchasing power of 10,000 SEK. That means, you don't have to work hard at all anymore. You can cut hours from your mobile job (if you have any such job that is) and just relax more than you do now (or do something more meaningful if you do hate your current job). But, of course this hinders you to one specific country of course: Kenya.That is the bad part.
As they say: There is good things, but even good things has it's particular dark side. Yin and Yang you might say. For every bad part there needs to be an equally good side to balance the situation.
This means that, if you live in Sweden like me, for every 1 SEK you can recieve 10 times more in purchasing power in Kenya. That means you don't even have to amass one million SEK (or approximately 60,000-70,000 USD) in order to be regarded as a millionaire in Kenya. In Kenya you are considered a millionaire with only 100,000 SEK (or approximately 6000-7000 USD). At least if you use the SEK/Kenya shilling comparison. You have to look at the difference between your currency and the Kenyan shilling in order to see what you can gain yourself.
So why do I bring this up? What is the great thing I want to display here? Simple:
If you make 1000 SEK in Sweden and then spend in Kenya as a resident you will have the purchasing power of 10,000 SEK. That means, you don't have to work hard at all anymore. You can cut hours from your mobile job (if you have any such job that is) and just relax more than you do now (or do something more meaningful if you do hate your current job). But, of course this hinders you to one specific country of course: Kenya.That is the bad part.
As they say: There is good things, but even good things has it's particular dark side. Yin and Yang you might say. For every bad part there needs to be an equally good side to balance the situation.
lördag 17 maj 2008
Savings VS Investing
People these days, at least those I associate with, seem to hate saving money. It is all about "investing". The problem is, all these people "invest", "invest" and "invest", but have no savings.
Let us begin with discussing why someone should save money? The only reason I can come up with is: to recieve passive interest income that secures your private economy. That's all.
Second, why should someone invest or even speculate? The only reason I can see is in order to get capital gains and use that capital gain to put in a savings account. That's all. You make more money and then put that money into a savings account that is secure and reliable.
The thing is: You make deals in order to then live of the interest of that same money. The easiest and best place (I am biased as you may understand) to place that money is in a savings account that beats inflation every year and then pay you cashflow that you then can use to pay your living expenses with.
Let us begin with discussing why someone should save money? The only reason I can come up with is: to recieve passive interest income that secures your private economy. That's all.
Second, why should someone invest or even speculate? The only reason I can see is in order to get capital gains and use that capital gain to put in a savings account. That's all. You make more money and then put that money into a savings account that is secure and reliable.
The thing is: You make deals in order to then live of the interest of that same money. The easiest and best place (I am biased as you may understand) to place that money is in a savings account that beats inflation every year and then pay you cashflow that you then can use to pay your living expenses with.
tisdag 13 maj 2008
How to give something of value in order to raise networth and cash
When starting a new business venture entrepreneurs need to focus in delivering value. Many people talk about "give value and you will recieve money". But they usually think on a low scale. What I want to introduce you to today is how to create massive value and recieve a billion dollar status and also recieve cash in your pocket that you can then put into your savings account (and then live of the interest for the rest of your life).
Before we can get a billion dollar valuation and a lot of cash to put in the bank, we need to define what kind of value our venture can offer an investor. If you have positive net cashflow then you have a great advantage. You can then offer this cashflow to the investor in return for a P/E valuation of 10X earnings. In return for that value you ask the investor to buy only a small piece of your company. The smaller the part, the higher the valuation. Say you can offer $400,000 a year in income from the company and you ask for a P/E valuation of 10, you could then recieve $4 million in cash (tax on it and put it in the bank and live of the interest).
As mentioned in previous posts on this blog you probably know the valuation system at this point. But let us tell you again. If you sell 1% of the company for $4 million, then the entire company is worth $4 million /1% = $400 million. If you own 99%, then you would be worth $396 million. But this is on paper of course. Unrealised capital gain as they call it. You need to sell it in order to spend it or save it in the bank. But this number still bear a value to your personal balance sheet. The fact is, you have created a company, a value, that an investor has seen being worth $400 million. Be proud.
It's like Microsofts investment in Facebook. They paid somewhat like $240 million for 1,6% of Facebook. Not because of the money or the dividents etc, but becuase they where promised exclusive control over the banner advertising space on Facebook. That "value" made Mark Zuckerberg, the 24 year old a multi billionaire on paper. The "valuation" is just a bi-product of the value you give. And as you can see with the Microsoft-Facebook connection, money is not always the best value. If you have a website that has a lot of well defined visitors, you could probably find an investor willing to purchase a little piece of your corporation in exchange for exclusive banner advertising control on your website. That could equal a cash payment for you as the owner of the shares sold and a new and higher valuation of your company. hence raising your personal networth a lot.
You really need to look at it this way in order to become super rich. And have more money in your savings account, earning you income interest for the rest of your life. Never needing to think about making a living anymore.
Before we can get a billion dollar valuation and a lot of cash to put in the bank, we need to define what kind of value our venture can offer an investor. If you have positive net cashflow then you have a great advantage. You can then offer this cashflow to the investor in return for a P/E valuation of 10X earnings. In return for that value you ask the investor to buy only a small piece of your company. The smaller the part, the higher the valuation. Say you can offer $400,000 a year in income from the company and you ask for a P/E valuation of 10, you could then recieve $4 million in cash (tax on it and put it in the bank and live of the interest).
As mentioned in previous posts on this blog you probably know the valuation system at this point. But let us tell you again. If you sell 1% of the company for $4 million, then the entire company is worth $4 million /1% = $400 million. If you own 99%, then you would be worth $396 million. But this is on paper of course. Unrealised capital gain as they call it. You need to sell it in order to spend it or save it in the bank. But this number still bear a value to your personal balance sheet. The fact is, you have created a company, a value, that an investor has seen being worth $400 million. Be proud.
It's like Microsofts investment in Facebook. They paid somewhat like $240 million for 1,6% of Facebook. Not because of the money or the dividents etc, but becuase they where promised exclusive control over the banner advertising space on Facebook. That "value" made Mark Zuckerberg, the 24 year old a multi billionaire on paper. The "valuation" is just a bi-product of the value you give. And as you can see with the Microsoft-Facebook connection, money is not always the best value. If you have a website that has a lot of well defined visitors, you could probably find an investor willing to purchase a little piece of your corporation in exchange for exclusive banner advertising control on your website. That could equal a cash payment for you as the owner of the shares sold and a new and higher valuation of your company. hence raising your personal networth a lot.
You really need to look at it this way in order to become super rich. And have more money in your savings account, earning you income interest for the rest of your life. Never needing to think about making a living anymore.
måndag 28 april 2008
Artwork and Wealth
Wealth is a subject I like to debate. Art is one very interesting one as well. I am not interested in how the artist has painted a painting, I am more interested in the wealth related part of that painting. The "collector value" so to speak.
For example: Create 4 equally looking paintings (or have a good artist do 4 equally looking paintings). Then sell one of those paintings as expensive as possible.
Example:
4 equally looking paintings is created by an artist (paid by you). You get all 4 paintings. One of the paintings is sold by you at an auction. You recieve $100,000 for this one painting. The other 3 paintings is kept by you. These 3 paintings are valued at $100,000, each, after the auction sale of one of the paintings. That means you hold paintings worth a total of $300,000 ($100,000 X 3 equally looking paintings).
Wealth created out of necesity.
For example: Create 4 equally looking paintings (or have a good artist do 4 equally looking paintings). Then sell one of those paintings as expensive as possible.
Example:
4 equally looking paintings is created by an artist (paid by you). You get all 4 paintings. One of the paintings is sold by you at an auction. You recieve $100,000 for this one painting. The other 3 paintings is kept by you. These 3 paintings are valued at $100,000, each, after the auction sale of one of the paintings. That means you hold paintings worth a total of $300,000 ($100,000 X 3 equally looking paintings).
Wealth created out of necesity.
lördag 12 april 2008
Time Management
Time management is the ultimate way of doing more with less time. It is also the ultimate way of making things happen instead of postponing things. Because when you have a clear deadline everyday where you are forced to do a certain thing in a certain time frame (or wait to the next day) you will do it more effectively. You will find ways of doing it. Otherwise you will lose.
And this working time frame each day is there for a reason. The reason is to tell you that when this time frame is over, the working day is over. And if you haven't reached the effectiveness and productivity in that time frame you will have lost one day of your life to bad time management. If you are working for someone else you have in most cases 8 hours of work. Then you go home and you don't work more hours that day. No for your employer anyhow.
When you are an entrepreneur you don't have those clear distinctions between work and play time. You have to set those time frames yourself. Otherwise you will certainly burn out. Sooner or later.
I work 3 hours and 20 minutes each day (Saturdays and Sundays included).
My schedule looks like this:
-2 hours 30 minutes - checking mail and writing mail.
-10 minutes - reading online businss news.
-1 hour - reading a book of my choosing.
-10 minutes - talking on the telephone (business only). This requires dicipline. I gotta tell you. I usually give delegations by telephone only. Updates is done by my COO or anyone else by email only.
-30 minutes - Reading/writing forum threads to keep up with other peoples ideas. Inspiration purpose.
In order to succeed with this kind of time management you need to use your creativity and your focus on getting things done in much, much less time. And you need to have a clear disticntion between work and play time. It is like when you start a company. You don't use your personal bank account as your companies account. You open up a separate account for the business. The same goes with your time.
And this working time frame each day is there for a reason. The reason is to tell you that when this time frame is over, the working day is over. And if you haven't reached the effectiveness and productivity in that time frame you will have lost one day of your life to bad time management. If you are working for someone else you have in most cases 8 hours of work. Then you go home and you don't work more hours that day. No for your employer anyhow.
When you are an entrepreneur you don't have those clear distinctions between work and play time. You have to set those time frames yourself. Otherwise you will certainly burn out. Sooner or later.
I work 3 hours and 20 minutes each day (Saturdays and Sundays included).
My schedule looks like this:
-2 hours 30 minutes - checking mail and writing mail.
-10 minutes - reading online businss news.
-1 hour - reading a book of my choosing.
-10 minutes - talking on the telephone (business only). This requires dicipline. I gotta tell you. I usually give delegations by telephone only. Updates is done by my COO or anyone else by email only.
-30 minutes - Reading/writing forum threads to keep up with other peoples ideas. Inspiration purpose.
In order to succeed with this kind of time management you need to use your creativity and your focus on getting things done in much, much less time. And you need to have a clear disticntion between work and play time. It is like when you start a company. You don't use your personal bank account as your companies account. You open up a separate account for the business. The same goes with your time.
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