Saturday afternoon inspiration

I was doing a bit of thinking today about defining Fubra's goals and my own for the next few years and I have stumbled across someone who is quite inspiring his name is Sir Ray Tindle and he actually lives near me in Farnham, perhaps I'll get to meet him one day.

I was curious about him and so I checked out his accounts and indeed he has built a pretty amazing business since the second world war which now has nearly 60m in assets no debt and is consistently throwing off over 5m a year in profits.

The most inspiring thing about him is that he has does all this by running lots of newspapers I've never heard of, local ones that I didn't think could be hugely successful especially given the recent performance of many of the larger companies in that space. Sir Ray has had a single minded focused approach to his business. He understands local newspapers are about local issues and never tries to grow them beyond the locality they serve.

There are a number of lessons I have learnt from reading about Sir Ray Tindle and the first one is quite important. It's a lesson I thought I knew a lot about and that is that with hard work and focus you can achieve anything given time. Over the past few years my focus has waned and I haven't been happy with what we have achieved at Fubra. I put a lot of this down to seeing and getting carried into the excesses from a period of unsustainable borrowing which caused me to focus externally and procrastinate for a period of perhaps two years or so, short termism set-in and I became envious or angry at the perceived wealth of those who appeared to take a short view and keep winning.

Al Ries is a person I think is smart and he has a video about all about focus.

I always recommend it to people but it hasn't been until I read about Sir Ray Tindle today that I really started to believe what I was saying to others properly. I used to think Fubra was unfocused because we have lots of web sites, have built loads of tools but we are not in truth I think Paul and I know very well what our focus is. I am not as sure we have communicated that very well to others around us including our staff, our customers and our visitors.

I've decided I really want to start doing a better job at communication so I will be starting today defining a clear road map for what we will achieve as a minimum in the next 5 years. In truth I will be happy anyway if I can continue to experience the determination and enjoyment it's clear Sir Ray still gets from sitting at the helm of one of the most interesting businesses I have come across in a long time.

Which leads me to the most important thing I learnt from reading about Sir Ray Tindle - make haste slowly.

a priori truth

I am completely fascinated by starting to re-read Discours de la méthode pour bien conduire sa raison, et chercher la verité dans les sciences at the moment.

"I entirely abandoned the study of letters. Resolving to seek no knowledge other than that of which could be found in myself or else in the great book of the world, I spent the rest of my youth travelling, visiting courts and armies, mixing with people of diverse temperaments and ranks, gathering various experiences, testing myself in the situations which fortune offered me, and at all times reflecting upon whatever came my way so as to derive some profit from it."

Having foundations in life is really important, following your principles everyday, even more so, reflecting when you don't, still more.

I feel very lucky to know that.

10 Credit Crunch tips for first time Entrepreneurs

Here are a few tips I think can help start-up companies to be successful based on my own experiences I hope you find them useful.

1. Buy something for a £1 add some value sell for £2 just to start off with.
Trying to climb everest without the proper equipment is a sure route to failure. By starting a small business which buys goods and sells them you will learn to deal with customers and how to satisfy them. If they feel like are getting a good deal they should tell their friends about you and you will sell more. If they don't like your business they will either buy once and never again or they will tell you they are unhappy. Ask your customers what they think of your products they will tell you.

2. Focus on the value of everything not the price.
Good entrepreneurs pay the value of everything they buy not the advertised price, in this world everything is negotiable and you should learn very quickly there are lots of mispriced products and services around. Every single mispriced product presents an opportunity to save if you are buying it or to compete if you want to sell it.

3. Get some grey hair on your team early on.
There are lots of people who have run their own business and if you are just starting out the CEO of Tesco might not have time to help you out but successful local business people would probably be only be too happy to help you out, network with them ask them if they would like to be a non-executive director for your company for a very small shareholding and if they can help you with occasional advice and counsel. Maybe try and see if there is a service or a product you can offer them first to build a relationship with them.

4. Your customers are your best friends treat them like it.
One happy customer tells more than one person, lots of businesses have customers but not as many take the time to get to know them and ask them how they can better serve them. Make sure you are not one of those businesses. How about offering your customers a referral fee if they introduce their friends, I did this early on by giving £50 to all my previous customers if they helped me sell my next computer.

5. Don't believe the business haters.
The people closest to you, your best friends and family especially if they have not run a business may not be as supportive of your new venture as you first expect. This is probably because they care about you and don't want to see you fail or get hurt, for a lot of people starting a business is just too big a risk but if you have taken the plunge you are obviously not one of those people so stick it out.

6. Learn the importance of equity.
I like to talk about equity because that is what you are building the value in if you choose to start a business. When you first start the equity you have is worth the market value of what you are going to put in to the company. If you are trying to sell it for more than that to an investor you need to convince them why and probably how you are going to increase the value of the equity on offer. You should hold the equity very precious if you don't care about your company no one else will but remember those who seek equity must do equity so give it wisely to people who can help your company grow.

7. Put an A4 sheet on your wall with your short term target.
You won't always need to literally do this but it helps. Writing down targets you must hit reminds you of their importance and by putting the date you need to do it by applies pressure you will need to hit them.

8. Keep growing every day and keep a long term view.
Drive your company using an inner scorecard, there are plenty of pressures around in the world, other companies paying higher wages, spending more on marketing and seemingly doing much better don't focus on that at all it's irrelevant. Focus on what is important to you and make that focus providing a great long term viable company that people love working for and you enjoy growing. Envy is the enemy, think of your company as a mission.

9. Remember hard work counts for a lot more than an idea.
I like to say even if you have a crap idea and you work hard on it you can make it a success. When we started Fubra our first product was selling .it domain names to UK companies. As it turned out in 2000 our potential customers only just realised they wanted a .com/.co.uk and .it names were really not selling well but we worked very, very hard and managed to gain enough customers to pay our expenses. This gave us a platform to grow further in to more profitable areas. Our next idea was selling software and was better because it brought in millions in sales.

10. Network up, research, research, research, and innovate.
Always try and connect with people above you in business that way you will learn from them, research all your competition and companies in general in depth. Some of the best web entrepreneurs I know are plugged into the internet they know literally everything that is going on they use this information and their connections to validate their own plans. Finally innovate! Make sure your product is different and adds value to the market place but is close enough to a working idea to give you confidence you are in the right market. Leave brand new markets and ideas to the competition once they have validated the space innovate quickly behind them but make sure you ski your own tracks and add value.

JPR, Yell and SEAT Pagine Gialle

Watch out equity holders free cash flow won't be around much longer and your equity is going to be pretty much worthless by 2010 if you have any in these companies.

These are all classic examples of companies that are inherently strong businesses gearing up massively on debt which will prove hard to re-finance and not really having that great growth strategies or being able to develop any as they spend all their time looking in the rear view mirror.

I was talking to Paul yesterday about how we should offer to buy Thomson Directories from its Italian owners SEAT Pagine Gialle as a joke I'm not sure we could afford it right now but you never know. The £3.8bn of debt SEAT Pagine Gialle its parent has is crippling it and is sure to make good assets like TDL come onto the market at even lower fire-sale prices later in 2009 and if they don't I am so happy that all our main competitors in the local advertising space are basically at the mercy of the debt markets as well as without much of a clue about online strategy.

Listen to this quote from Tim Bowdler MD of JPR getting all angry about someone accusing him of ruining the business by gearing it up like LCD TV's are going out of fashion: "Most analysts in 2005 were saying we should take on more debt. It is very easy to sit on the sidelines and appear wise after the fact. Back in 2005 nobody was suggesting our strategy was flawed."

There are a lot of responsible business owners who didn't take the route you took Mr Bowdler but now like Yell with it's £5bn debt you and your fellow shareholders are going to be well and truly diluted as the free cash flow you thought would be there forever starts to decline sharply and the bankers come calling.

Please don't invest, just buy stuff instead!

I have had a chance to have a good look this weekend at the Nesta proposal and watch the videos from the presentation and I thought I would make some comments on what I think about attacking the recession and how I think the UK might better equip itself to do so.

Firstly the concept of attacking a recession is a great one, there is both a real and present threat to the UK and more opportunities now for motivated people to really make a difference to their own futures and to the future of the UK as a whole as we enter this new recession. In general it is in my nature to strongly oppose government intervention like the banking bailouts, the pay greedy people's mortgages for a year because they overstretched plan and even the new £1bn investment in start-ups plan and there is a very simple clear reason for this opposition which is that the government, just like pension funds is an awful investor.

The sums of money they are dealing with and the long line of consultants waiting to help them deploy their lazy capital by working with start-ups confused by the red tape for a fee of course. Makes this £1bn investment a complete waste at worst and a very inefficient way of dealing with the problem at best.

So what is the answer then well I think it's all pretty simple but I am going to give you an example of how the government is monumentally failing in this area as I have been looking into it. The answer is that instead of thinking it can help it's people and attracting all the lazy give me some money non-value adding consultants it usually pays for advice. It should try and attract smart, motivated hard working people who just want to turn a profit and advance society. But how does it go about doing that?

Again it's pretty easy, smart motivated people want to get on in life, they don't like handouts and they work 10x as hard if they actually have to and want to at the same time. What they tend to like is equity in their businesses, and a feeling of making a difference for that they need customers not investment. What Nesta needs to realise is that with the greatest of respect pre-revenue businesses are nonsense and we shouldn't be investing in them as taxpayers because they don't make any money!!! Leave that to the experts! Just like we shouldn't be investing in banks who are pre-realisation that tier 1 capital ratios actually matter! Instead we should look to Silicon Valley. Silicon Valley was built on the US Army as a big initial customer paying for radio technology the US was fighting a war and at the end the big customer was gone but it didn't matter because lots of other customers had come along who wanted to buy the technology.

So all Nesta has to do is help government departments put money in the front door as revenue to companies instead of in the back door as investment. It especially needs to help the most inefficient arms of government buy from companies who show a commitment to re-investing profit in R&D. This simple change of thinking inside government will provide all the necessary stimulus to our economy that we need and make us world leaders.

What else can the government do? well potentially a lot more but here are some realistic suggestions that will help it get the UK where we need to be:

1. Reform and heavily promote Supply2.gov.uk put it at the heart of the revitalization strategy.

Supply2.gov.uk is a procurement portal for government to buy things from private companies in principle this is a great idea but there are some massive problems with it. Firstly it is so heavy on policy that when as an entrepreneur I went to tender for a contract with Portsmouth city council in our area of expertise we were not invited to tender even though we own our own data-centre, host and advise on some of the largest web sites in the UK and have loads of cash in the bank and employees to deliver the contract for the PCC we fell short by 100 points! This is not just us loosing in the tender process which might be understandable this is us not even being invited to tender despite completing a 16 page pre-qualification questionnaire about ourselves. I am not going to be that bothered if we don't get government work as a business because fortunately we don't need it. I did it as a test after reading the register article I link to above. But I was genuine I would have liked to have been considered and I did express an interest and what's more I think we could have done the job very well or at the very least made the council more aware of the costs involved which are probably exaggerated by incumbents who are just out to rip government off and know how to score more points in a badly defined tender process.

This is the second huge problem government is not a great investor but it is not a great buyer of services either, this comes partly from the fact there are so many competing interests and no strong leadership saying what is needed and will be bought but also from the fact that they is corruption and lazy but large private firms who have dealt with government before tend to get all the work from government rather than smaller more innovative firms who would love to work with government if it would only stop bean counting everything badly and let them tender for work!

Apart from this private firms have to pay to join supply2.gov.uk if they want more areas and this is crazy! If the government should do anything for free it is tell its people and companies openly and transparently what it wants. I also think the entire tender process should be fully transparent for maximum competition this means that as a company I have to publish at least the pricing and full description of services offered part of my tender so my competition can see it and try and undercut me on the contract and I can be held to account by other interested parties and tax payers at large who will ultimately be footing the bill for my services.

Then there needs to be a recognition that entrepreneurs don't mind filling in well thought out forms we just hate pointless ones that inexperienced procurement admins think up which comprise 80% tangental questions that don't have any bearing on if you can deliver the contact or not and yet comprise most of the point score! It's accountants who get their kicks from that kind of thing and that is because they get paid by the hour to fill it out! When did they last save the British economy?

So what can be done to achieve this? Well start by setting an example, there are lots of great small businesses who would love the chance to reform supply2.gov.uk. I think a more transparent community lead web site could be built in about 6 months by a team of very clever people for less than £250,000 and if they don't want to help government Fubra will and I am sure there are other companies equally if not more qualified for this who should post a comment on my blog to bid for the project perhaps the government could express and interest by leaving a comment and give us all an address to send our tenders to?

2. Pass legislation that specifically heavily discourages the third sector from entering into inefficient contracts.

Companies who are bidding will of course need to make a profit but often the key problems that keep smaller private businesses out of the running is that big deals are done with huge contractors for 3 and 5 year terms. These projects inevitably fail, overrun and generally cost much more because big companies are so inefficient. What we need is the government buyers having to apply a ratio just as data centres are starting to do with DCiE = (IT equipment power)/(total facility power). which will be the core metric for determining if a company is suitable more or less suitable for government work. Using accounting systems like Clearbooks this could be quickly inspected and I would propose that the metric should be:

GCEN (Government contract efficiency number)
=
Number of stakeholders above the average national wage inside the business, includes directors, shareholders, staff and contractors who are not working more than 80% of their time on qualifying R&D projects. Based on cash payments share based payments attract a fifty percent discount as long as shares are not allowed to be sold within 5 years of being awarded.

This simple number shows how many people in a company are being over paid vs its peers and has a leveling effect that does two things. One it means that if large companies want government work they have to reward their highly paid staff in equity not cash and invest heavily in qualifying R&D which creates a natural motivation for efficiency from within the businesses management. Two it means that small companies will right away have far lower and more attractive GCEN's than their larger counterparts and therefore as long as government legislates well to ensure all third sector work must heavily weight the GCEN as part of their assessment of a tender I would suggest it should be 50% of the points then this could be transformational for the way government buys things.

This means huge pay cuts for middle managers and people who add little value everywhere unless they can show their stuff and improve company efficiency no more lazy money.

3. Choose what the country needs to buy and start buying right away!

My business partner Paul wrote a post about Obama's new apollo project, although I am not sure how the investment will work and I would fundamentally oppose direct investment I have described above if the UK follows America and decides to spend more of the government budget on energy transformation then that is a scientific catalyst. What is needed is not just one large area like this but more of them where the government specifically commits to buying things which don't exist yet at the required efficiency IF and only IF private companies can deliver them to that standard.

I can tell you one thing I have learnt in business is that when the government says we are going to invest or buy things with no pre-condition nothing changes. But is is a very different matter if the government lays down the gauntlet to capitalists and scientists by saying, Solar energy is crap right now the cost per Watt is just too high but if you can produce it for £X/ Watt then we will buy it from you. Can you imagine the innovation that would drive? I am getting excited just thinking about it both as a challenge and an opportunity.

4. Reduce the welfare state

This is the hardest for a Labour government and completely clashes with their ideals but fundamentally welfare is a huge disincentive to innovation it is the curse of nationalised risk which should be on the shoulders of a countries people if it wants to progress not being passed on to harder working creditor nations as huge national deficits. The government needs to recognise people are like a bird who hasn't taken its first flight yet, they need pushing out of their comfort zone and for lots of the population who are not naturally excited or positive about life they actually need to need to innovate not just want to before they actually will. So cutting out or down benefits or even channeling them towards progress rather than living expenses would be a huge move forward for the UK. I am convinced if I was on benefits and they halved in cash terms but the other half was still there it's just it could only be spent on science, maths, IT lessons and equipment then as a nation we would begin to realise where the governments priorities lie and I have every faith that as a nation we will also start reacting to them positively.

5. Believe in open source, lightweight standards and collaboration. Patents and complex standards protect the lazy

There needs to be a realization that small companies are not going to be as good as large ones at business processes, health and safety, accounting and lots of other things but they are good at delivering the end product and far cheaper than their larger counterparts. But what has changed dramatically with the Internet is the ability for small companies to compete and Government has yet to wake up and realise that. Look at the tools they have now from new project management tools, to accounting tools to customer service tools, to hosting, all of these online tools are making it easier for companies who could never have afforded to before to compete with much larger ones for a few hundred pounds a month in costs. Technology has made things cheaper and more Government attention towards getting involved with open standards and policy setting which in theory it could be good at, if it realised that is its core role. This should mean that small companies have an even larger advantage.

In fact this is the economic dream that everyone can be self supporting because the tools are out their to help them achieve the things that they can't on their own and connect with others who can help them allowing them to specifically focus on adding the maximum value to society through their own unique or valuable specialist talents. It's getting closer but if we don't take this recession as a huge opportunity then other countries will beat the UK to it and we will end up stuck as a nation of shopkeepers or should I say buy to let landlords which is so much worse than the napoleonic accusation! We need to realise we are at economic war and if we loose we will be all be the poorer for it so Nesta got something very right we need to fight the recession!

As a final remark we need less egos in power, put doers in power not people who say things like we have made this progress and that bit of progress in an attempt to justify their own existence. We are not doing well we are doing terribly that is why we are in a mess and even if we were doing well telling everybody we are makes us all feel lazy. That's what's so great about recession fear is a very powerful motivator! So lets start acknowledging that we are not doing well, that risk does exist and that everything won't just be ok if we all freeze up and do nothing. Instead lets all actually start to choose to work harder and pull together as a country to get out of this mess.

I bought GOOG @ 252 today

So I couldn't wait for 150$ I thought I had the discipline but it just seemed like too good a day to miss today. The whole market was rallying and Google was down over 3% again. I am not sure if there will be more forced selling pushing it down loads more but I still have half my money to invest if that is the case.

Why am I so keen to buy GOOG?

Well first let's look at its R&D spend. It's massive part of its expenditure as a percentage and I expect favorable tax treatment from the new Obama government as well as the UK government where Google conducts a lot of Mobile R&D. In fact all western governments will be pouring massive tax breaks on R&D as part of stimulus packages and Google will be a massive beneficiary.

Then let's compare its other selling expenses to it's main competition as a propotion of total expenses Google spends far less than Microsoft on general admin and selling expenses. This tells me two things, if Google can get 1 million new apps users in a year on the cloud before Microsoft even gets its cloud offering together and Google is only charging 25% of what the equivilent Microsoft product would cost. It doesn't take a rocket scientist to realise companies will switch to Google Apps in the recession in droves. And what's more they are already doing it without a big sales push from Google. Their products are so cheap compared to Microsoft equivilents (around 25% comparing like for like at enteprise level) it's a no brainer.

Microsoft has 60bn in revenues that Google hasn't tapped in to I think Google will successfully take half MSFT's customers in this down cycle who will pay Google 25% what they pay MSFT that is an extra 7.5bn of income and guess what I don't think Google will acutally need too many more servers to handle it. Further Google's fee is renewable annually whereas most IT departments refresh software every 2-3 years so that means Google in the long run could be getting nearly as much as MSFT was from the same customer but on a different cloud compute model.

Of course MSFT will try to catch up with Google on this point but the key is that MSFT sells a lot of what it sells because of the strength of VAR's and if MSFT goes to the cloud and tries to sell direct like Google then it will isolate that channel and erode margins on it's traditional business at the same time by putting huge downward presure on margins for VAR's with the presentation of cloud compute offerings on a utility model.

Google has big plans to be grow and an extra 7.5bn is a good start but really I would like to see net income at over 50bn so how will they get there?

I think they can do this through the seamless integration of all their products. With Microsoft I found out about new products when I sought them out. With Google I am stumbling on great new products every day. Take analytics which Google has created for webmasters to optimise their site, it's free but its driving huge value for webmasters using it. These webmasters are going on to then spend more on adwords as a result of having better web sites and earn more from ad sales with adsense as a result of optimising pages for advertisers and users. I expect Google to earn around 6.2bn from ads this year and for that to increase to 9bn next year.

So in short if Google gets agressive in 2009 even with a recession it could be looking at earnings north of 10bn and I think a lot of this will come from market share growth as users migrate to better products.

I have to say this is a pretty bullish case for adoption and I am an early adopter so I might not be the best at timing the general market reaction but I really love a lot of Google's products and I can only see them getting more of my companies money as time goes on so there is no reason not to expect this to be the case for all companies.

Google is also frugal but not afraid to make big investments in long term growth which really suits a downturn well.

Market, Sector, Stock.

That's how it works with investing on fundamentals if you are investing in a bull market make sure all of them have a great story before you put your money in and if you are shorting in a bear market make sure they all have a terrible story.

It's served me well when I've followed it. But of course like most investors I relish the thought that I might some how be able to time things. I am sometimes wrong but often right and the more money I am betting with the more right I tend to be. So some my tiny readership might be interested I am nearly ready to buy a stock called Google with about 90% of my liquid net worth.

I don't expect either market recovery though or tech/ad sector recovery either though so this is a bit of a long term punt and so before I buy I am waiting very carefully but alert for my trigger signal. Lots of people have talked of capitulation day and I am waiting for just that day to buy when everything plunges on much larger volume than has been seen in the recent falls and it is obvious there is proper panic and value destruction.

I think we might see $150 if that day comes this year or early next but whatever the price when there is heavy selling of everything on large volume I'm buying and holding GOOG. I think it's like holding a global index but without as much inefficiency built in to the value.

I don't think that's even possible.

Of course it is I said and then proceeded to explain just how it was possible. I got a skeptical look back that conveyed neither complete disagreement nor belief in my proposed solution.

It was a strange thing to hear an entrepreneur I think so much of say something like that. I wonder if this recession is really getting to people already.