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Business Model Development

DisposeRX Investment

DisposeRX Investment

DisposeRX Investment Presentation Review

DisposeRX is a development stage company focused on the safe disposal of a leftover and/or expired drugs by providing a patented drug disposal technology.  DisposeRX asserts pharmaceutical companies have some responsibility to ensure safe disposal of unused prescriptions.  DisposeRX appears to have strong and experienced management.

DisposeRX is seeking to raise $500K.

DisposeRX INNOVATION AREA:  Healthcare

DisposeRX has identified a niche in the healthcare space.  More research is necessary to determine the level of responsibility on pharmaceutical companies to address the issue to determine the viability of the opportunity.  If responsibility is not mandated and associated with fines or other costs, this could be a classic case of failure of the commons as identified by Coase 50 years ago.

INCOMPLETE

SIZE OF THE OPPORTUNITY

DisposeRX asserts there are 3 billion prescription vials issued each year in the US.  Their solution retails for $0.11 per bottle so on its face this could potentially be a $300 million opportunity.  Absent a strong mandate the opportunity is likely much smaller than that.

INCOMPLETE

INEFFICIENCY

Success of this relies on market saturation and almost monopoly relationships being formed with pharmaceutical companies and/or responsible parties.  Commoditization seems inevitable.

RED

BUSINESS GODFATHER COMMENTARY

Full evaluation of DisposeRX requires knowledge of existing regulatory structure regarding disposal of pharmaceuticals.  Even assuming favorable analysis in that area the risk of commoditization is too great without some avenue to obtain cash faster as an investor – perhaps a piece of each product sold by the company.  Absent that there is not a clear path to this being an investable business based on what was presented.

CAVEATS

This Presentation Review is my opinion based on extremely limited information – a 1 page write up and 5 minute presentation.  My assessment might change if I had conducted more thorough due diligence.  I provide this assessment for educational purposes in applying the Business Godfather Investable Business Analysis.  Entrepreneurs are always swimming against a universe of people who may not fully understand their true business innovation and that may apply to me.

Investable Businesses

Why Do I Deserve this Generosity? ISO Investable Businesses

Investable Businesses

When evaluating investment opportunities you always need to ask yourself “What did I do to deserve this generosity?” Despite the grandiose claims and the beautiful geometric growth projections contained in every startup business plan, the simple fact is that most of the companies out there looking for capital are not Investable Businesses.

By Investable Businesses I mean a business where a third party investor has a colorable opportunity to get a significant return on their investment in 3 to 5 years.  This does not mean they are not good businesses but it does mean there is not a compelling case for an outside investor to invest in the business.  Many startups are creating efficiencies for users but not capturing inefficiency effectively for themselves.  Many startups are aiming to capture too small of a market.  Others are seeking to position themselves in a way to never be profitable.  Some have viable business models that should be able to operate from cash flow rather than needing outside capital.

In evaluating whether a company is an Investable Business I look at:

  1. The Innovation Area
  2. Size of the Opportunity
  3. Inefficiency Capture

The Innovation area needs to be supported by favorable macroeconomic trends.  21st Century Innovation areas include food, water, energy, big data, transportation, healthcare and millennial consumers.  We don’t want to be investing in a company that is in a maturing industry.  We want a company and industry that is just entering the Innovation Cycle.

The Size of the Opportunity should be sufficient for you to get a 10 to 100 times return on your investment valuation.  If everything goes right and you are unlikely to achieve 10X return on your investment, you have tied up your capital in an unproductive asset.

The Inefficiency Capture that the business is capitalizing on is based on the Business Godfather Cost-Benefit Analysis where we look at where the costs are incurred and where the benefits flow.  We do not want a business that creates efficiencies for others and does not capture enough inefficiency for itself to be profitable and growing.  Profitable and growing businesses capitalize on inefficiencies.
Over the next few blog posts I will be applying this analysis to several companies that I saw present at a Tech2000 Connectpreneur event in March.

Koomey-ProblemswithBizModels

4 Problems with Business Models

Many businesses struggle not because of a lack of hard work. They are run by smart and determined entrepreneurs. But often, their business model is flawed. No matter how hard you work, if your business model isn’t sound, success will perpetually elude you. In this video I’ll break down the different types of problems with business models I encounter when evaluating businesses.

tax-free-business

Build a Tax Free Business

Back in my lawyer days, clients would come in and ask how they could make sure they would not have to pay taxes.  “That’s easy,” I would tell them, “Just don’t make any money!”  I would go on to tell them that they were thinking about it all wrong, “You should want to pay more taxes than anyone else because that means you’re making more money.”

Now I know there are charlatans out there selling ideas about how corporations, trusts, special purpose entities, insurance companies, etc. allow you great ways to avoid paying taxes.  The simple rule is this – generally if you make money, you owe taxes.  This has been going on for thousands of years and certainly since 1986 in the US.

However your munificent US government does allow for tax free business opportunities.  Yes, you can create a tax free business opportunity and not run afoul of the current tax code.  There are definitely restrictions on this and details that need to be followed to do this correctly but it is certainly worth your time to learn how to do it correctly.

One of the requirements is that you can not be paid a salary or as a contractor from the business.  So in order to make this work, you will need another source of income from another business or from your assets.  As a Business Godfather LLC Family Member you are already working on developing multiple businesses so this should fit into your overall Success Plan.

Keep in mind that you would not be able to derive any benefit from the business until you are 59 ½ at the earliest.  For some of you that may be a long way off but for others this may be a great strategy for you to add to your overall Success Plan.

The mechanics of this are first you would need to establish a self directed Roth IRA.  If you have a Roth IRA with a traditional financial institution you simply need to transfer the assets from the established Roth IRA into the Self Directed Roth IRA.  You can do the same thing with a Roth 401K from a previous employer or from a Roth 401K if you are already 59 ½ in most instances.

If you do not already have assets in a tax free account, you can contribute to a Roth IRA if contribution limits allow or you can convert from existing traditional IRAs, 401Ks (and the like) from a previous employer or 401Ks (and the like) if you are over 59 ½.  These assets will have a 5 year delay on when you can realize benefits from this account even if you are over 59 ½.

After you establish assets in a Self Directed Roth IRA, the assets in the Self Directed Roth IRA would be used to purchase original issue stock or other equity interest in a new corporation or business entity.  The new corporation or business entity would then use the assets to establish or purchase a business.  This needs to be arms length so don’t get any big ideas about selling your existing business to the IRA entity as this is a prohibited transaction.  You can serve as Director of the company as long as you do not receive compensation for doing so.

Now I know you’re thinking “Great, my Roth IRA owns a company that can’t pay me anything – Why would I do that?”

Well the company can pay dividends or profits to the Roth IRA.  This money can be used to invest in other businesses or can be distributed to you as beneficiary of the IRA once you are 59 ½ or, if the 5 year holding period applies, after five years of your initial deposit.

This strategy can work well for a cash flow business that others manage for you.  Imagine a franchised convenience store (or some other business) that generates a decent return on capital and then imagine a tax free income stream from that business throughout your retirement.  Probably a better return than your balanced portfolio that your financial services professional is producing.

For specific guidance on the mechanisms, join the Business Godfather LLC Family or review  Swanson v Commissioner 106 T.C. 76  https://scholar.google.com/scholar_case?case=15277963416926279130&hl=en&as_sdt=6&as_vis=1&oi=scholarr

and

IRS Field Service Advice Number: 200128011 http://www.irafinancialgroup.com/IRAFinancialGroupFSA200128011.pdf

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Are You Building the Right Business?

As a Business Owner, you are enthusiastic about your business but you need to ask yourself “Am I building the Right Business?”

The same amount of effort in another business might yield a better result.

As a starting point I recommend using the Business Godfather Cost Benefit Analysis which is a little different than what you learned in economics class as you might suspect.

When railroads swept the nation in the 19th century they were the hottest business idea ever (up until that point).  Through innovative technology, people and goods could be moved throughout the vast countryside in previously unimagined efficiency and speed.  Wall Street grew to preeminence by funding these innovative startups.

Farmers, manufacturers, banks and people received amazing benefits from this new innovative business model by being fre to move around the country.  Even better because so many companies were competing in cutthroat fashion on pricing the users of the railroads benefited even more greatly through reduced costs in the competitive environment.

The benefits were clearly flowing to the users of the new innovative technology.  The costs were clearly borne by the railroad companies and their investors.  Even with vast tracts of land provided to boost their value and capitalization through government largesse the railroads eventually all went out of business.

This mismatch of benefits and costs has doomed many industries from railroads, to airlines, to early internet companies to many of the ease of use apps which proliferate today.

These failed business models were designed to create great efficiency whether it was moving goods, people, electrons or information.  Any business model whose primary benefits are based on efficiency are doomed to fail if the costs are borne by the company and the benefits flow to users.

Successful business models figure out how to benefit from inefficiencies and capture their profits by capitalizing on inefficiency.

When most people hear this the first time their heads cock to the side because it goes against the economic concept that markets are efficient and efficiency is desirable.  The ruthless efficiency of the market is good for the economy but not for your company if it is being ground up as a commodity business.

IBM mastered the inefficiency of the mainframe era and Microsoft mastered the inefficiency of the PC revolution but both have been hard pressed to sell software in the current efficient marketplace where most software is available for free.

Part of the reason why trillions have been spent campaigning and lobbying the government is because everyone knows the government market is built on inefficiency so there is plenty of opportunity for profit.

Take a look at your business or a business you are considering starting and sketch where the costs lie, where the benefits flow and identify where the inefficiency is that your business will profit from and make sure it is big enough to focus your resources on.

Choose-abundance

3 Keys to Choosing Abundance as an Active Investor

Whether you are looking to invest your resources in your own business or looking to invest in another business, 3 keys to choosing abundance as an Active Investor are:

  1. Ensuring Why Alignment
  2. Being a Student of Innovation
  3. Rugged Team Building

The concept of choosing abundance as an Active Investor is to help you break free from the scarcity mentality that predominates in non-Active Investors and will allow you to harness the great opportunities that surround us today.

ENSURING WHY ALIGNMENT

Ensuring Why Alignment is derived from Simon Sinek’s seminal work “Start with Why” as to why great companies succeed where others fail. For you as an Active Investor, you need to understand your personal Why related to Why you want to be an Active Investor. This may be to create cool things, to provide employment or enrich your community among other things.

Once you figure out Why you are investing, you need to make sure that your Why’s are aligned with the business’s Why’s you are investing in. You also need to make sure your Why’s and the business’s Why’s are reasonably calculated to provide you with the outcomes that you are seeking.

One thing I can guarantee – if your Why is just about money – your odds of success just plummetted. Money is not an effective motivator for you or your team despite what our economics textbooks tell us.

BEING A STUDENT OF INNOVATION

Great businesses profit from innovation. Innovation can be cool inventions or efficient business processes or awesome experiences – the innovation is less important than understanding how innovations fuel great businesses.

Great businesses usually take an established innovation from one industry and apply the innovation in a new way. Henry Ford did not create the automobile, replaceable parts or assembly lines but he applied them to a young industry with great results. Apple (or Microsoft for that matter) did not invent the the computer, the mouse or the graphical user interface but they brought it into people’s homes in a revolutionary way with the personal computer. Google was not the first search engine and in fact were kind of late to the Internet game by Internet rush standards but they applied artificial intelligence and advertising to create a search industry that barely existed when people Asked Jeeves and Alta Vista’d their questions and desires.

As a Student of Innovation, you will analyze where the costs are incurred and where the benefits flow so you can position your business to capture and profit from the inefficiency as opposed to being a victim of it like the railroads, airlines and early internet companies.

RUGGED TEAM BUILDING

People writing about Entrepreneurs portray them as Rugged Individuals and often refer to them as pioneers in a new field. The reality of being a pioneer is that most had less than glorious lives and ends of lives and then people sing songs about them after they are gone.

Successful Entrepreneurs on the other hand always acknowledge the people around them who have helped them succeed because they realize the power of building a Rugged Team around them. Back in my lawyer days, the greatest value I could provide my clients was connecting them with trusted professionals who understood the rhythm of business.

As an Active Investor, you need a Rugged Team to run your operations, but even more important, you need a Rugged Team that can help you effectively evaluate your opportunities, your challenges and help you build more valuable businesses.

If you are interested in learning more about how the Business Godfather can help you build a more valuable business send me an email HERE.

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Converting from an Owner-Operator into an Active Investor in Your Business

Business coaches and business consultants love to tell prospective clients that they will help them work “ON” their business and not “IN” their business. The business owner thinks that sounds better than what they are doing so they move forward. The business owner, coming from an Owner-Operator mindset, however rarely changes their focus from operations and interjects themselves into day to day operational issues and/or disconnects themselves from the business which ends up hurting their results and hurting their income, their wealth and their emotional well being.

The Business Godfather helps our clients approach their business as an Active Investor rather than as an Owner-Operator. As an Active Investor, you obviously need to be active in your business. As an Active Investor you are also expecting to get an above average return on your resources – your time, money and expertise. As an Active Investor, your efforts focus on how you can improve the return you are getting on your resources so you can grow your income, your wealth and your impact.

Liberate yourself from the tyranny of the mundane by focusing on the highest impact aspects of your business.   Transitioning to an Active Investor mindset also allows you to be involved in multiple businesses or to develop multiple lines of business within your existing business. This is where you will be able to leverage the skills you have developed as an entrepreneur and apply them to generate multiple sources of value for you and your company.

Think of it this way – there is only one CEO of Exxon Mobil or any other similarly large company. My bet is if one person can manage a huge operation like that then one person can manage your business as well as others provided that focus is placed in the right areas. Even more so with all the technology and services that allow you to slice and dice different functions available today, there is no better time to be an Active Investor in your business and businesses.

As an Active Investor, you will understand how the 6 Business Value Drivers apply to your business and then you will focus your efforts on the Value Drivers that will build the most value in your business. The Business Godfather helps you identify three strategic initiatives that will help you make the 6 Business Value Drivers work for you in your business.

By linking all your actions to these three strategic initiatives, you will be focused on building a more valuable business. Almost as important, you won’t be focused on mundane operational tasks that are not helping you build a more valuable business.

If you are interested in learning more about how the Business Godfather can help you build a more valuable business send me an email HERE (link to chriskoomey@businessgodfather.com)

Business Godfather Podcast – Jacob Harryman

Business Godfather Podcast

Jacob Harryman, Ally Homes

In this episode of the Business Godfather Podcast, I sit with Jacob Harryman, an entrepreneur building Ally Homes. Ally Homes helps homeowners alleviate the headache of home improvement by providing a simple, no haggle experience. Jacob comes from the home improvement industry and brings his expertise in the industry to help owners take some of the pain out of home improvement. We talk about starting the business, increasing value, and building a great business model.

 

 

Podcast with Mike Matthews – Lime Lion

[vc_row][vc_column width=”1/1″][vc_column_text]The Business Godfather Podcast will focus on how to shift from an owner operator in your business into an active investor. Instead of your presence being the real value in your business, an active investor is constantly working to replace themselves from their business so they become active investors and not simply employees.

In today’s podcast, I talk with Mike Mathews, CEO of Lime Lion. Lime Lion is a technology company creating a platform to help unknown artists become known. Today we discuss how he got started, the inception of the idea, and the future of Lime Lion.

Enjoy the podcast![/vc_column_text][/vc_column][/vc_row]

Social Media Marketing: Beyond the “I Know a Guy” Directory

Right now most Social Media Marketing companies and business owners looking to engage a Social Media Marketing company rely on the “I know a guy” strategy.

As in “I need help with the most important new marketing initiative facing my company and because there is no established market I need to rely on some guy (FILL IN THE BLANK: neighbor, brother-in-law, acquaintance with a pulse, etc.) that knows some buzz words but has no track record I can rely on.”

The “I know a guy strategy” was prevalent in the mid-1990’s as companies engaged the Internet for the first time with brochure sites.  “I know a guy” decisions rarely produce the results you are looking for.  Then, no one was looking and the stakes were not as high.  Now your mistakes will be thrown up on social media discussion groups before you realize it.

The Market for sellers of Social Media Marketing services resembles Horshack from the ancient Welcome Back Kotter Show set to classical music and dressed in a tux.  No matter how good the sellers of Social Media Services look, its just more guys crying out for attention.  At least Nick at Nite got the joke and was trying to make you laugh.

Part of developing a Social Media Marketplace requires some agreement on what services are even available.  Here is a list I came up with:

  • Marketing Agencies
  • Marketing Platforms (e.g. Hubspot, Vocus, Wildfire, etc)
  • Content Marketing
  • Website and App Developers
  • Audience Developers
  • Social Media Monitoring
  • Crowdfunding and Idea Accelerators
  • Freelance Services

What services do you think are essential for Social Media Marketing today?

Breaking Habits, Making Habits for Social Media Marketing

One of the barriers to companies that have not fully committed to social media marketing is not that they don’t understand it – it’s that they have not committed to making it an essential part of their business.

First step is to break the habits that are not effectively generating profitable results.  Identify the urgent but unimportant time that you are spending during your week.

Then ask yourself these questions:

If CNBC, CNN, Fox News (insert your dream media outlet here) asked you to conduct an interview tomorrow, how much time would you spend preparing for it?

What if CNBC, CNN, Fox News (insert your dream media outlet here) asked you to conduct an interview every week, how much time would you spend preparing each week?

How much time would you dedicate to engaging in conversations with connectors who could recommend you to potential clients?

Add up those hours and dedicate somewhere between 50% and 100% of that time to your social media conversations.

Social Media may not be as glitzy or something that your mother will brag about like conventional media but carve out time on your schedule and focus your efforts on effective consistent communication.

As Gary Vaynerchuk says over and over – Marketers Ruin Everything.  When you do communicate, stop trying to sell your services or product to any one who will listen (they are not).  Make people smile, think or just plain help them out.

If You Want Advice, Ask for Money. If You Want Money, Ask for Advice

“If you want advice, ask for money.  If you want money, ask for advice.”

A professor of mine had this on a sign in his office.  I was reminded of this earlier this week when I was meeting with a CEO of a company seeking funding for its initial spurt of growth.  As I engaged in the conversation I realized that they really needed strategic partnerships more than money and that’s what I told the CEO.

As business owners, think about the response you get when you ask someone for money directly.  Do you always get what you want?  More likely a direct request is deflected into another conversation.  Very few people are as direct as the Business Godfather (or the movie Godfather when Solozzo asks him for money).

When you ask people for money, people will tell you all the things you could do to get the money from somewhere – just not from them.  In fact, their energy level will increase as they shift the burden from paying you, to helping you.

Through the non-stop marketing messages coming at us, we have been trained to make our first response “No” when someone asks for a decision regarding money.  When you are in a retail store and the salesperson makes a full frontal assault on your person and asks “Can I help you?” your first response is usually “No, I am just looking” even if you are not and are looking to buy something.  We have developed such an aversion to direct assaults on our wallet we bring this forward into our business conversations as well.

When you ask for advice, on the other hand, people’s willingness to help is enormous.  So enormous they might use their energy, their contacts and, yes, even their money to help you.  Particularly for new businesses or businesses looking to expand, you should spend more time asking for advice than time asking for money.  As you reshape your business, spend time talking with people.  There is expertise all around you and you can tap into the benefits of a mentor-mentee relationship.

To make this work, you actually have to be willing to take some advice.  First come up with genuine issues that you need advice about to resolve.  After you apply the advice, come back to the person who gave it to you and thank them for the advice and show them your results.  Honoring the mentor relationship will help you immeasurably.

One caveat to this, as you ask for advice, don’t let all your secrets out of the bag. Loose lips sink ships and talking too much about your great ideas might hand your idea to a competitor unknowingly.  Remember, in the Godfather movie, the whole drama was set in motion by Sonny showing too much interest in Solozzo’s proposal:  http://www.youtube.com/watch?v=I5m4jpUyb-g

Tap into your network, your clients and even use requests for advice to meet leaders in your field.  There is simply no better way to help your business grow.

What Are You Best in the World At?

New business owners are usually trying to answer the wrong questions – what business entity should I choose? What title should I have? What should my logo look like?

The primary question a business owner should think about is What are we best in the world at?  Or more realistically for new businesses, What do we want to be best in the world at?  All the answers that you need as a business owner come from answering this question.

The next question is Why does the answer matter to you and anyone else?  Mastering the why will help you understand the potential profitability of your business as well as the required scale to achieve your success.

Once you figure out what you want to be best in the world at and why all your marketing, sales and operations questions should flow from that answer.  Your service and product development would focus on what you want to be best in the world at.  Your staffing will be easier as you will be better able to hire people who want to be best in the world at something.

Whenever I meet an aspiring business owner they want to tell me how they fit into a conventional business model – thinking that generic is memorable.  Quite the opposite is true.

I want to know what you are best in the world at.  This helps me understand your conviction, your understanding of your market and how you stand out in a world of “me too” businesses.

Ask the question of your team:  What are we best in the world at?  If you get the same answer from everyone you are on the right path.  If you get different answers you need to refocus your team and your business.

What do you want to be best in the world at?