In my first year at University, I read Philosophy alongside Economics. I always remember during my first tutorial my Professor telling me that to attain all human knowledge you needed to read just two books. I could not wait for him to tell me what they were.
You can imagine my disappointment when he told me that the first book was The Bible - (my disappointment was purely on the grounds that I am not a practising Christian!) The second book was The Republic by Plato. He then made the bold statement that every other book is written is a footnote to these two books - wow! It kind of takes the point away from reading!
I am always surprised when people ask “what kind of music do you like?” I feel sorry for people who confine themselves to just one or two genres. I like a bit of absolutely everything. And the same surely must apply to books. How can you say you only like reading one type of genre?
I meet lots of would-be Entrepreneurs who are always reading business biographies and I find it strange. I do enjoy biographies (Steve Job’s is well worth a read) but I think too many people read these books for motivation rather than learning. Self-Help books are one of the biggest selling genres in the USA and I think the fact that they are is evidence that they do not work. I confess to reading a book 20 years ago called “Charisma - How to get that special magic”. A friend of mine saw me reading it and said “it was probably written by a b*****d like you!” (Thank you Donal Ahern wherever you are!) After that comment - I never read a book like that again. These books are like drugs; they are addictive and can not possibly work. The best book to read that puts this crap in its right place is “How Mumbo-Jumbo Conquered the World”.
So my advice on reading business books (for vocational reasons) is:
1) Read them to learn - not for motivation. Motivation is an energy that comes from you and you either want to do it or you don’t. Starting a business requires so much energy - you will fail if you don’t have intrinsic motivation.
2) Have to balance in what you read. Try to read a wide variety of materials that give you a better understanding of the forces that shape our world. That is what makes great business people - their ability to understand change and exploit it.
3) Avoid reading bestseller lists. Many business books are promoting a fad that will not last. Remember the book promoting Sven Goran Ericksson’s ‘magic’ management style? No, nor does anyone else but it was a best seller!
4) If you buy a book - read it! Has anyone actually read “The seven principles of highly successful people?” I see it everywhere but no one seems to have read it!
I will of course share you with some of the books in the business genre that I have enjoyed reading enormously. Here is a sneak preview of books that I have adored and will be talking about in future blogs;
1) Freakonomics - This is a must-read. Any book with chapters such as “What the Klu Klux Klan and Estate Agents have in Common” and “Why Drug Dealers live with their Mothers” has got to be brilliant.
2) Wkinomics - great for understanding where we are going with the power of the internet and it gave me the idea for one of my businesses.
3) Maverick - Ricardo Semler - fantastic to show you how business can be done.
4) The Entrepreneurs Road Test - Jim Mullins - a must-read for any potential investor or someone looking to write a business plan. This is my Investment Bible.
5) SPIN Selling - Neil Rackham. This book taught me how to sell.
I have a confession to make which may surprise people who know me; I hate networking events. Because I have a good network, people assume I enjoy working in the room and networking. I would say that I have a good network exactly because I don’t work the room or network the way I think you are supposed to.
Going to any event labelled as a networking event is bound to spell trouble. You tend to meet people who think the name of the game is to give out as many business cards as possible during the evening. And god, please spare me from the person who has practiced his personal elevator pitch. (You may say I am to blame as I am continuously promoting the elevator pitch - but only for companies, not people is my reply to you!)
I like to build relationships with people - not just claim to know lots of people. In fact, I have pet hate when it comes to people claiming that they know lots of people. I would only say that I know someone if I can ring them on their mobile number and they answer the phone by saying “Hello Permjot” - that is that my number is on their mobile. I have learnt that it is not about knowing people but having a degree of influence over people. Networking events simply do not allow meaningful interaction to take place.
So if you are going to go to an event here are my golden tips:
1) Make sure that there is a theme. This means that it is relevant to you and what you want to achieve. So EISA events tend to be very good as they only attract people who have an interest in investing in companies in a tax-efficient manner
2) Have a ‘sponsor’ at the event. For example, make sure that someone will take on the role of introducing you to the relevant people that you need to meet. I am asked in training sessions I run, to advise on how to meet and greet - the reality is this is very difficult to do. Having a sponsor makes it easier for you to be focused on.
3) Listen more than you talk. You will get a lot more out of your conversations if you understand what someone else wants.
4) Run a Google search on people at the event. The internet has made it so easy to do a five-minute search on people. I am amazed at how many people meet me without knowing anything about me at all - it is all there and you will know how to pitch to me and what I do and don’t like.
5) Be sparing with your business card. Make people work for it. If you are selling to someone else - earn the right to ask for their card. I never give my card to someone who simply asks for it as soon as I have met them.
6) Agree there and then how you are going to contact someone again next.
7) Make sure you follow up.
This is the best piece of advice I can give.
Enjoy! If you are not enjoying it - leave! Seriously, people will sense that you are not at ease and will not want to get bogged down talking to you!
Is it possible to manipulate your balance sheet and profit & loss statement?
There are three Financial Statements that comprise a set of accounts but as an investor, you should only pay very close attention to one; cashflow. If you are pitching to a business angel - make sure you have complete mastery over this statement.
The Profit and Loss Statement and the Balance Sheet can easily be manipulated to show the numbers you want to and will always be subjective (within reason - unless you work for WorldCom or Enron!) Cashflow should be a 100% objective statement that allows someone to understand the cash cycle of a business quickly.
“Lack of profits is like cancer, it will eventually kill a business unless cured. Lack of cash though is like a heart attack - it can kill a business straight away”
This quote is very apt. Most people still don’t realize that most businesses that go bust are profitable. What made them go bust was a lack of cash. Any Entrepreneur pitching to me must demonstrate to me that they understand the difference between cash and profits. There are many people who don’t understand this difference. (If you want an explanation please ask)
The Fund which I am a co-founder of Flight & Partners, takes advantage of being able to buy companies that are profitable but have simply run out of cash - so in a sense, one of my businesses does rely on cashflows going wrong.
A cash flow statement should simply show on a monthly basis for the first two years of a business the following;
1) How much cash is coming in from where and when
2) How much cash is being spent, on what and when
As an angel investor in a start-up, your only short-term concern should be can the business survive for the first two years? (Most failures occur within this period.) Don’t worry about things like profit at this stage!
You should also always ask to have the cash flow forecasts sent to you via email. You need to flex it - in particular, you need to see what would happen if:
1) Customers take an extra 30 days to pay
2) Any additional investment monies take an extra 3 months to come in - again a lot of businesses fail between fundraising rounds
3) Revenues take twice as long to build-up
4) Costs are 25% higher
If the business can survive the above, it has a good chance of making it. You can then turn your attention to trivial matters like profit!
As a final anecdote from experience, I did invest in a business that did not raise enough money to survive more than six months. What it showed though was that it wanted to raise money again depending on hitting certain milestones and that if money was not raised, it could simply hibernate and carry on operating on minimal funding (£1k per month). Given these facts - I was happy to invest.
Nothing leads to success like failure
One of my favourite books in recent years has been Freakonomics. Anyone who has read that book will realize that the title of this blog is a homage to that great piece. I have always had a problem doing business with people who wear religion like a badge. Most of the truly religious people I know have a personal relationship with their god and see it as a private matter. I just find that people who advertise their beliefs have an arrogance that allows them to excuse themselves from conforming to the everyday norms of right and wrong that people take for granted.
My definition of a fundamentalist is someone who has read just one book and believes that this one book contains all the truths and knowledge in the world. This book may be a holy one such as the Bible, The Koran or a political one such as The Communist Manifesto or Reflections on a Revolution in France. The world is simply more complicated than that.
What does all this have to do with business?
I have come across many people who I would describe as business ‘fascists’. These are people who have been stuck in the same industry or business for many years and rigidly refuse to accept new ideas or new ways of doing things. Like Pascal famously said
“Nothing leads to failure like success!”
Indeed I have a very hard time working with entrepreneurs who are successful in one field because they believe they know all there is to know about the business. These Entrepreneurs tend to have low-quality staff working for them as talent needs to flourish and of course try new things that may or may not work. The problem then arises when these Entrepreneurs want to become business angels and invest in a business. My advice to companies is to stay away from accepting any investment from a business fascist.
How to spot a business fascist
1) They have only had success in one limited field
2) They run their business like a fiefdom
3) They have a massive ego (find out who does their PR for them - and how much that would cost)
4) They love the sound of their own voice
5) They will only invest if they are made chairman or a Non-Exec
6) You can find few people who have a good word to say about them
7) They have a very weak network. Networks are a very good measure of how people are seen - not what they are worth.
When they talk to you - you feel you are being preached to One of my favourite quotes sums up my problem with fundamentalists very neatly.
If you believe in the theory of efficient markets you would accept that it is not possible to consistently beat the market. And yet many people consistently do that - including my hero Warren Buffet. How do they do that?
Many successful investors take a very long term view and are prepared to take a contrarian view to the rest of the market. The buffet is perhaps the best example of that. Most of us realize that when cab drivers start telling you to buy shares, property or gold - it is time to get out of that market. Buffet seems to have a sense of picking up on this before it gets to the ‘cab level’. Having said that, many of us can get the timing wrong. The current UK property market is a good example. I along with many others (including The Economist!) thought that the market had peaked four years ago. In the last four years, prices have gone up at least 40%. Even allowing for the worst predictions of prices falling 25%, most people who stayed in the market will still be better off than having sold off when clear signs were available that the market was overheating.
As with all things, it is never as easy as following ‘six easy steps’ to investment success. Nonetheless, my advice to investors in startups would be:
1) Always take a very long-term view - with startups you should be looking at five years at least.
2) Follow your own judgment. You may be wrong (and you are more likely to be wrong more times than right!) But you will be able to live with that. Trust me, the investments I have hated are the ones that have gone wrong when I trusted someone else.
3) Do your own research. A day visiting a business and talking to managers and customers is a brilliant start - don’t outsource this to someone else.
4) Look at who else has invested. Even if I think something is brilliant - I need to know that at least one other person has also been persuaded (this does not conflict with point 2!)
5) Develop a set of criteria that works for you (readers familiar with my blog will know what mine are).
6) Above all, make sure you understand what the business does, how they make money and make sure you trust the management team.
Hello! My name is Paul Mylovitch. At present I am an entrepreneur earning my living on my own. I am proud to say that because I’m on my way of accomplishing my dearest dream: to spend my time as I want to and following only my own priorities. I discovered how to create my own financial security in the new economy doing what I like. Twenty years ago it would have been an impossible dream. It has been taken me longtime to get here and I learned some tough lessons before I found my path. When I finished my formal education and got my first job, I realized that from that point on, if I’m going to be all my life an employee, I will never be free.