Yesterday at UBC I went to “Discovering the Entrepreneur Within,” an all-day workshop taught and facilitated by Roger Patterson of Vancouver. This was time very well spent and I wanted to share as much as I could about this for everyone’s benefit, as I try to disseminate as much information as I can in this subject area. (These events are so much better than getting news from CBS or cable news. I will try my best to break it down by relevance rather than chronologically.) There are a lot of things we should all be aware of, even if we are not prepared to invest or pitch our business plans to the local credit union. I credit all of the information here to Mr. Patterson through paraphrase and am thankful for the experience to meet so many others (out of 32 people, almost all of whom were science, medical, or ecology majors, and 75-80% male).
Terminology and Concepts
- angel investor – typically someone willing to invest and be the primary and first investor to get involved in the company. Defined as one who puts in less than $500k.
- BDC – Business Development Canada
- bond = private loan with per year annual annuity and the original sum is returned to owner at the end. Some individuals have managed to write their own bonds.
- crowd sourcing – outsourcing to the crowd and then getting bids from a number of people worldwide. e.g. http://www.crowdspring.com, which is probably the best known.
- CSR = corporate social responsibility
- fallacy of the ego = if I let someone see my idea, they’re going to steal it. 99% of the time someone is more in love with their own ideas and thinks your idea is too dumb to steal anyways. Make sure not to ask for NDAs (non disclosure agreements) when pitching your idea to a firm or investor.
- Groupon, local coupon site. This company went from a value of nothing to $25 billion in 18 months. I (John) do not quite understand what all they offer but apparently this is a big deal.
- “in Incubation” – there are places designed where there is free or very cheap office space in order to incubate new startups. Such a place exists at TIME Centre at Simon Fraser University but there are others elsewhere.
- LLP – limited liability proprietorship. Incorporate as quickly as you can.
- Red ocean/blue ocean. A red ocean is a “mature” market. Generally the only thing you can compete with is lowering cost. The only exception to this is if you are a luxury item or long-honored pop act that is considered indispensable. A blue ocean is an undeveloped market where there is seemingly endless room for expansion and you are setting the terms.
- outsourcing is becoming and will become more common as companies decide this is the way to concentrate their resources and not have to invest in so much infrastructure. Within the next few years, most R&D (research and development) teams are going to have a lot of layoffs. Researchers should be prepared to work on their own and by contract.
- patents are considered old fashioned. Customers are protecting you more because it costs more for another company to take them away than to procure them in the open market. Patents are more “war chests” for large companies to sue each other with.
- starting a business now will probably cost about $50,000US/CAN, although technologically speaking, this set-up may be $1,000 versus the $200,000 it may have taken to start with a website, et al five years ago.
- in a lot of global companies, all pricing algorithms are automated, so once you figure out the competitor’s pricing models, you can pinpoint exactly when they are going to lower prices.
- every decrease in price you make for your product of 1% makes about 7% profit. Increase of 1% in price on average creates 11% profits.
- from a classmate in the workshop: to compel a government or publicly funded agency to invest, you have to convince them that they will get a 5x return on their investment.
- the same classmate told me that Canada recently invested in $25 million worth of nicotine patches that were given away. The estimated savings to the Canadian government in health expenditure was $27 billion.
- there are two kinds of companies generally: those that offer services and those that offer products. Service-based companies have a much smaller overhead but also a smaller uptake. There are fewer HR issues. Nearly all of them are working on getting a product onto the market, as this is where larger profits are to be made, but almost none of them make it to that because they are too busy addressing their present client base… maybe less than 1% go on to do a spinoff product.
- set expectations for your company performance low so that there will not be a high threshold to pass
- let people participate in the development
- ask customers what they want to prioritize in the order they want to get it. They will be more engaged and loyal.
- make sure that if you are making a business pitch, have at least one partner. If you try to do it alone, most venture capitalists will not bother listening to you, as you have seemingly not even convinced one person to get on board.
- all of the big names and companies you are hearing about now started out by coming up with basic platform and then selling services or becoming part of a buyout to a larger organization. You just have to come up with one gimmick and then sell off.
- in a business context, where most academics and perfectionists come up short is that they are more “concept-driven than market-driven” and “aiming for perfection rather than releasing early.” Because of how quickly ideas are reaching implementation now, you must move very swiftly and even release things before they are not perfected yet. The member/customer participation is part of the branding experience for them.
- aesthetic appearance is now more important than content, and even a brilliant idea presented without a “gooey” interface will flop generally.
- large organizations move very slowly and this is why they are outsourcing more.
- must let go of every urge to micromanage.
- there are three types of businesses in a legal sense: sole proprietorships, partnerships, and corporations. It is in your interest to incorporate as soon as possible so that you can maximize your writeoffs. In a sole proprietorship, you often must prove that you do not have a permanent place of employment elsewhere.
- if you must ask for investor money, do it after you have some customers or something started. The sooner you ask for money, the bigger of a share/percentage of the company you have to give up in exchange for the money. Unfortunately, you generally can’t grow quickly if you are self-funding.
- strangely enough, friends and family are the best places to ask for money (if you are heavily invested yourself as well). The reason is that if you can’t ask these people for money and don’t think you could make a profit, this means you don’t really believe in the idea is viable. It will probably also push you to make it successful.
- if you are growing slowly, your company has a marketing problem.
- if you need legal help (in Canada) with getting SR&ED funds, some lawyers will work on contingency.
- venture capitalists do not care about revenue projections because they know you have nothing to base them on generally.
- Vancouver and Canada in general is becoming more popular to start businesses because Canada has a corporate tax rate of 18% while the US corporate tax rate is 35% and it is a more unstable financial climate there.
- GROW conference coming up in Vancouver is going to bring a lot of investors and venture capitalists from California who have discovered the value of what Vancouver has in intellectual capital and tax/government incentives.
- Canada may be the best place to start a tech company right now. SR&ED (Scientific Research and Experimental Development) is a tax credit system whereby you may write off your legitimate business expenses and get up to 60% of these costs back. It is important you give yourself a salary because this is likely to be reimbursed as well.
- a similar program also run by the CRA (Canada Revenue Agency, the equivalent of the Internal Revenue Service) is IRAP, Industrial Research Assistance Program.
- California is quickly building up another speculative bubble in many sectors. This is happening everywhere due to a good stock market situation at the moment, but California is the main place for the frenzied activity. There is likely to be another large crash.
- VanCity is the bank to go to in western Canada if you are wanting money to do something with a green initiative.
There was more said over the entirety of the day, but this was all extremely valuable. Be aware of the bubble brewing again, but also that there are opportunities in downturns as well. I would mainly look into these incubator/incubation programs!
If you want to discuss this further and with a wider group, go to Value$: A Mixed Economy.
– John Lett (notes, post author)