I think bundling is going to be a big factor in terms of leveraging entrepreneurial ventures in this century. For example, Lululemon Athletica not only sells active wear they also have Yoga classes in their stores. In essence, they are housing two complementary businesses under the same roof. But there is no reason why they could not be offered by two different organizations.

The key here is for each entrepreneur or intrapreneur to view their enterprise as a platform on which they can build a community of interests. Obviously, it could be a technology platform but just as easily it could be a real estate play, a retail chain, a department store or almost any other kind of business. Ask yourself these questions: a. what services or products does it make sense for you to bundle with your core offering (i.e., they complement it) and b. can you unbundle/break apart your core offering to uncover separate services or products that could be offered by others?

If you can get others to use your platform, you can push some of your capital costs onto them—it becomes a form of bootstrap capital. What’s more, they may pay you both a rights fee and rent just to be part of your offering. If I were advising Lululemon, I would rent stores to Yoga professionals for classes by them and create two revenue streams that way—more clothing sales plus hall rental. It is also a form of negative cost marketing as well since Yoga studios would be paying Lululemon to bring their clients to Lululemon stores, a highly valuable proposition for Lululemon. It’s similar to co-branding and co-opetition.

We did something similar back in the day when we were operating TCCL, Terrace Corporate Centres, the largest mini office provider in Eastern Ontario with 164 offices in two locations in the 1980s and 1990s before selling it. We operated a word processing business for the convenience of our clients—but it lost about $3,000 per month. When we unbundled the business and spun it out to an independent entrepreneur (who paid us $50,000 to buy what was then a failing operation), she was able to turn it around in just six months and make a decent living for herself. In addition, she paid us rent every month and a percentage of her sales.

IBM under past President and CEO Lou Gerstner bundled outsourcing, consulting, software and other services onto an enterprise that was flailing back in the 1980s—its mainframe hardware biz was under assault by low end personal computers and mid-tier mini computers. Some thought IBM should be broken up and sold in pieces or wound up.

Gerstner did not agree and frankly he saved a great company from oblivion. Sometimes, you unbundle things and sometime you do the opposite. Entrepreneurship is like that—full of contradictions that somehow make sense. Nortel under CEO Mike Zafirovski failed to do this (they had a great opportunity to add services and outsourcing to their biz model and didn’t). So NT was led to the brink of extinction and then fell off the ledge.

Govindh Jayaraman, other-directed founder of Green Stop, is trying to bring quality food, grown locally to the c-store business. C-stores are notorious for selling smokes/alcohol/guns and snacks that can hardly be called food and which are certainly contributing to an obesity epidemic in North America.

I suggested to him that he bundle other services into his platform—like Yoga classes, fitness classes, health and nutrition classes, cooking classes to teach people, especially inner city folks, about wellness. He could, of course, contract out these services and turn them from cost centres to profit centres. Maybe he partners with many strategic partners—Lululemon and Yoga studios, exercise clubs like the one run by student entrepreneur Angella Goran called Cyclepathic which itself is an independent part of Ottawa Sport Performance Centre (http://www.train4sport.com/programs/spinning/). He might also consider creating online accounts for his customers so that he can form an Internet community around Green Stop—to create meal plans, monitor their calorie intake, order stuff, suggest things that could be added to their offerings and so forth.

In Ottawa, Mountain Equipment Coop which sells bikes, running shoes, kayaks, canoes, outdoor clothing, cross country skis and much more will be adding a new 500 square-foot space to their existing store in Westboro and making it available for community use by sports and environmental groups. They want to be more than a store; they want to be a central part of the community’s commitment to an active lifestyle. In other words, they get the concept of bundling services and events into what was previously mostly a retail environment.

Apple does some of this with their stores where you cannot only buy Macs, iPhones, iPads, iPods et al but also attend a free workshop, get stuff repaired, ask for assistance at their Genius Bars, get help setting up your computing and communications environment, learn how to use iTunes and their app store, get one-on-one training if you need it… It’s all about bundling services around your core offering and creating a platform.

If you build a platform that others use, you not only reduce your capital costs, increase your revenues and decrease your marketing costs, you also build a community around your enterprise/product or service which makes it both sustainable and doubly hard to knock off.

Prof Bruce

(How Picture Inc can Develop a Sustainable Community Built Around its Redesigned Biz Model)

If your enterprise cannot connect efficiently and cost effectively with customers and clients, you’re dead. This is the sine qua non of marketing.

It also means that each enterprise (non-profits, charities, for-profits, even NGOs and gov’t departments) needs to have a ‘magic marketing button’—a button they can push that ‘makes the phone ring’. It’s an ‘easy button’, so to speak.

Last year, I had a chance to catch up with Glenn Schmelzle, Founder of Marketing What’s New. We were talking about one of his clients—a high end, specialty commercial camera manufacturer which we’ll call Picture Inc (PI, not their real name).

PI and Schmelzle were working on an online tool which helps users spec their camera requirements. In essence, it’s a ‘physics engine’ which allows potential clients to design a specialty camera with features that meet their requirements.

This is a tool that, in effect, goes on the front of PI’s website to engage potential customers, first, in the spec development and, second, hopefully in purchasing one of PI’s systems. But what Glenn and I wanted to do was make the tool a standalone site that could become a destination in itself. To do that, PI will have to accept (as yet unknown) that the tool could spec camera systems not actually made by PI.

This would be similar to Kris Kringle (in the 1947 film, Miracle on 34th Street) working at Macy’s as a sales clerk advising a customer to go to rival Gimbels for a product they don’t stock. It was considered heresy at the time but eventually the tactic was widely adopted, customer service took on new meaning and ultimately the idea of co-opetition would come to be better understood.

But this new tool can do a lot more than help clients spec camera systems (itself, a non–trivial problem with 1,000s of options to choose from). Using crowd sourcing, a d-base could be added that would permit each client to see what other clients who have the same problem (such as picking out defective products on an assembly line) did to resolve their issues.

Today, you can take it one step past web 2.0 as well—you can add a social media component that facilitates clients learning from each other. This might allow, say, a new client to query an earlier client who had generated a successful spec for their system and for them to comment back on the new client’s spec as well. Thus, you are developing a community of friends, followings and followers around the tool that cements it in place in a learning business ecosystem.

The free tool is obviously designed to be PI’s MMB. We’ll see if it works but if it does, it will do a lot more than just boost their marketing, it’ll help cement PI in place.

Now this approach takes guts—many companies are afraid of competition, afraid of cooperating with competitors (co-opetition), afraid of opening up their backend systems to clients, afraid of letting one client to talk to another.

But think about the ultimate propose of your enterprise—at a minimum, don’t you think you should treat your clients at least as well as you would treat yourself?

If you were buying a new product, say, wouldn’t you want the best price and best service, wouldn’t you want to know what other people who faced the same problem also did and, lastly, wouldn’t you want to talk to some of them so: a) you could learn from them and b) if you did decide to buy a PI device, you could get an independent reference on the company and its products and services?

Sure you would so why not enable all of that in your new (indispensible) MMB?

If you do all of this, an interesting thing will happen to you—your enterprise will become integrated into a business ecology where you will feed and be fed—and you will find customers and clients ‘magically’ appear early and often and they will come back to you over and over again and sustain you and your business for a long time.

Prof Bruce

The iPhone Yields at least 288% p.a. Return to Apple

There is probably no invention more helpful to the product manager today than the spreadsheet. It probably deserves to rank up there in importance with what the invention of double entry bookkeeping meant to the accounting profession.

Use of spreadsheets does not substitute for human judgment—rather it is an aid which will help you make better decisions. Decisions that lead to entrepreneurial success are probably based on a combination of three factors—when your head, heart and gut are all in alignment. Steve Jobs at Apple did zero market research before he introduced the iPod to the world figuring that consumers didn’t know and couldn’t see what his overarching goals were for a new business ecosystem—made up of a seamless integration of music player and download service, iTunes—and, thus, were not in a position to provide Apple with any useful guidance.

(If consumers couldn’t help market researchers at Apple with the introduction of the iPod, imagine how much harder it would be with the much more complex business ecosystem of the iPhone with its highly variegated utility to its users and multiple revenue channels including: a share of carrier monthly subscriber revenues, iTunes downloads, app sales and revenues plus advertising revenues in addition to the sale of the gadget in the first place.)

Hence, I chose the iPhone for the purposes of demonstrating advanced spreadsheet use because it is such an extraordinary and revolutionary product and, in part, because quite a bit is known about its revenue and cost implications. Nevertheless, I am using a grossly simplified model here.

First, let’s look at the number of iPhones sold. We have:

Phones Sold

1 2,320,849 units sold
2 13,727,740 units sold
3 25,103,770 units sold
4 35,000,000 units sold est.
5 46,391,461 units sold est.
6 57,332,809 units sold est.
7 68,274,157 units sold est.

Year 1 here is 2007 and Year 7 is 2013. I chose a 7-year product lifecycle which seemed reasonable for this industry.

I had data for the number of iPhones sold for 2007 to the third quarter of 2010 which I used to estimate the numbers which will be sold in 2011, 2012 and 2013. I did a simple linear regression analysis which yielded:

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.999436215
R Square 0.998872748
Adjusted R Square 0.998309123
Standard Error 581160.6385
Observations 4

ANOVA
df SS
Regression 1 5.98566E+14
Residual 2 6.75495E+11
Total 3 5.99241E+14

Coefficients Standard Error
Intercept -8315281 711773.5115
X Variable 1 10941348.3 259902.9387

This gives us a predictive equation as follows:

No. iPhones sold per annum = -8,315,281 + 10,941,348.3 x (Year – 2006).

The predictive power of this equation seems quite high—its multiple R value is .9989 which means that iPhone sales seem to be on a highly predictable trajectory. Here is what the data look like on a graph:

iPhone Sales 2007 to 2013

I attributed all of Apple’s R&D spending from 2006 to 2009 ($4.6 billion) to the iPhone which is obviously too high. I also ignored the knock-on effects of an iPhone sold in one year continuing to operate in subsequent years and produce revenues in later years from iTunes downloads, app sales and revenues, Apple’s share of carriers’ subscriber revenues and advertising revenues on this platform, for which I did not have any figures.

(Think how much more important the iPhone is to Apple’s future than more Mac sales—sure there is some follow on software sales that Apple might generate from the installed base of Mac users but, with the iPhone, recurring monthly revenues are large and growing, ’stable’ and predictable.)

So if anything, I have underestimated what the future holds for Apple in terms of net revenues and rate of return generated by the iPhone.

Here is the cashflow for the iPhone from 2006 to 2013 and the estimated IRR, Internal Rate of Return, from it:

IRR Cash Out Cash In Cashflow

2006 $ (1,150,000,000.00) $ (1,150,000,000.00)
2007 $ (1,150,000,000.00) $ 1,521,123,592.60 $ 371,123,592.60
2008 $ (1,150,000,000.00) $ 8,997,392,414.17 $ 7,847,392,414.17
2009 $ (1,150,000,000.00) $ 22,939,590,529.53 $21,789,590,529.53
2010 $ 22,939,590,529.53 $22,939,590,529.53
2011 $ 37,576,890,222.28 $37,576,890,222.28
2012 $ 44,748,034,503.51 $44,748,034,503.51

IRR 288% p.a.

If you introduce a product with a rate of return of, at least, 288% per annum, you are in line for a big-time promotion.

Now, of course, we are looking at the value of the iPhone from Apple’s POV. To experience this type of growth, the product must really resonate with customers. And in fact, all you need to know about what the iPhone means to its users is to watch a few minutes of video made on the New York subway in October of 2010 by Atomic Tom: http://www.youtube.com/watch?v=NAllFWSl998.

The video was made in one take while the B Train passed over the Manhattan Bridge into Brooklyn using only iPhones—as instruments, as well as to audio and video record the tune “Take me out”.

The iPhone’s value proposition, its extraordinary utility to its customer base, is apparent to these young people and millions more on the planet. There is no doubt that mobile computing is the future of the industry and, right now, Apple is in charge.

Prof Bruce

Postscript 1: (Jan. 25, 2012) I estimated above that Apple would sell 122m iPhones by the end of 2011/180m by the end of 2012. Actually, they sold 183m by end 2011. Wow. Please see:http://www.nytimes.com/2012/01/25/technology/apples-profit-doubles-as-holiday-customers-snapped-up-iphones.html?_r=1&nl=todaysheadlines&emc=tha26. Apple is currently (Dec. 2011) worth more than $426 billion making it the most valuable company on the planet ahead of Exxon Mobil.

Postscript 2: Want to be sick? Apple’s PROFIT per employee was > $400,000 in 2011:http://www.eqjournal.org/apple-revenue-per-employee-2011.xls. Most companies would die just to have those as revenues/capita.

Postscript 3: other data I used other data I used included—

Phone Revenues

Q3, 2010 $ 5,300,000,000.00
8,750,000 units sold
$ 605.71 per phone (includes sale of phone and subscriber fees)

iTunes and App Revenues

Q3, 2010 $ 1,100,000,000.00
$ 490,071,283.10 Estimate for iPhones
$ 56.01 per phone per quarter
$ 224.03 per phone per year

iPod

Q3, 2010 10,890,000 units sold
$174.33 cost to manufacture iPhone

The spreadsheet is available in .xls format for you to download from:

http://dramatispersonae.org/AdvancedSpreadsheetUseTheAppleiPhone.xls

Sources used:

http://www.mobilecrunch.com/2010/04/20/apple-q2-earnings-million-iphones/
http://www.numberof.net/number-of-iphones-sold-2/
http://thetechjournal.com/electronics/iphone/apples-iphone-sales-up-90-from-same-time-last-year.xhtml
http://www.andpop.com/2008/07/19/final-cost-to-manufacture-the-iphone-17433/

E&OE

Private ownership of a ‘thing’ can be viewed as private stewardship of that thing. As a former owner of a National Hockey League franchise, I never felt like I owned it and, frankly, I was always uncomfortable with the notion that hockey players under contract to the team were like indentured workers, albeit, highly paid ones, who could be traded like pork bellies. I always felt that I held the franchise in trust for the fans and the City.

I remember how counter productive it was when (former) West Carleton Township Council (near Ottawa, Canada) considered in the 1990s passing rules to control use of private woodlots. These woodlots, most of them carefully managed by private owners, had remained in continuous production over a period of time measured in generations. Owners carefully harvested enough product to feed wood stoves, pulp mills and board production but not so much that they wouldn’t have an income stream later because they had clear cut their properties.

The threat of controls superimposed on them by their local Council caused the exact problem the Township was trying to avoid—some woodlot owners clear cut their entire acreage in advance of the new rules becoming law; they feared they would not be able to realize any income after the rules were passed. This is so typical of government initiatives—a. governments often create enormous programs aimed at the whole population of that industry or sector when they are actually trying to solve a problem that is caused by a tiny percentage of the population in an industry, b. hence, they penalize the vast majority of that population without actually solving the problem, c. they often generate unintended consequences.

Private Ownership => Private Stewardship

If you look at the 80-year rule by the proletariat in the former USSR (actually, it was rule by nomenclature), you see that ‘public’ ownership produced the worst ecological consequences for our planet—from dumping old nuclear reactors into Lake Baikal to Chernobyl meltdown, Russia faces a set of environmental circumstances that will take 100,000 years to deal with.

Can you imagine what the mindset has to be to dump contaminated nuclear waste into Lake Baikal, which is the oldest (25 million years) and deepest (1,700m) lake in the world?

“It contains 20% of the world’s total unfrozen freshwater reserve. Known as the ‘Galapagos of Russia’, its age and isolation have produced one of the world’s richest and most unusual freshwater faunas, which is of exceptional value to evolutionary science.” (UNESCO:http://whc.unesco.org/sites/754.htm)

If no one owns a ‘thing’, no one seems to care about it. At least, that is the western notion and it certainly seems to be a cross cultural view with perhaps the exception of a few indigenous peoples who may nurture nature in a collective way.

When watching Star Trek, TNG, I was always struck by Captain Picard’s view of the Ferengi as something of a sub species because of their clearly established commercial avarice. Starfleet and the Federation no longer felt the need to be guided by the individual pursuit of personal enrichment—I guess they are something like Commune-ists.

Invisible Hand of the Ferengis

As someone who has lived in a commune, I can tell you that communes are organized in a hierarchical manner, no matter what they may advertise. As Orwell said: “Everyone is equal, except some are more equal than others.”

What worries me is how to decide who is more equal than others without using the scorecard of dollars and achievement—after all, dollars are democrats. Are we better off with a benevolent dictatorship like Starfleet making decisions on who gets what rather than using money, which does not discriminate and is blind to gender, race, religion or any other form of segregating humans except merit? Perhaps (to paraphrase Sir Winston Churchill) money, free markets and democracy form the worst possible system, except for all the others.

Even so-called not-for-profit corporations and charities are required by statute to generate significant reserve funds to tide them over the rough patches. A ‘reserve’ fund is just a politically correct term for ‘profit’.

What else does a profit allow? Well, it allows the organization (or family) to invest in more research and development (or education for example), as well as better technology and technical methods of doing things, to implement best practices and much more. Profits are not just so ownership can have nicer cars, boats and other toys.

If anyone has ever worked for a company that loses money, you already know it’s no fun. When you want to travel somewhere, say to meet a client or go to a trade show or go to a conference, guess what? You can’t.

An unemployed fellow I just interviewed for a JOB with a client of mine said it particularly well:
“It’s possible to have money without fun but it’s virtually impossible to have fun without money.”

So, please, make profits in everything you do—including running say the Kiwanis Club so you can do more good works for the community (don’t just call it that).

I met Walt Rostow when he visited Ottawa and enjoyed listening to the great man hold forth on his ideas about how to establish the preconditions for economic takeoff in DCs, Developing Countries. Walt Rostow’s work of the 1950s and 1960s and recent work by Hernando De Soto and others (I have dared to add in a few of my own suggestions) that what is needed for economic take-off in DCs today includes:

1. education
2. health
3. supply of and private ownership of housing (safe, affordable, privately owned)
4. clear title to housing and accurate addressing and surveying
5. tolerance of and legalization of cottage industries
6. tolerance of mixed use neighborhoods where people can work, live, shop, trade, play, entertain all in the same location
7. effective legal system, respect for the rule of law and contracts
8. moderate levels of taxation and avoidance of confiscatory levels of taxation
9. re-integration of black and gray markets (deeding of lands and title in squatter settlements )
10. active capital markets (borrowing circles and financial recycling of savings and investment, home mortgage and business loan availability)
11. culture of and support for entrepreneurship and innovation
12. wide spread high speed Internet access and effective communications including wirless systems providing always-on ever present Internet
13. sound public infrastructure
14. extensive private ownership of economy
15. respect for human rights and tolerance of diversity
16. protection of private property rights
17. good, honest and transparent government
18. social peace and harmony
19. strong civic institutions
20. civil defense
21. trust, courage, hope and faith.

I added the need for a culture of and support for entrepreneurship and innovation as well as some neo-urbanist planning principles. I have become convinced that these are important ingredients to unlocking development potential not only in DCs but first world countries as well.

Respect for the law including contract law is an important pre-condition. Former President Bill Clinton, when asked to comment on why it was taking so long for the ‘new’ Russia to be fully accepted into the community of trading nations, responded that this would have to wait until contract law was widely accepted as binding by the people and institutions of that country. People doing business in Russia in the 1990s needed to carry around briefcases full of USD currency—they couldn’t rely on Russian banks to ‘give’ back any money they deposited there.

It’s hard for an economy to takeoff without trust. I have learned as an entrepreneur that you can have rooms full of legal paper but if the other side has no respect for a contract, the legalese is generally pretty useless. Having to go to court to force someone to live up to their agreement is not only expensive and time consuming, it is soul destroying too and often futile.

Prof Bruce

Postscript: to read more about some of my thoughts on the Environment, please refer to:http://www.eqjournal.org/?p=81 which deals with a voyage to Earth, population 1.2 billion.

Leverage or gearing means using OPM, Other People’s Money, in one of your projects. Simply put, when your project’s rate of return is higher than the coupon rate (interest rate) on money you borrowed or used to capitalize it, you will get positive leverage.

Let’s assume for this hypothetical sample project that its overall ROR is 12% p.a. This is based on you funding the entire thing with your equity. Luckily, you have enough cash in your Bank to fund it this way, if you want to. But do you want to?

Maybe, maybe not. Say instead you are able to borrow half the capital you need at 6% from a friendly lender, what happens to your ROR on your equity? It will have increased by half to 18%. That means you can now use your equity to fund two projects instead of one, producing a huge increase in overall return to you.

Still not convinced? Let’s walk through it once more. Say you buy an asset for $100,000 in cash (i.e., all equity) that produces $12,000 in annual net operating income or profit for you. That’s your 12% p.a. return. But if you instead decide to borrow $50,000 at 6% (interest only), your return would be $12,000 – $3,000 which would now leave you with a $9,000 profit on your $50,000 in equity or 18%.

If you did two identical projects, you would now be seeing $18,000 every year on your $100,000 of equity instead of $12,000. Over time, this is a huge difference and it’s why investors generally own everything and savers own little or nothing in most nations. It’s why you see OWS, Occupy Wall Street, everywhere—because the 1% who are investors own pretty much everything. Depending on your source, the top 1% in the US own somewhere around 42% of all financial assets in that Republic.

Now what if instead of borrowing the extra money you want from a lender, you got $30,000 on credit (with no interest) from a couple of your suppliers and you got another $20,000, this time as deposits or retainers from a few customers or clients, what happens to your ROR? It doubles, that’s what, to $12,000 on each $50,000 tranche of equity you invested so now you are making 24% on your money and $24,000 every year instead of $18,000 (if you borrowed 1/2 the capital cost from a lender) or $12,000 if you funded it all yourself. This is big news.

I believe that Bootstrap Capital is a new form of capital—it obviously isn’t debt or equity so what is it? It’s not energy or labour either. It’s not like issuing a bond or shares in your enterprise either since sources of bootstrap capital have no claim on the ownership or capital structure of your enterprise.

It’s not sweat equity either. Perhaps you could reduce your capital requirements by working harder yourself– substituting your labour for capital. But this isn’t the same either since sweat equity comes with a significant opportunity cost—you could be doing something else with your time like working for wages or on another investment opportunity.

Another cool thing about Bootstrap Capital, you usually don’t have to pay it back or at least not all of it.

I think it will one day be recognized for what it is—something different, part of the ‘magic’ created by a class of entrepreneurs. Services like kickstarter.com get this—they have created a platform for creative persons to get funding for their innovative projects without giving up any equity in their deals or taking on debt because there is one thing you need to be mindful of—if you borrow money from a lender/backer/equity holder, they have an expectation that you will pay them back or make money for them while they are lying on a beach. If you don’t do that, you are going to make enemies.

Lastly, be careful—financial leverage can and will work against you if you borrow at rates that are higher than your project’s ROR. This seems self evident but you might be surprised at how often entrepreneurs (who have an enormously high personal discount rate and are highly optimistic by nature) do this.

If your project’s ROR is in fact 12% and you borrow vulture money (e.g., 2nd mortgage money or finance company debt or credit card debt) at 15% or even more (credit card debt can easily get away from you—Banks have a unilateral right to jack up the interest rate on your credit card whenever they feel like it BTW) thinking that somehow you can outrun them, you’re sunk before you start.

In the Land of Grassel

I ran a thought experiment last year about an imaginary world called Grassel—a place made up of 100 rows and 100 columns with 10,000 squares where four classes of creature live: grasshopper, squirrels, ants and mensa ants.

Here are the characteristics of the four groups:

1. Grasshoppers are low wage earners who have to spend every cent they make just to survive. However, each Grasshopper starts life owning one square in Grassel with an asset value of $13,200. (All figures are in GD, Grassel Dollars.)
2. Squirrels are mid-income types and even though they have a lot more income than Grasshoppers, they somehow seem to spend all the Grassel Dollars they earn on current consumption. The amount they have left over each year for savings and investment? Zero. But they live on nicer squares in Grassel with an asset value of $19,800 each.
3. There is a minority population made up of Ants. They are an upper class folk who make many times what even Squirrels take home so they have some money left over for savings and investment! But these Ants are very cautious and don’t want to take any risks so they don’t invest any of their hard earned money– they save it instead and put it in Grassel state-backed treasury bills that pay interest at 2% p.a.
4. Finally, we have a minority within a minority– Mensa Ants who make the same amount of money each year as the rest of the Ant class but they split their surplus cash between savings and investment.

In fact, Mensa Ants place 90% of their surplus in investments; the balance they place in financial instruments. Since there is only one type of financial instrument in Grassel, they have some t-bills on which they get the princely sum of 2% p.a. in interest.

Grasshoppers and Squirrels are only too happy to sell the squares they own! Heck, they can use a boost to their cashflow. However, they don’t save any of the extra cash they get from selling their squares. And they don’t invest any either! THEY SPEND IT ALL!

The Ants won’t sell the squares they own to Mensa Ants. They’re into savings and they believe that owning a square is a form of savings for themselves and their famdamilies.

Of the 10,000 squares in Grassel, Grasshoppers own 3,333, Squirrels own 6,234, Ants own 333 and Mensa Ants 100 at time, t = 0. The 10,000 squares represent a total asset value of $170,060,000.

Every Grasshopper, Squirrel, Ant and Mensa Ant start out with one square of Grassel land each. But the gods of Grassel are wondering if they come back a generation later (20 years on), what will have happened?

Well, after just 11 years, none of the Grasshoppers own any property and after 17, the Squirrels get wiped out too. Of course, the Ants still own their properties since they refused to sell to Mensa Ants and they didn’t need to so that they could maintain their lifestyle (like the Squirrels did) or just to pay for the necessities of life (like the Grasshoppers did). But they don’t have much money either– their savings don’t amount to much but at least they still have their squares.

This proves that in Grassel: you can’t save your way to wealth, you have to invest your way there.

(For more about Grassel, please see: http://www.eqjournal.org/?p=2760.)

Use of leverage in their investments is what the 1% has been doing to get where they are. If it works for them and Grassel’s Mensa Ants, so why not for you and me?

Prof Bruce

Here is my (absolutely unscientific) bar chart of what I think are the main sources of capital for startups. (I’ll leave it to a future grad student to prove it or disprove it.)

Home Equity Loans
********************************************************************************************
Soft Capital/Co-Guarantor/Family Savings & Investment/Friends, Family, Fools #
************************************************************************************
Supplier Credit
***************************************************************************
Consulting
***********************************************************************
Pre-sales/Launch Clients
******************************************************************
Sweat Equity
***************************************************************
Credit Cards
***********************************************************
Deposits, Retainers, Advances, Progress Payments ##
*******************************************************
Receivables Factoring/Collecting Early & Pay Late/Cashflow
****************************************************
Financial Leasing
*************************************************
Partners/Debentures/Partner or Company Loans/Limited Partnerships/Share Issues/Debentures
*********************************************
Trading/Speculating/Reselling/Asset Flipping
******************************************
Strategic Investors/Co-opetitors/Borrowed Equipment/Social Capital/Co-branders/Advertisers ###
****************************************
Seller Financing/Seller Take Back Mortgages
**************************************
Banks/Micro Credit
************************************
VCs
********************************
Government Grants/Tax Credits/Government Loan Programs/Foundation Grants & Loans
*****************************
Angel Capital
***************************
Earned Media/Guerrilla Marketing/Negative Cost Marketing
*********************
Franchising/Branchising
*******************
Accretive Buying/Selling
*****************
ESOPS ####
**************
Sponsorships/Rights Fees/Signage
************
Start Your Own Foundation or Not-for-Profit
**********
Patents and Royalties
********
Collectibles Sales
*******
Business Competitions
******
# Mom, Dad, Rich Uncle Buck, co-guarantors
## And Draws
### Investment by competitors, near competitors, future clients and future suppliers
### Employee Stock Ownership Plans

This is just my experience talking—who knows I may be wrong but most entrepreneurs are, by definition, people without much money. Again, in my experience, people with money are not entrepreneurs, they are called ‘old money’ and old money anywhere tends not to do very much—it just sits around collecting coupons not starting new enterprises.

I always laugh when my students in entrepreneurship at the Telfer School of Management at the University of Ottawa and elsewhere go to a Bank for the first time and ask for a loan to start a business—and then get refused because their only ‘collateral’ is their student debt. It took 2006 Noble Peace Prize winner Muhammad Yunus, formerly of the Grameen Bank to realize that a bank’s real job is to lend money to people who need it—a completely novel thought, it turns out.

Dr. Yunus also realized that the way out of poverty for the vast majority of people on this planet is to become (at least at first) micro entrepreneurs. In fact, Grameen Bank lends on a priority basis to people who have the greatest need and the least money! And you know what? Their loan loss ratio is tiny and they make a profit too.

Canadian Banks would probably prefer to do zero small business lending. It takes very few bank resources to approve a home mortgage, give out a credit card or make an auto loan. Banks think nothing of approving a $350,000 home mortgage—if your credit score (or your Beacon Score) is high enough—in minutes.

But go to the Bank for a small business loan of $350,000 and you will find that: a) they need a massive amount of data from you and b) they need an expensive infrastructure in terms of on-the-ground bank managers, loans officers, account managers and back office and central office types to approve your loan application. I believe if it weren’t for the fact that successive Finance Ministers lean on Chartered Banks in Canada, they would choose to turn down every small business loan request.

Prof Bruce

The proliferation of information in the last Century and this one is beyond belief. In 2008 alone, 487 million gigabytes were added to the collection of digital information world-wide according to an IDC study: As the Economy Contracts, the Digital Universe Expands, May 2009.

As part of our on-going study into business models, we are always trying to distill the essence of any business: the ‘pixie dust’ that makes it all work. It occurred to me that what has created some extraordinarily profitable and valuable corporations in the last 18 years is a surprising resurgence of an old profession—the curator.

What do Google, IBM Tech Services, Hotel Concierge, Bloomberg Financial, Digg, Twitter and Hudson Bay Company have in common? They all curate information, products and services for their audience—this is, at the nano scale of things, what they actually do.

A curator is a steward, factor, majordomo, butler, MC (Master of Ceremonies), proctor, guardian, librarian, cleric and custodian of things (taken from The Original Roget’s International Thesaurus, 5th Edition). But he or she is more than that—an intelligent agent who curates these things on behalf of their stakeholders.

• Google curates information.
• IBM Tech Services helps clients negotiate through the thicket of info tech infrastructure alternatives and then help them put it all in place plus run it too. They will spec non-IBM equipment if it better suits the job.
• The Concierge curates myriad tourist attractions in a city and much more besides.
• Bloomberg LP provides industrial scale data organized into coherent patterns for traders around the globe.
• Digg curates tech, science, gaming and some political news for a mostly male demographic.
• Twitter allows you to follow people who are working for you for free to provide you with a window into a world of their creation that interests you.
• Hudson Bay Company is staking its future on curating interesting merchandise in patterns that it would take an individual much too long to do on their own. They may bring in co-branders as well as bundle in extra services interesting to their client base.

I think they are onto something. Why wait until the receiver is at the door like Nortel did or Blockbuster did? HBC has wonderfully located central real estate—they just have to figure out what goes into that space that people actually want.

I think it will help entrepreneurs create more powerful and more sustainable business models if they look at their enterprises with a new thought—that they are adopting the attributes of an art curator—creative presentation of alternatives and intelligent advice to help them choose.

Amazon’s amazing use of their relational data base (remember: ‘Would you like to see what other people who bought this book also purchased?’) is a form of curating their incredible number of titles. It tells people like me what else I should be reading on any particular subject.

Or how about content curation service Paper.li based at the Swiss Federal Institute of Technology’s Innovation Center in Lausanne, Switzerland? Their Daily newspaper which they automatically produce for any subscriber is based on their client’s Twitter followings and interests. It gives each community that has formed around each of their clients’ Twitter accounts, a summary of tweets s/he gets every day. Clients publish fresh e-newspapers daily based on topics they like and want to share with their readers/followers/friends. Murray McGregor, Editor* at Digital Folios, uses it and he told me: “It can be a bit of a strange beast and they keep tweaking their algorithm but I like it.”

Paper.li has used a Mechanical Turk—humans are in the loop because it is people not machines tweeting/posting and they believe that people not machines are the ones who should curate content.

Here’s how they summarize their mission on their website: “We love the semantic web, we respect our content creators, we strive for simplicity, and we thrive on feedback.”

Artful, intelligent curating can lead to big businesses like Digg.com, Paper.li and many more. I suspect someone will successfully curate the more than 500,000 iPhone apps for a very receptive audience one of these days. Services that artfully and intelligently guide users have a great future and they will be hard enterprises to knock off because their sustainable competitive advantage is the ‘Mechanical Turk’ inside the black box.

Intelligence, artfulness and creativity are not easily outsourced to low wage nations and once you have embedded them in your business model as Digg.com and Paper.li have done and your community has embraced them, they aren’t easy to replicate. It’s also important to recognize that these enterprises not only rely on curation and community but they develop and own the underlying platform and its the people who own the platforms at Digg.com, Paper.li, Twitter, HBC or Bloomberg (think Mark Zuckerberg at Facebook) who make the most money from them.

Prof Bruce

* Murray McGregor is currently editing Quantum Entity, Book 1 in my new sci-fi trilogy coming out in May 2012. The Foreword is here at: http://www.eqjournal.org/?p=2932.

There’s nothing new about raising money by issuing script. The Reynolds Brothers ran a sawmill (established in 1870 by Orson L. Reynolds) in the Adirondacks that in addition to central logging and operating their mill also ran a company store and developed other sources of income including catering to boarders as well as selling merchandise to loggers in logging camps. (Source: Reynoldston, New York, History of a Mill Town).

When they needed to raise money, they issued their own ‘currency’ called script like the $5 promissory note I show below to pay their bills or to fund new ventures or additions to existing ones.

The script says it is: ‘Due to the Bearer…In Trade At…’ What that means is that the bearer of the script cannot redeem it for cash, i.e., a sovereign banknote of the nation (the United States of America). The fact that it is redeemable only ‘In Trade’ is key. Presumably, Reynolds has a margin on each trade so a $5 note with a GPM (Gross Profit Margin of say 40%) only costs them $5/(1 + .4) or $3.57. It’s a good deal for Reynolds but is it a good deal for a supplier, equipment maker or labourer who accepts script instead of banknotes?

The answer is: it depends. If you can’t get any other work, $5 in credit at a Reynolds Company Store, $5 in cigarettes or candy from a Reynolds vendor (which you could then trade for other stuff) or $5 in Reynolds products (milled lumber) might be better than watching your family starve or having you join them in that unfortunate predicament circa 1876 even if you know in your heart of hearts that it’s only really worth $3.57.

Conn Smythe built Maple Leaf Gardens in a six-month period during the Great Depression (1931) at a cost of $1.5 million. He funded it partly with script. If the ‘Carleton Street Cashbox” as it later became known had not lived up to its name, that script might have become valueless. Nevertheless, for an out-of-work ironworker back in the day, it beat unemployment. They could always find someone in the gray market to take script off their hands (at yet another discount) so they could eat today. It is what it is.

Canadian Tire issues script (CDN Tire money) that can only be redeemed at their stores. Disney issues Disney Dollars at the exchange rate of $1 DD = $1 USD. They can be converted back to US currency but only at Disney Parks. Hardly anyone does that and Disney has several billion dollars of DD on its balance sheet where they sit as liabilities lest a horde of grandkids and their grandparents suddenly show up at their theme parks clutching millions of DD they found moldering in their parents’ sock drawers.

Don’t think that script is relevant to you? Think again. What are gift cards really? The lesson was not lost on Tracey Clark owner of fair trade coffee house, Bridgehead in Ottawa where she issued several million dollars of script to help fund her recent $15 million expansion. She is building a new HQ for her growing coffee empire and new factory in a trendy part of Ottawa.

Tracey is a cautious, conservative entrepreneur who bought the assets and name from a bankruptcy trustee years ago and has painstakingly built a successful chain of coffee houses in Ottawa. She has an aversion to debt but not script.

Her customers bought script in denominations of $250, $500 and $1,000 to help her get this expansion done. It’ll open later in 2012. Now why would they do that? Because: 1. they love Bridgehead coffee, 2. they love the ambiance of her stores and free wi-fi, 3. the fact that she is local and able to stack up to and compete with mega chains, 4. she’s an underdog, 5. they want to feel like they helped make it all happen, 6. they trust her. But there’s another reason– they get a 20% return.

How’s that? Tracey gives them $1.20 worth of trade value on every Bridgehead Dollar. That’s a lot better than putting a $1,000 into a savings account and getting .7% p.a. It’s true, on $1,000 in a Bank savings account today, you’ll get $7 in interest for the year. If you take off Bank fees, it’ll be obvious that you are paying your Bank to take your money from you.

Now what about Tracey? Say her GPM is .6. The cost of $5 in script is them 5 x 1.2/(1+.6) or $3.75 so you can see Tracey’s cost of capital for expansion acquired this way is a negative $1.25 per every $5 raised. Negative perspiration for Ms. Clark. Now try getting that kind of deal from your Bank where they lend you money at interest rates less than zero. Not going to happen.

Recently, I met with Andrew Craig owner of Major Craig’s Chutney who, like the gentleman he is, recently acted in Quantum Entity Short Film. (The film will be released in May 2012 and you can read the Foreword of the Book at:http://www.eqjournal.org/?p=2932.) He’s a true volunteer for the acting gig not a voluntold, really.

He told me the backstory on his three year old business. Turns out his great, great grandpappy served with British forces in India circa 1884. While there, Major James Craig experimented with ingredients and cooking methods for all kinds of chutneys and brought those with him back to the British Isles where a subsequent generation somehow found their way to the wilds of northern shelf Canada and brought the knowhow with them and the written recipes waiting to be rediscovered by Andrew in 2009. Thus was http://www.majorcraigs.ca/ born– if you need North India, Cranberry, Jerk, Butternut and Beer (yum) chutneys, well, now you know where to go.

Andrew came to see me today and, well, it’s a pretty tiny business. He needs a bit of capital to expand and he can’t take on any debt or partners (it’s a PB4L, Personal Business for Life). Why no debt? Cuz he can’t yet support any. Why no partners? Cuz if he has a partner (or takes on any debt) it won’t be long before either the partner owns his family recipes or the debt holders do (i.e., the Bank or other lenders).

So what’s a progeny of Major James Craig to do nearly 150 years later? Issue script and find strategic partners and sponsors, that’s what.

His clients, distributors, food prep supplier, his label printer, his ingredient growers, he has a lot of people in his business ecosystem who want him to grow and succeed. If he issues script to them in $25, $50, $100, $200 and $500 amounts with a premium of 15 to 20%, that’s a pretty good deal for them and even better deal for him– same as for Tracey Clark.

There is some other cool stuff Andrew can do to raise more ‘free’ money. If you look at the image below, you’ll see that strategic partners are everywhere, you just have to see. It was there staring poor Andrew in the face all the time. He was looking but not seeing. One of his suppliers is fast-expanding Beau’s Brewing. There, right there on the label! How much are they paying Major Craig to be co-branded this way? Nothing.

That has to change. What I want Andrew to do is put five strategic partners on his label, his new website (when he raises the ‘free’ cash to build a decent site) and in his nice Xmas gift boxes (see the last image I have included near the end of this post) which are perfect vectors to carry his strategic partners’ messages to his clients– things like teensy recipe books, coupons, tickets, biz card, promo items, what have you.

How much of his equity does he give up to get their sponsorship money? Zero.

How much interest are they charging him to give him their dough? Zero.

In fact, he doesn’t even have to repay the money since it is a sponsorship/marketing/advertising cost to them, i.e., an expense. Truly free money for Andrew.

For more on this subject, please read: How to get Sponsors for Practically Anything (http://www.eqjournal.org/?p=1649) and Strategic Investors (http://www.eqjournal.org/?p=2406).

One other note I should add. I suggested to Andrew that he sign up his sponsors for two years. He just isn’t going to have time to start over every year at ground zero. He will also give his sponsor partners an option on a third year at the same cost provided they exercise that option at least 6 months prior to the end of the term of their agreement. After that, if he is as successful as we hope, the price will increase so this is a big benefit to his sponsors. (For more on non-linear selling please refer to:http://www.eqjournal.org/?p=25.)

Lastly, Andrew can use his Xmas packaging as a vector to deliver his sponsor messages. In a way, he could learn something from LooseButton.com: they deliver their monthly Luxe Boxes to subscribers and get paid on three sides of their biz model. See: http://www.eqjournal.org/?p=2748.

Or he could do worse than copy the Manpacks.com biz model– they managed to turn products (men’s underwear, cologne, razor blades, etc.) into a service by delivering their stuff monthly or quarterly or semi annually and developing a nice recurring revenue model for themselves. See Manpacks and the Tipping Point,http://www.eqjournal.org/?p=2455.

Regular chutney delivery service anyone?

Prof Bruce

FOR IMMEDIATE RELEASE

OTTAWA (January 31, 2012) – Following a record number of nominations, Exploriem today announces the finalists of the 2012 Bootstrap Awards. Finalists in the 12 categories were narrowed down from a pool of 97 nominations received in the last six weeks. “This year we see a 45 per cent increase in nominations which is testament to the self capitalized talent and growing entrepreneurial culture in Ottawa” says Dr Bruce Firestone, Executive Director of Exploriem and mentor to many local businesses.

Winners will be announced at the awards event and tradeshow from 10.30am to 2pm at the Centurion Conference Centre on the 23rd of February, 2012. Ottawa based Liverpool Court Studios – the video production team behind the RBC Ottawa Bluesfest - have stepped in to help winners maximize their post event publicity. After the awards, each winner will receive a vignette showing an overview of their company including footage of their win and acceptance speech. Mayor Jim Watson has also confirmed his attendance at the awards.

The 2012 Bootstrap Awards finalists are:

Fastest Growing Start-Up (Last 3 years) Sponsored by: Ginsberg, Gluzman, Fage & Levitz LLP

1. Capital Home and Staging

2. Gazaro Inc.

3. Renaissance Repair and Supply

4. StoneShare

5. YOUiLabs

Best Business Model Sponsored by: Nitro IT Business Solutions

1. CanaFlora

2. Dual Code

3. JokWear

4. LoonieGames

5. Napkyn Inc.

Innovation in Engineering and Technology Award Sponsored by: Babcock

1. Crack Semiconductor

2. Giatec Scientific Inc.

3. Impakt Protective Inc.

4. QGLex

5. V+I Composites Inc.

Lead to Win for Women Award Sponsored by: Lead to Win

1. Amanda R A Lunan | Auntie Loo’s Treats

2. Elizabeth Lance | InGenuity Group

3. Hana Abaza | Wedding Republic

4. Katie Hrycak | Commentair Technologies

5. Sue Lantos | CribCare

Bootstrap Capital Award Sponsored by: FaveQuest

1. Apption Corporation

2. Empire Deck and Fence

3. Idea2Delivery

4. Nuvyyo

5. OPIN Software

Best Guerilla Marketing Sponsored by: Business Development Bank of Canada

1. Arctic Empire

2. Mold Busters

3. Openera

4. Ottawa Clothing Drive

5. TOLETTA

Community Impact Award Sponsored by: Canadian Youth Business Foundation

1. ER Advisor

2. First Place Options

3. HUB Ottawa

4. Shepherds of Good Hope

5. TheTop10.ca

Green Award Sponsored by: Telfer School of Management

1. CarbonSolve Inc.

2. GrantBay Green Services & Technology Inc.

3. Koester Environmental Ltd

4. Rumidifier Home Comforts Inc.

5. RIPP

Best Mobile App/Website Sponsored by: Select Start Studios

1. DawnSuite Communications Inc.

2. iPricedit.com

3. MagneticBear Studios

4. Nine Seconds

5. Spoonity

Best Customer Service Sponsored by: Babcock

1. Blue Rabbit Machines

2. Desserts First

3. DIUM Solutions

4. Movingboxes.ca

5. Pirate Adventures

6. RenoRescue

Best Sales/Value Proposition Sponsored by: Connelly Group of Companies

1. Chide.it

2. Headwall Software

3. LavaBlast

4. OmniGlobe

5. Tindr.co

People’s Choice Award Sponsored by: IronGate Server Management & Consulting

1. 3D Virtual Crafting

2. Adjoy

3. Arkli

4. AudioPod

5. Cinnamon Toast New Media

6. CubeDrive

7. Dermis Advanced Skin Care

8. Guardian Mobility

9. Granite Networks Inc.

10. GremlinsGold.com Inc.

11. IdeaVibes

12. Major Craig’s Chutney

13. N-Product Inc.

14. Power Scout Sports

15. Wedding Republic

All top five nominees receive one free ticket to the awards with the exception of the Customer Service award nominees as the top six will receive one free ticket. The People’s Choice award, added by popular request for 2012, will be chosen by the public through online voting available at www.exploriem.org. The top five nominees chosen after the public vote will also receive a free ticket.

Exploriem would like to thank the award and title sponsors Welch LLP and Royal Bank of Canada, judges and all of the category sponsors for supporting local entrepreneurs and growing the mentor and business support network. The Bootstrap Awards honour entrepreneurs in the city of Ottawa, Gatineau, Eastern Ontario and West Quebec. These awards recognize those individuals that sacrifice so much for their company.

-30-

Notes to Editors

Please email kennedy.alana@gmail.com to obtain a quote from or an interview from Exploriem/sponsors or the finalists. Media are also invited to attend the awards announcement at the Centurion Conference Centre on the 23^rdof February, 2012.

About Exploriem

Exploriem is a registered Canadian not-for-profit organization. It provides mentorship, conducts events, creates networking opportunities and provides early stage funding and office incubator space to assist young entrepreneurs in Eastern Ontario and West Quebec.

Today Exploriem is led by its Executive Director, Professor Bruce Firestone who is best known as the Founder of the Ottawa Senators. He is also Entrepreneurship Ambassador at the Telfer School of Management, University of Ottawa and Real Estate and Mortgage Broker with Century 21 Explorer Realty Inc.

About the Bootstrap Awards

The Bootstrap Awards and Adawe Trade Show is an annual event hosted by Exploriem to honour entrepreneurs in the city of Ottawa. The Bootstrap Awards are unique in that they focus on businesses that use self-capitalization techniques to fund their enterprise.

For more information contact:

Alana Kennedy

Marketing & Communications

613 315 4537

kennedy.alana@gmail.com

“We chose EyeVero because it offered more than just a website redesign. They didn’t offer us just a pretty website, they offered us one that was measurable and quantifiable,” said Erika Godwin, Manager Exploriem.org. “We’ll also benefit from EyeVero’s Brand Strategy Process as it will help us meet our key target audience’s requirements and our organization’s goals and objectives.”

EyeVero’s CEO and President Scott Williams said he was delighted that EyeVero was chosen. He stated, “We at EyeVero are very excited to help Exploriem.org enhance their web presence. Its ongoing efforts to help entrepreneurs is an integral part of Ottawa’s business community. The network and tools Exploriem.org provides to its members is unparalleled. It is a great honor to be part of the organization and to help them continue their work here in the national capital region.”

Exploriem’s new website is just one component in the organization’s ongoing commitment to the Ottawa business community. The Exploriem.org team and its members continue to mentor, teach, perform research, conduct events, network, provide early stage funding, and provide office/incubator space to assist in the furtherance of entrepreneurship in Ontario and around the globe.

The enhancement to Exploriem.org’s web presence will now include EyeVero. This is an opportunity for the company to give back to the community and to the businesses just starting out—businesses that may not otherwise have the resources available to them.

About Exploriem.org

Exploriem.org is a registered Canadian not-for-profit professional entrepreneurs and intrapreneurs organization. Founded in 2001, Exploriem.org appeals not only to entrepreneurs and would-be entrepreneurs, but also to intrapreneurs and high achievers interested in participating in shaping the technological, economic and sociological future.

Its goal is to mentor, teach, perform research, conduct events, network and provide early stage funding and office/incubator space to assist in furthering entrepreneurship in Canada and around the world.

About EyeVero 

EyeVero Marketing Communications Group provides a targeted approach to strategic branding, graphic and website design, communications plans and new media communications. Its clients range from multi-national corporations to small-, medium- and large-sized businesses.

Behavioral science lies at the heart of everything the company does. As a result, it understands how people cognitively retain information, emotionally connect to it, and become advocates of it. Since its marketing communications strategies flow from its behavioral science methodology, they are not only successful but also qualifiable and measurable.

EyeVero also delivers and implements solutions. Its business process assesses the effectiveness of its clients’ marketing communications. It then provides recommendations on how to integrate brand language and how to strengthen and promote brand image. EyeVero ensures improved results because it builds integrated marketing tools that create a demand for its clients’ brands, creating a better brand experience and a higher conversion rate.

EyeVero’s comprehensive strategic planning methodology not only results in improved efficiency and brand effectiveness, but also results in higher sales through targeted messaging that converts prospects into customers.