Wiggs’ way

By Lance Wiggs, March 25, 2010 @ 10:19 am

Let Lance Wiggs help with your tricky business problems. Email him at advice@idealog.co.nz

No rest

What’s the best use of a holiday for a busy entrepreneur? Total relaxation mixed with heavy drinking, stimulating alternative creative endeavours, or is it best to take work with you for reflection in a new environment?
Getaway, Auckland

We all need a break from work, and a holiday is a good time to reflect on the last period and think about the next. That’s the common wisdom and I agree—holidays are valuable time to spend time on the things that matter the most: family and friends.

So my advice is to abandon your work, and concentrate on doing the best you can for and with the ones close to you. Embrace life and get out and enjoy New Zealand—and discover why so many others come here to do the same.

I was lucky enough to motorcycle with an offshore friend around New Zealand over the Christmas/New Year break. It left me with the usual, if you can say that, sense of awe about New Zealand and New Zealanders, and how wonderful it is to travel here.

The occasional thought about work will cross your mind, and that’s okay. Jot the ideas down so that you can prioritise and deal with them when you get back.

One thing I’ve noticed with ideas that are derived from heavy drinking is that they will often seem as if they were, in fact, derived from heavy drinking. A better way to come up with new ideas is to take a leaf out of the approach used by design-led companies: get out and actively observe people as they use products and do tasks. Look for the frustrations and gaps, and then figure out ways to help. The more you explore and interact, the more likely you are to find the gaps.

Finally, if you have one entrepreneurial business then your primary goal should be to make that work before kicking off the next. Push it as hard as you can until the next stage gate, and then decide whether to keep going or to put it on hold and move to the next business. A track record of success, however small, is far better than a track record of starting and never finishing.

Family affair

I feel stink about asking friends and family to invest in my startup—but I know it’s a legitimate funding source, and believe my business is a good one. What should I do to act ethically but also land some coin?
Good Son, Northland

We’re a bit slow on this stuff in New Zealand, but family and friends should be an early port of call for money to start your business—after you have emptied your own pockets. You are offering an opportunity for people close to you to get in at a good price on a rather risky venture. It’s part of the game that the valuation you offer to them is a very good one—you want them to share the success and be among the biggest shareholders. So I’ll offer three rules when soliciting family and friend’s money:

First, don’t ask for too much. Your family and friends could, and probably will, lose everything they invest in your business, and you should let them know that and keep them very informed along the way. You want to keep them as family and friends later.

Secondly, don’t bludgeon or guilt them into giving you money. Make them an offer but let them make their own mind up about the merits of the deal, the business and you. Don’t expect investment as of right; family financials may not be what you perceive, friends may have other uses for their money, and while family and friends may know you very well, they may feel unqualified to assess your business and the investment.

Finally, make sure the deal is compelling. Make them an offer that they would be crazy to refuse, and give them the evidence to prove it. Rather than ceding control of your baby to some outside investor you are offering friends and family a chance to share in your success, and you want them along for the ride. You are not asking them to invest in you, but asking them to invest in a business—complete with plan, prototype, projections, forecasts and so on. Do the deal properly as well—form a company and have the right documents in place.

If you can make it a win-win deal then go ahead, but never forget that family and friends come before business, and always be scrupulously honest in your business dealings.

A place of my own

I’ve escaped the property mess with not much money but my reputation as an investor and mentor is intact. What sectors apart from property do you recommend I look into? Or is a sectoral approach too 90s?
Still Have My Shirt, Whangarei

Where to put your money? The answer is timeless: invest in a diverse range of asset classes, across a diverse range of sectors, across a diverse range of countries. The statistics and the theory hold that you will do much better in the long run by holding a wide range of investments so that when one group of investments falls in value, another will rise. New Zealanders have far too much of their portfolios invested in property, and far too little invested in stock markets overseas. To invest across a diversified portfolio yourself is quite hard—an MBA would help, but you really need to have the support of some serious PhDs, a trading desk that can execute across asset classes and countries, and a guiding philosophy that is reasoned, considered and not prone to panic. In New Zealand there is only one group that I trust with my money; overseas there are a handful more.

In the short and medium term you can always make plenty of money by betting on companies and sectors—but you can always lose plenty of money this way as well. To win more than you lose, you have to know something that other people don’t, either through (legally) better access to information, or a greater understanding of the investment potential than other investors. There are plenty of situations where that’s true, with my favorite being to invest in very small businesses with a great idea, founders that get things done and a good team around them.

Takedown

Conventional wisdom says some companies are so entrenched and successful that they are natural monopolies and can’t be dislodged (particularly online). But why not? Slashdot seemed like the archetypal geek community, but Digg caught it in a few months. We snigger when someone launches a competitor to Trade Me, but could it be done?
Duopolist, Wellington

As a loyal Slashdot reader I have to note that content discovery site Digg didn’t take Slashdot.org down; it created a new audience and a new market and they aren’t really competitors. Slashdot is about the same rank in Alexa as it was before Digg, and stays true to its tagline of ‘News for nerds, stuff that matters’. Digg, on the other hand, is an order of magnitude bigger and serves a different, much more mainstream, market.

Digg and Slashdot were compared back in 2006 because both were capable of directing server-crushing amounts of traffic at websites. It was called the Slashdot effect, and Digg has magnified that effect again.

Meanwhile, Trade Me’s story is well-known—it took on the previous free classified monopoly and offered something far greater. Its predecessor, Trade and Exchange, in turn had formed its monopoly by grabbing the classified business of the major newspapers. So yes: it’s clearly possible to bring down a monopoly, and you do so by delivering something of much greater value to customers. You’re unlikely to bring down a monopoly by playing the same game. Create value by changing the nature of the business.

But a word of warning to current monopolists. The temptation is to milk the market for as much as you can. The thinking is that if there is only one market to sell a car, then that market can charge what they like. Don’t do it! It makes customers angry and builds up pressure on the marketplace. That pressure that can be relieved in the short term by cheaper yet inferior alternatives, but ultimately will result in a game changer taking out the discredited monopolist.