Insurance industry affected by greenhouse gasses.

This article from MSNBC speaks on how insurance companies are making decisions based upon global warming.

The Insurance industry has been touted as modern, current industry that is actively changing its policies to react to global warming and greenhouse gasses. Not taking heed on any scientific or government report, the industry itself is making choices on which policies to continue, and which premiums to charge. In their own self interests, companies have discontinued policies, or shifted the risk outwards again.

The insurance industry doesn't taking money losing policies lightly, and it doesn't move unless the needs are great. For them to take such a stark position with greenhouse gasses is disturbing.

CEOs and responsibility

Some folks have asked my opinion on the Scrushy verdict (CEO HealthSouth). I don't know how the jury came to its conclusion. And I haven't seen all the evidence or heard all the arguments.

From my point of view, he SHOULD have been guilty. A CEO who allows himself to be duped by 5 different CFO's should be put away for stupidity if nothing else. I find it hard to believe that a CEO who was there from the beginning would not know what was going on.

I know that any CEO I work with should know the intimate details of what's happening in the company. If the CEO is ANY type of competent businessperson, knowing the staff, the operations and the health of the company is paramount.

Someone in Scrushy's position should be able to recognize and understand what was happening. He has to know his job at least as well as you understand yours. Just because you can't understand his job doesn't mean he doesn't understand his job. He should know his job 5 times better than you know your favorite hobby.

His own bio shows that he started in 1984. And he was there from 5 employees to 50,000. He could observe and influence every decision the company took, and he was
the one who was misled? The guy who was "overseeing approximately $6.5 billion in strategic acquisitions" couldn't know what was going on under his own shop? A shop he built himself?

He could have been lucky. It's not impossible, but it is improbable that sheer luck and ignorance can create a multi-billion dollar company. None of the lotteries around here reward that type of luck and ignorance, but in theory it's possible.

But I don't see it.

Credibility

I've already warned the readers that I'm prone to error, so I'm less worried about showing my ignorance.

The difference between its and it's.
One little apostrophe.

Its: possessive form of the pronoun it
It's: contraction of it is, or contraction of it has

I was interviewing a consultant a consultant to work with a company. In what was supposed to be a flair of brilliance, and show how much we had already spent without his "help". He pointed out all our posters used the word "its" when we meant "belonging to it." He then told us that we should have added the apostrophe to show the possessive. He suggested using "it's" in all our marketing material, and correcting our error in the future. Thus we would be saved the embarrassment in the future, and he was giving this free advice out of the kindness of his heart. Remember, free advice is worth what you pay for it.

He had a nice team with him, 7 other folks who were yes men. Some looked barely out of college, others were gray hairs who were supposed to provide wisdom. None of them spoke out against their leader. Which is what these folks are trained to do. When the head guy makes a mistake, don't point it out to the client, and hope the client is too dumb to know the error.

Unfortunately for them, I noticed. I had already burned half a day with these guys as they were trying to pitch their services to the company. And I was less than pleased by the types of questions they were asking, or the type of advice they offered. The small error pretty much destroyed any credibility they had with me.

Now I want to point out, this was a native English speaker. Ok, he was an American, but that's close enough. He had been using English his entire life, and "should" have known better. His statement was either naive and showed good will but ignorance, something that's very costly to a young start-up. Or he was outright lying to me, which is even more costly to a young start-up.

We had no need for his services.

It's hard to build credibility with your customers. One slip can cost you a lot more than you know.

What if we change?

Every so often, I get this inquiry from a company. What if they change their [production/focus/market/etc.] would we the invest in them?

The question, phrased in this way, only brings up more doubts about management.

Why doesn't management have enough faith/knowledge in their approach? Why would they be so willing to change their approach at the start? Do they not know what the best/easiet way to market is? Is their plan for success so flexible that they're willing to shift everything at the start?

If they're so willing to change now, what happens when things get rough? Do they switch again? Or worse, do they quit the company entirely?

What's the dedication/drive behind management starting a company if the goal and the path can be changed? There's obviously no vision, is it just money? Is it just having a job? Those are two lousy reasons to start a lasting company.

In theory, management has already decided upon the market/business process/etc. because it was the 'best way" for the company. If it isn't, why choose them? If all things are equal, I understand. But things are NEVER all equal. Team experience and knowledge, will always tip the scales.

Unless you're novices in every field, in which case fundraising is going to be difficult in every circumstance.

Change when it's in the best interest of the company. Do not change wildly because you want to please an investor or other party.

This is one of those contraditions that exist with invesment. Most of the time it is a lose-lose choice for the entrepreneur. Either you're too flexible, or not flexible enough. Therefore, in the long run, do what's right for the business. Outlasting investors who said No is the best revenge.

Green not always clean

Here is Andrew Kantor's bit on "Clean" energy. He's hit the big ones. The amount of energy from ethanol from corn is a negative proposition. Find a way to get it from other biomass, especially biomass with no intrincic value, and it gets interesting. Corn kernels can be used for other purposes, corn husks stalks, not as much.

The current energy bills in the United States regarding ethanol specify Corn, Sugar Cane, and SugarBeets. Not as much support for generic biomass based ethanol. There is more to examine about clean energy. Even Hydro power has a dirty secret

Why the focus on energy? Oil is at $60 a barrel right now. The current interest in clean energy has never been greater.

Lots of activity, but we'll see how much happens. If nothing else, investors are interested and putting money to work.

Pay per call

Two articles one from red herring, the other from the washington post

No longer doing a pay per click based advertising model. This would be much more helpful and useful for companies.

I have never had a problem with paying for validated leads. If I can avoid paying until someone make an order, even better. But I'll pay a premium over just a click or an impression.

Doing a pay per call, or ideally a commission based system moves the costs to a fully loaded cost of good sold model.

It used to be impossible to accurately track an impression to sale pathway. It still is difficult. However the closer we get to that point, the more efficient marketing dollars will be spent.

The danger is that current ad revenues and everyone who profits from them today will be affected. And these folks will want to protect their revenue stream.

Struggling

In working with entrepreneurs, some will surprise you. One company has been through a lot the past few months. Money was tight and the CEO didn't always take home a paycheck. But progress was made during that time, and BIG company was willing to partner and work with this group. As the scrappy young company showed its mettle, the larger partner was impressed. A few trials and crucibles later, the CEO is still standing. The company is closing on some more money, and additional angels are joining in.

There will be time to breathe when the larger company makes an investment. At that point, the immediate cashflow worries will be solved, and the company won't be living hand to mouth. But for now, the pipeline looks good, the product is in demand, and

It isn't always easy, and it isn't always fun. However, if you prove yourself, and are more valuable alive than dead to your customers, then they'll find a way to keep you around. You job is to keep the company alive until that point.

D.R.O.O.M.

Don't
Run
Out
Of
Money

Good words to live by.
Happiness is a positive cash flow
Cash is King
Etc.

When you run out of cash, you run out of options.

Having more cash means being able to say No to bad options, and wait for good ones. This is true for companies, and true for investment groups. As an entrepreneur, your first duty is to your company. Keep them around by having a healthy cashflow and you'll be fine.

Timeline

When I first started in this industry, I was the youngest of the young. Everyone else had more experience than myself. Deals, termsheets, companies, etc. I was the neophyte and still starry eyed with the job.

Now, I feel like I'm the older of the young. Some deals under my belt, some exists, but not at the point yet where I've seen or done enough to take command under every situation. I can be in charge for most events, just not all of them, yet.

I've been warned that at one point in my career things are going to change fast, and if I'm still around, I'll be the "youngest of the old". Having experienced, and been in the trenches with several companies. Seen some predictions come true, and others fall into the void. But my elders have all said, I won't recognize the prime time or tipping point until after it's over. Once it's beyond me, then I'll be able to look back and say "Once upon a time."

Hopefully, I'll be able to look back on this blog and recognize when that point happens. I do know one thing, it hasn't happened yet.

A good move

Article from USATODAY
Ford is willing to give a bounty/bonus to anyone who helps make a sale.

I think this is a great idea. I would qualify this by saying "closed sale" that is once the cash actually gets into your bank account, then give everyone involved their commission/bonus.

I dislike the concept of paying for a "lead" because those do not tend to go very far. We have incidences of fraud and abuse when only the first part is done. A company should not have a problem for paying a bounty for a new customer. It's someone they wouldn't have gotten through other channels. And as long as the fully loaded costs are all covered, it's a good sale for the business.

If you're not selling for enough to recover all costs, then you've got other problems.

Making this bounty process work smoothly is difficult. And there will always be those people who say "I don't want to sell." It's hard work, but sales are the way to get cash into the company, and cash is the lifeblood of any business. People no longer accept options and IOU's instead of paychecks.

Contacts

I got two contacts today from folks I hadn't heard from in months. It was good to hear from them, and more importantly, to maintain contact.

As the rolodex grows, the wealth of knowledge and talent that's collected improves. Everyone has the same amount of experience, a lifetime. With so many different lifelines combined, a lot of good events can occur. But it takes effort to maintain the lines of communication.

Me? I cheat. I use this blog as a daily blast to everyone out there who's intersted. It's already helped me immeasurably in maintaining contacts. And people always know where and how to reach me.

Good parts

There are a lot of good parts to this job.

The ability to have fun while getting paid is probably the best one. Making dreams come true and working with young companies. Being able to say you were there at the beginning of a company, and following it along the growth path.

Being able to see you're making a difference in the survival of a company. the returns on investment.

The list goes on, and it fuels the late night strategy sessions, the early morning meetings, the calls, the pages of documents and the rest.

To anyone who asks me "is it worth it?"
The answer is: Yes

Professional Bad Guy

In this business, you learn to say No, early and often. Sometimes it feels like others refer companies to me, so I can be the one to say No. it's not an investable business. It doesn't mean it's not a good business, but not one that can provide the returns necessary to justify an investment of capital.

Other times, the referral isn't one that I can take seriously. The quality of the person matters. There are some friends who I love dearly, but would have to look at anything they offer with a sharp eye. Sometimes it's immediately obvious what's wrong, other times, it's so far from refined that even if I could tell what's wrong, I couldn't tell what's right.

There are times you need a thick skin, other times you need a thick skull.

Follow on financing

As investors, we want to support the companies we invested in. This usually means participating in one or two follow on rounds of financing. Usually doesn't mean always. Sometimes the lines of communication get damaged, things happen at the company, and as an investor, we are not kept in the loop.

What happens, then, when the company comes back, looking for financing and doesn't find it? One of our core responsibilities is to not throw good money after bad. This can be challenging, since to say No also means we made a mistake when we initially said Yes.

But we would be bad caretakers of the money if we put more cash in, without the knowledge that it was better to invest than not.

Expertice

This article from the NYTimes
On how VC's are going after consumer internet plays.

Maybe this will bring about the great bath in the industry.

In the US, we have Greenspan making statements about having a good economy, but a frothy housing market. People have been refinancing their homes, making lower payments, but also spending the equity built up on consumer goods.

Now some of the consumer plays will stick around, and do very well. But most investors who try and become "product" guys will fail. Notice I say will, not might.

I'm a software person, I know software, and I know that its time as the "new industry" has come and gone. It will have a revival in a few years, but for the most part, the easy gains in software coding/development, the lone cowboy, are gone.

In retail, I always get heartburn. It doesn't mean I'll never do it. However, there has to be an overwhelming compelling reason that even I understand before I'll consider the investment.
Here is a short list of things/fads that have occurred. NONE of them I understood, could have predicted, or would be able to avoid:
Bell Bottoms
Pet Rocks
Pokemon
Power Rangers
Teenage Mutant Ninja Turtles (they've come back)
My Little Pony (they've also come back)
Cabbage Patch Kids
Tickle Me Elmo
Transformers
Backstreet boys
Spice girls
Etc.

Now, here's the part that frightens me the most. The very audience to whom those products were targeted at twenty years ago, is the same population that marketers desire today.

You can look back and see the choices they made when those folks were kids. And you want to predict what they're going to buy next?

I'm not saying it can't be done. And I'm not saying it won't be done. However, it is not as predictable as people want it to be.

This is why male dominated industries always try for the faster/more approach. Guys understand numbers, if 5 is good, then 10 must be better, and 100,000 must be fantastic! This gives us computer screens with such a high flicker rate that most human eyes can't tell the difference. Audiophile sound systems are available that are lost on kids who spent too much time at rock concerts. Getting a good consumer product is hard, but the numbers behind a sustaining item can carry a company through good times and bad. Again with toys, Mattel exists only because of Barbie and Hot Wheels. Without those product revenue streams, it would not be here today.

There's gold in those hills, but the ones who really struck it rich sold the
pick axes, water, and even kittens.

Limited Partners

Seems like the most popular feedburn in months was the LP thoughts blog. Just like entrepreneurs want to know how a VC fund works, VCs want to know how LPs work.

Honestly, so would I.

The "book" says that LPs have a large allotment of capital to invest. And the best way to invest is to diversify all the investment. Therefore, some money goes into stocks, some to bonds, and some to "other". Private Equity, Real Estate, VC, etc. all fall under that "other" category. As an investment class it has been increasing as a percentage of allocation. The bubble years helped bring attention to the category. (OK, ANYTHING that gives the returns that .coms did will get attention)

While doing fund of funds activities, I like to think I have a unique perspective. I also work on direct investments in companies at an early stage. I look at the portfolio of companies the fund has invested in under my own criteria, and decide if I would have invested in these companies.

Half the time, the answer is no, I had or would have rejected the company for investment. I'm always curious to see how the "real" answer turned out. Did the company succeed because I had a blind spot? Were they able to successfully navigate a barrier I thought would impede them? Or did they sink into the murky waters, pulled under by market forces I can't predict but must acknowledge?

I'm happy to acknowledge that the process venture funds have in place to make investments and then defend their investments is important, and part of the process of selecting which ones to invest in. I've had other funds ask me what the @#$% we were thinking when we made an investment (answer: it seemed like a good idea at the time.) Having different skill sets, and experience allows us to approach the same company with different viewpoints.

Different LPs will evaluate funds in their own manner. Some focus on the track record of the team, others will examine the sector focus of the fund and where it fits into the LP's portfolio of investments. But the VCs must answer the same question every entrepreneur must answer: Why am I a better investment than all the other opportunities available?

Definition of Rich.

CNN's article on what it means to be "rich".

My own definition has been:
Do what you want
When you want
How you want

If you can get to that point, you're "rich"

Look at the different folks listed and what they want to do. The more specific they can define their goals and needs, the more specific the amount they want. Not knowing what you want is a problem. If you're not sure, how can you tell when you succeeded? When can you let yourself slow down and enjoy your accomplishment?

True Entrepreneurs are on the way there. They do what they want, (run their business).

When they want is tougher, some folks don't like working 24/7. others wish they could do a few more hours a day. This is a personal choice, but they have the chance to determine their own hours.

How you want is the hardest part. Customers and market conditions dictate how things go for your business. But if you can adjust the How, so that the needs of the market, business and your needs align, then you're on your way to being rich.

The money will follow. When you're the best, and making good/real sales, you'll be successful. But more importantly, you'll be rich.

Keeping communication open

Surprises are very unpleasant to investors. Even good surprises, (congrats! Here's a 25,000 check!) are signs you don't know what's really going on in your portfolio.

Therefore, call, talk, email, update. It's less unpleasant, but still bad, for an investor to see a company spiral down into oblivion. The alternative of "Poof! It's Gone!" Is much more shocking, and harder to handle.

It also fixes the chances of me ever wanting to work with that group of people again, to 0%.

It's hard to keep the investors and employees informed of what's going on. But just because it is unpleasant news, doesn't mean you can avoid it forever. And most of the time, you've had clear warning that bad news is on the horizon. Not making payroll is never something you find out that morning. You know in advance when you're not going to make payroll. When sales haven't been closing, or money hasn't been collected, it's obvious you're going to have cash problems. Let it be obvious to those who trusted you.

Pricing

Econ 101 on pricing from MSNBC

Price customization, price segmentation. This is all trying to capture the economic rents that exist in any mixed market.

The classic demand curve comes into play here. I might be willing to pay $5 for a widget, and you're only willing to pay $3. If the price of the widget is $1, then we both buy it, but I'm supposed to be "happier" since I valued the widget at $5. If the widget is priced at $4, then only one widget gets sold.

If the company is able to charge me $5 (a price I've already said I'd buy the widget at), and then charge you $3, the price you're willing to buy the widget at, the company makes $8, and sold 2 widgets.

This is legal, and this is fair.

Consider this done in another way. The regular price of the widget is $5. But you get sent a $2 coupon. I don't get the coupon.
How is this different from charging me $5 and you $3? The numbers come out to be the same. And the coupon is sent to you only, not me.

Financially it makes no difference.

Psychologically, there can be a perceived difference

Economically, they are the same thing.

When setting your own prices, try and find the value to the customer, and match the price you offer to their value, not your cost.

Eat Less, Exercise More

Good advice. It's the best way to a healthy body.

Spend Less, Sell More

Similarly good advice to have a healthy company. There's always a certain amount you're going to spend (and a certain amount you're going to eat) if you're going to live.

Selling is the best way to touch your customers, get transactions, and figure out if you're doing the right thing.

Exercise is supposed to do that for your body as well. Do both, and you'll have a healthy company.

It's still a job

Every so often someone comes up with the idea of trying to set up a fund by getting a few hundred people together to pool their money and start a fund.

This ignores some of the risk and effort required to monitor investments, filter potential companies and maintain relationships with the investors, the companies and the legal/accounting folks that keep you out of trouble.

So having 3 mil to invest is not a lot. But it depends on the amount you will be investing. If it's 500,000, you usually keep 3 times as much in reserve, for future rounds of financing. So that's 2 million you'll need to have to make the investment.

If the bite size is smaller, say 200,000. Then 4 times is 800,000.

There should be some plan for the investors as well. How much to put in initially, how long to stay (maintaining pro-rata % ownership), what you expect on the exit. How you expect to exit. It's part of the job. Not all, but it's a lot of fun.

Words from an Angel Investor

I had a chance to listen to John May today. He's been one of the driving forces in creating angel groups around the country/world.

He mentioned these two sites for more information on angels.
http://www.angelcapitalassociation.org/
And for legal document templates.
http://www.nvca.com/

All free information, and more ammunition to understand what people expect on the early round of investing.

Angels are looking for something more than just return on investment. But Cash on Cash is important. Figure out what they are looking for, and you'll be able to see if you're a good fit.