Posts Tagged ‘investment’

Investment Value

by Steve Popell on August 27, 2010

In a previous post, Business Valuation in Divorce is Different, we discussed why Investment Value is more appropriate in the context of family law.  But, this method is not just for divorcing couples.  In any situation in which the party acquiring an interest (or a greater interest) in a company will become (or continue to be) part of the management team, Investment Value is often the most appropriate method.  Here’s why.

In a Fair Market valuation, the objective is to determine what a hypothetical “willing buyer” would pay a hypothetical “willing seller” in a hypothetical “free market” etc.  But, that is not what is going on in a divorce or in a variety of other private company business situations.  An abbreviated list would include the following.

  • Sale of shares in a corporation to a new hire.
  • Repurchase of shares in a corporation from a retiring, or otherwise terminating, employee.
  • Sale of a partnership interest in a professional firm to a new partner.
  • Repurchase of a partnership interest in a professional firm from a retiring, or otherwise terminating, partner.
  • Implementing a stock option plan.
  • Implementing a Stock Appreciation Rights program.
  • Establishing a value, or value formula, for a buy-sell agreement.

In each of these examples, the buyer is a current (or soon-to-be) partner and/or a member of the management team and, as such, intends to benefit (or benefit to a greater extent) financially from future operations.  This is strictly an insider transaction, with no hypothetical “willing buyer” in sight.

In a small professional firm, for example, a prospective outside acquirer would typically find value primarily in the people who operate it.  S/he would be “buying the people” rather than the firm itself.  The resulting dependence on 1-3 key individuals creates risk which, in turn, depresses value from the perspective of an outsider.  For an insider, not so much.

A key insider owner should certainly be cognizant of the importance of a management structure that has breadth and depth.  That’s just prudent management.  But, more importantly, s/he need not fear that the currently thin management structure will suddenly evaporate by virtue of a loss of motivation.  In addition, there are many important financial benefits to being an inside owner, including control or influence regarding:

  • Salaries
  • Bonuses
  • Retirement plans
  • Common executive perks (such as automobile or expense allowance)
  • Uncommon executive perks (such as an apartment or extensive foreign travel)

In some cases, the value to an insider may be considerably higher than to an outsider.  Conversely, if the company or professional firm is in financial difficulty, the value of the inside investment could be well below Fair Market Value, because the financial risk will be borne entirely by the current owner/manager team.  The common thread here is the value of stock or partnership interest to an inside investor. That is why Investment Value in such cases is the valuation method of choice.


This article has been contributed by Steven D. Popell CMC (Certified Management Consultant.) Steve has been qualified as a business valuation expert since 1974, and has published extensively on this topic. CMC, a certification mark awarded by the Institute of Management Consultants USA, represents evidence of the highest standards of consulting and adherence to the ethical canons of the profession. Steve was a 2007 winner Collaborative Practice California Eureka Award for contributions to Collaborative Practice in this state and is a Senior Partner in Popell & Forney, with offices in Los Altos Hills and Pleasant Hill, California.

Your book proposal for your first book is among the most important documents you’ll ever prepare. It often represents the formal beginning of your journey to a published book.

Book proposals serve two primary, and several secondary, purposes:

  1. Sales piece. If you’re hoping to have a conventional publisher sell your book through online and through bricks-and-mortar retail bookstores, your book proposal functions as a direct-response sales letter intended to them to invest time and money into your project. It has to spell-out the inevitability of your book’s success to skeptical readers.
  2. Marketing plan. Regardless whether you are looking at trade publishers, or intend to publish your book yourself, your book proposal must describe how you are going to market and promote your book before and after it’s publication. Your proposal has to describe the market your book addresses, the benefits it offers, how it differs from existing books on the topic, and the specific steps you’re going to take to sell it to its intended readers.

Secondary purposes include providing a sample of your ability to communicate in print. In many ways, the style and detail of your proposal are as important as the contents of the proposal. A professionally written and presented proposal communicates to literary agents and acquisition editors that you’re an author worth paying attention to. Even if the proposed book doesn’t meet their current publishing needs, a proposal can open doors to other opportunities.

But, a rambling proposal that hasn’t been thoroughly edited and proofread can close the door to future possibilities.

Elements included in book proposals

A book proposal includes seven sections. These provide the structure needed to communicate the details of your project. The sections include:

  1. Engagement. The proposed title and the first paragraph of your book must immediately engage the interest of your agent or publisher in the first paragraph, or two. The title and opening paragraph must communicate at a glance, describing what your book is about, how it differs from the competition, why it will sell, and how you’re going to market and promote it. The first sentence and paragraph of your proposal must “hook” your prospective agent or editor’s interest and “sell” the importance of reading on. Each sentence and paragraph must continue selling, providing details that support the premise, or big idea, behind your book. If the initial sentence and paragraph fail to convince, the remainder of your proposal probably doesn’t have a chance, either.
  2. Description. The second section, sometimes called an overview, provides an opportunity to step back and provide the details necessary to support the promise offered by your book title and first paragraph. Think of this section as the 30,000 foot view of your project, your qualifications, and how you came to propose the book.
  3. Market. Next, you have to prove that a market exists for your book. You have to describe the characteristics of the market you’re writing for and their goals and objectives. You have to prove that you know how to reach your prospective readers and tap into their urgent need for assistance solving a problem or achieving goals. In addition, this section must include a review of existing books, so you can show how your book provides a fresh, needed perspective that goes beyond any currently available book.
  4. Contents. After you have proven the existence of a market and the need for your book, you have to prove how your book will live up to the promise expressed in its title and the premise described in the opening paragraphs. It’s not necessary to completely write your book, but it is necessary to show that you have put a lot of work into organizing your book into sections and chapters. Each chapter should be described in a couple of sentences, followed by 7-10 bullet points corresponding to the main ideas you plan to include in each chapter.
  5. Author platform and promotion. This section begins with an overview of your current online presence, and goes on to describe how you are going to market and promote your book before and after its publication. Limit your marketing plan to the print, broadcast, public relations, and social media that you realistically expect to employ for marketing and promoting your book, and list the marketing affiliates and professional services you intend to work with. Remember that your marketing plan will be judged on both its detail and its creditability. Avoid unrealistic promises or a laundry list of media alternatives, but do emphasize your network of professional connections in your field.
  6. Qualifications. Why should a publisher trust you with their money? How do they know you will deliver. Rather than list your academic credentials, family situation, or employment background, place the emphasis on your accomplishments and achievements. It’s not important that you “love to write” or have “great passion for your topic.” It’s more important to communicate that you are driven to succeed and do whatever it takes to accomplish your goals. (Note: you don’t have to say you’re a good writer, because the writing in your proposal should speak for itself!)
  7. Details. This section, like the previous, can be relatively short. In this section, describe the anticipated size of your book and the number of pages you’d like to see in the printed book. Describe the number of colors and illustrations, or photographs, you intend to include. And briefly mention topics for follow-up topics that will expand the book into a series. Finally, provide a realistic date for completing the manuscript, following receipt of a publishing contract.

Your proposal is an investment

If the above sounds like a lot of work, it can be!

However, your book proposal is an investment that doesn’t have to be repeated! Once you have your proposal, you have done the hard part—you’ve identified a book that needs to be written, and you have identified the information needed, and you have organized that into a logical order.

You’ve also created a marketing and promotion plan for selling your book.

Many authors find it harder to prepare a book proposal than it is to complete a book!

Writing is easy when you know what you’re going to write, and marketing becomes easier when you know what you want to happen, and when.

Writing a book proposal can be a lonely proposition, unless you’re working with an experienced book coach. But, when you’re actually writing your book, you typically have access to editors and proofreaders who will provide the feedback and support necessary to create a successful book.

Prepare your book proposal as carefully as you’d prepare a marketing plan for your career. Your book proposal can be the catalyst that transforms your career and, with it, your life!


Quality #13: Reviews can be fun (if done right)

by Tanmay Vora on January 19, 2010

Last year, in November, I posted 12 posts on QUALITY in the form of QUALITYtweets, on Active Garage. It didn’t quite seem right to stop just there… when there is so much still left to say about QUALITY!

Here are the first twelve posts, in case you would like to go back and take a look:

  1. Quality #1: Quality is a long term differentiator
  2. Quality #2: Cure Precedes Prevention
  3. Quality #3: Great People + Good Processes = Great Quality
  4. Quality #4: Simplifying Processes
  5. Quality #5: Customers are your “Quality Partners”
  6. Quality #6: Knowing what needs improvement
  7. Quality #7: Productivity and Quality
  8. Quality #8: Best Practices are Contextual
  9. Quality #9: Quality of Relationship and Communication
  10. Quality #10: Inspection can be a waste if…
  11. Quality #11: Driving Change Through Leadership
  12. Quality #12: Middle Management and Quality Culture

#QUALITYtweet Make every review meeting a learning

experience by reviewing the product

and process, not people.

We create, we review and we make it better. Reviews are an integral part of product/service quality improvement. The core purpose of any review process is to “make things better” by re-examining the work product and find out anomalies or areas of improvements that the creator of the work product was not able to find.

Establishing a good review process in an organization requires management commitment and investment, but for returns that it generates, the effort is totally worth it. In software world, a lot of emphasis is given to formal inspections, but they work best when a formal process marries with a set of common sense rules. Here they go:

1) Reviewing early

Reviews in early phase of product development means that findings are less costly to resolve. The later defects are found, more expensive it gets to resolve those defects.

2) Staying positive

The art of review is to report negative findings (problems) without losing the positive undertone of communication. Negative or destructive criticism will only make the process more burdensome. Stay positive and keep the process lightweight.

3) Keeping review records

When a lot of time is spent on reviewing, it makes sense to track the findings to closure. Recording the finding helps you to effectively track the closure and trends.

4) Reviewing process, not the person

Always question the process and not the person. Human beings are bound to make mistakes, which is why reviews are required. So accept that mistakes will happen. How can we have a more effective process so that these mistakes are not repeated? That is the critical question.

Imagine that Bob is the reviewer of John’s work product and consider the following conversations:

Bob: “John, I reviewed the code of invoices module developed by you. Again this time, you have not implemented the architecture correctly. You committed the same mistakes that were also found in the registration module earlier.”

OR

Bob: “John, I reviewed the code of invoices module developed by you and your team. We have found some anomalies in the architecture implementation. I just wanted to know if the team had undergone the workshop on our standard architecture. If not, we should invite our systems architect to take a small workshop on system architecture so that the team has better clarity on how it can be best implemented.”

Two conversations with a totally different outlook. The first conversation tries to blame the producer where as the second conversation tries to assess the process and take corrective actions.

5) Training and more training

Reviewers can make huge mistakes if they are not trained. If you don’t invest in training your review teams, you cannot expect them to do it right, the first time.

6) Reviewing iteratively

Review often. During the course of product building, product needs may change. New ideas may be implemented. Keep review process constant amidst all these changes. Discipline is the key.

7) Reviewing the process of reviewing

Are we reviewing it right? Are we reviewing the right things? Periodically, assess the results and the benefits of having a review process. Assess how reviews helped improve product quality. In process assessment, also identify if people are heavily relying on reviews. It that is the case, it is a bad sign.

Success of any process depends on 2 E’s – Efficient and Enjoyable. Same holds true for your review processes. Review is a control mechanism, and hence the focus on getting it right the first time is still very important. A good review is just an internal quality gate that ensures that internal customers (reviewers) are happy with the final product. If your internal customers are happy, your external customers will be happy too!

Notice the Exit as an Entrepreneur

by Guy Ralfe on December 2, 2009

exitHave you noticed how you live life and then suddenly one day you notice “something”, seemingly for the first time? Then after noticing that “something”, it seems to be hounding you – they just suddenly appear everywhere?

One of the best examples is the emergency exit sign at the movies. Amazing how an illuminated red/green sign in a dark room just goes unnoticed. Think back to the last film you watched and see if you recall  where the emergency exit was? Yes it was there, law requires it be there and clearly visible too!! You probably even left through the emergency door afterwards.

So what does this have to do with business? It occurred to me that many entrepreneurs start something that they identify as missing, flawed or incomplete. The fact that they are able to vision this means that they have a concern for this need and that is why they can notice it. This is good from the point of visioning, but it will also prove very difficult to get investors, partners and consumers interested until they too can see the need.

For big organizations they put their new products in front of us through marketing and advertising and telling us the story of the possibilities the new product will create for us. This gets it quickly adopted and widely noticed. For the entrepreneur it is a far longer and slower process. In the same way a salesman looks at his prospects and tries to convert as many to sales, the entrepreneur must maximize every interaction to ensure that the listener leaves with a clear vision of this product’s need, and the space of possibilities it will create once  in the world.

Once your listener can notice, they too will suddenly feel like they are being hounded by the opportunities for your product – and they too will then unconsciously become your speaker. This is important from a promotional point of view but more important in drawing in interested parties to build your products network.

Make sure you produce the vision every time in your listener, because that is where you will get the most powerful interaction, these listeners will see the exit signs like the fire alarm was ringing. If the listener leaves with a blurred vision, they will not notice that exit sign but take the exit!

It is the ROC, too, not just the ROI, stupid!

by Wayne Turmel on October 19, 2009

communication toolsNow, admittedly, the title might have confused you a bit as just about 3 weeks ago, Himanshu posted an article titled It is the ROI, not the ROC, stupid! The simplest explanation for this seemingly contradictory titled post is… the ‘C’ in Himanshu’s post was Cost whereas in my post, the ‘C’ in the ‘ROC’ stands for Communication.

While talking to my father on the phone the other day, I had a breakthrough. Not the kind my therapist would like to see, alas, but one that answered a major business question: “Why do so many managers treat communication tools like they’re made of gold and not use them every day?”  It all comes down to how we measure the ROI (Return on Investment). Maybe we sometimes need to measure the ROC (Return on the Communication) instead.

I was trying to ask some pretty serious questions about his health and Dad kept trying to avoid the conversation and wrap it up. Finally, he said “Look, this is costing you money, so we should talk about this another time…”. Now you, I and just about everyone you know has an unlimited calling plan. Talk for two minutes or twenty, it doesn’t really matter- it’s just not a concern for most of us any more. But because all he could hear was the meter running, my dad didn’t want to get into a long drawn out conversation. Remember this is a guy who taught us to call person-to-person collect for ourselves so he’d know we got to our destination safely and we wouldn’t have to pay for a long distance telephone call from a payphone- he’s a bit frugal to say the least.

That kind of thinking affects managers and organizations as well, and has a direct impact on how they use communication tools with their remote teams. Here are some common examples:

  • “We pay per minute and per connection, so we’ll save webmeetings for when it’s really important” I have numerous clients who have invested in webmeeting platforms, and then refused to let people practice with them, or need to get budget approval to hold a meeting in order to keep costs down. Then they are surprised that people don’t utilize the tool or use it poorly. No one will ever practice or get proficient with a tool that they can’t use at will without the accountants watching. By the way, if you’re still paying per minute per connection it’s time to have a serious talk with your provider…they’re treating you like you’re my dad.
  • “We don’t waste time on chit-chat. Keep it business” In this age of Agile, virtual, matrixed and under-resourced projects – time is money.  The myth is that the less time you spend talking the more time and money you’ll save and people can get on with the “real” work. This is a perfect example of measuring something that doesn’t indicate real results. You can’t easily measure the amount of risk-management, proactivity and trouble-shooting that good, frequent and rich communication gets you. Of course, if you really want hard metrics, measure the amount of rework, lost productivity and project overruns from not staying in constant contact with your team. Take the time to find out what’s really going on with them and who else is sucking up their time.
  • “We didn’t cut the travel budget just to spend it on IT”. Okay, we all agree that the reason we need these tools is our travel budgets were slashed and they are NOT coming back anytime soon (at least not in the foreseeable future). That doesn’t mean we don’t need to communicate effectively and that there is no cost of doing business. Just because people work from home doesn’t mean (magically) it doesn’t cost anything to have them on the payroll. By the way, if you look up from the “telecommunications” line item in the budget you’ll see that you can pay for a lot of bandwidth, webmeetings and telephone calls just with the money you used to spend on drinks for the team when they could get together or put more subtelly … Psssst… “It’s really not that expensive.”

Effective questioning, timely feedback and sharing information have value to an organization and a team. We need to focus less on the dollars spent and more on the value created by those interactions. Sometimes we need to focus on the Return on Communication

How hurtful is your product or service offering?

by Himanshu Jhamb on October 5, 2009

hurtAs an entrepreneur, whatever product or service that you sell, it is critical to look at not only how it helps your customers; but also to look at how it might hurt your customers. Most of the offers that exist in the marketplace end up being ordinary and have little value associated with them, because they end up “hurting” customers at places which have serious consequences for them. The “hurt” can be of different types (and depending on what the level is, it hurts the marketability of the product or service) and you want to stay as far away as possible from the one that comes with the serious consequences for your customers.

Here’s a little personal story of mine: I recently bought a new bed frame from one of the discounted retail stores. It was a beautiful wooden (brownish) frame; both my wife and I loved it. While my wife strolled around to the other parts of the store, I walked around the bed inspecting it and marveled to myself how it’d look in the room we were thinking of putting it in. While I was mentally playing taking this beautiful piece of furniture home, I heard my wife call me from the other aisle. As I started walking towards her casually; I felt a sharp pain under my kneecap and immediately sat down. That’s when I noticed that the bed had a protruding part on the corners of it (the corners where the legs would go) which could easily go unnoticed (Hello?) and “hurt” people. Suddenly, the beauty, the wooden frame and the comfort vanished from my mind and all I could remember was the “hurt” that I felt from my little accident with the bed frame and how “dangerous” it could be for people in the house. The product (or service) called “The bed” immediately lost its marketability with me, its customer.

While you are designing your product or service for providing the fantastic help that it’ll provide your customer, be sure you give a thought to how it might “hurt” your customers. While one can argue that it’s impossible to come up with a product/service that is “Perfect” in all aspects and causes no “hurt”, one can surely design it in a way so that the “hurt” is kept to a minimum. Here are a couple of levels of hurt to consider while you think of the design of your offer:
1. Fundamental Hurt – This is what I call the “Deal Breaker”. This is the hurt that will instantly kill any marketability of your product or service. It wouldn’t matter how aesthetically tasteful your product is; it wouldn’t matter how practical it is or how valuable it is. If your product or service hurts a fundamental concern; it will, in all likelihood, not be very marketable. My example, above fits the bill for “fundamental hurt”. The bed, regardless of how comfortable and elegant it was, was dangerous to the fundamental concern of my body. The moment that dawned upon me; the offer was outta-the-door for me.

2. Derivative Hurt – This is something that the customer sees as not impacting his or her core concerns and thus, is open to a cost-benefit analysis of whatever product or service it is that he or she is considering buying. It’s like your offer gets a Second-chance-at-least kind of hurt. This is where most of the “good” products or services fall in. They all “Cost” something (which obviously hurts the customer in a way since it eats into his or her resources) but if the Return is good, the Cost is viewed as more of an investment and the conversation suddenly centralizes around the ROI, and not just the “Hurt”. As an example, offers such as entertainment magazines and Television fall in this category. They provide customers with a sensation called “Relaxation” and “Fun” in return for the money and time they cost the customers.

When you are designing your products and services; look closely for what kind of “Hurt” they might cause your customers… and stay away from the “Fundamental Hurt” as much as possible!

It is the ROI, not the ROC, Stupid!

by Himanshu Jhamb on September 30, 2009

ROI ROCIn my earlier post on June 10, 2009 I shared an example of what ROI looks like. In this post, I am writing about if ROI is not seen as ROI, how your possibilities get killed even before you start to act on them. This happens when customers confuse the ROI (Return on Investment) with the ROC (Return on Cost).

ROI is a constitutive component of how we measure Value; so needless to say, it is a critical part of how we choose to transact (or not), in any situation. Then there is the Investment which is a critical part of the ROI. The biggest pitfall is how this shows up for your customers. Consider this example:

You are at the crossroads of your career. You work very hard at your job, day in day out… day in day out… day in day out… you get the picture. The more hard work you put in, the more of the same results are being produced (e.g. getting only a 2-5% raise year after year after year… ). There is no certainty of the promotion you’d hoped you’d get in your upcoming review. You met your goals, you fulfilled your promises and all that happens at the time of review cycle is you’re told the company did not meet its numbers so you’ll just get a 2% raise or worse, nothing at all.

At this point, you say “This is not working”. I need to go learn some new things. I need to look for where I can get more education… different education and with that you set out looking for it. Then you come across two choices; one education costs $20,000/year and the other $2,000/year. This is the crossroads at which you make a choice and the importance of this choice is huge because it will have an impact on perhaps your entire life.

The choice is made in how you think about this. Before I go further lets clearly distinguish that the “I=Investment” IS NOT “C=Cost”. Cost is usually thought of as something you have to pay in order to get something else RIGHT NOW. Investment is thought in the context of something you have to pay in order to get something bigger (than what you paid) in the future .

Most people look at the ROI as the ROC and that conversation closes the opportunity there and then. So, when you are talking to your customers about the value of what you are offering, make sure you CLEARLY bring forth that the price tag associated with your offer, is not a COST to them, it is, in fact an INVESTMENT, that they are making into a future possibility that will MORE THAN cover the investment they are making at that point.

If they still insist on looking at the “I” as the “C” ask them a simple question: “It is clear that you have considered the Cost of doing this. Have you considered the cost of NOT DOING IT!”

Try this in your next conversation. It works in bringing forth the ROI very clearly… and the results will show for themselves.

Where the Rubber meets the Road…

by Himanshu Jhamb on June 1, 2009

rubber_meets_the_road
There are numerous concerns an entrepreneur has to take care of, when starting a new business. To list a few:

The idea: This is about what concern(s) in the marketplace the business will take care of.

Organizing: This is about organizing around specific concerns the business will take care of.

Business Planning: This deals with answering the Why, When, What and How for the business.

Establishing a Structure: This is where entrepreneurs putt the ‘real’ parameters in place based on what resources are available and organizing them in the best possible way so that they produce effective results, in a low-cost manner.

The Investment: This answers the questions – how much is needed? How much do we have? Where will the rest come from? (assuming there is a gap in available funding)

The technology: Assuming the entrepreneurial venture needs to deal with technology, entrepreneurs need to choose the best technology available within the limitations imposed by investment, demographics and other factors that might affect the availability, procurement and usability of technology.

The market: This pertains to studying the market for the product or the service the business is coming up with.

… and then there are more that I will not list here, in the interest of keeping this post readable in the limited time you have.

The question is: During what stage of this journey do entrepreneurs feel totally committed to the cause… is it at the idea stage… or is it after they are done with a business plan… or is it once they assess the technology or the marketplace… or is it at some other point in the execution of the project?

By observing a few entrepreneurs in action, what I have discovered is that the answer to this question lies wherever entrepreneurs put their ‘skin-in-the-game‘! Once entrepreneurs invest something that they consider valuable to part with, they become committed to the cause ‘for real’. This ‘something’ can be anything and in most cases it is their investment because that is the most limited commodity entrepreneurs work with and that is what they need the most while building the business.

This investment is the ‘real’ cost they incur. This is the point where they ‘stop’ entertaining the thought of quitting. This is the point where they start holding themselves and others around them accountable for the execution of the venture, this is where…

The rubber meets the road!
——-
Himanshu JhambThis article was contributed by Himanshu Jhamb, co-founder of Active Garage. You can follow Himanshu on Twitter at himjhamb.