Small business owners lead the most efficient and effective organizations ever designed by human hands - profit-seeking businesses where the Chief Executive Officer also happens to be the Chief (as in largest) Shareholder, too.
Among many benefits, this business form fully addresses the Agency Problem - so often found in larger companies - where the interests of the professional managers do not always sync and align with those of the shareholders.
This can cause various (and nefarious!) effects like:
• Managers seeking to maximize their shorter term "cash-out" - high salaries, bonuses and the like - irrespective of their effect on / benefit to the organization as a whole
• Managers not pursuing potentially high returns, but also higher risk strategies as the personal benefits to them when successful (i.e. a pat on the back) are far less than the penalties when not (i.e. getting fired)
• In worst cases, managers committing out-and-out fraud, treating the companies they are entrusted to lead as personal piggy banks (see Enron), with their only strategic calculus being whether or not they will get caught
In contrast, in most circumstances, what is best for the managers of a small business is what is best for its shareholders, as they are normally one and the same.
But there are three scenarios where this is decidedly NOT the case:
1. When Contemplating Raising Outside Capital. For far too many small business owners, when they think about raising capital, they think too much about "control."
As in "I don't want anyone looking over my shoulder." Or "telling me what to do."
When I hear comments like this, the first thought I usually have is that it might be a very good thing to have someone looking over your shoulder and telling you what to do!
Why? Because usually the advice given is in the interest of the businesses’ shareholders…which to reiterate the largest one of these is usually the entrepreneur resisting “control!”
2. When Contemplating Selling a Business. More often than not owners of businesses capable of attracting a buyer and being sold LOVE what they do, and they especially love being the BOSS.
So the prospect of selling out and no longer being the BOSS can be emotionally difficult.
Now, from the perspective of the Chief Shareholder, the right response to this should be, “Who Cares!”
With the risk of sounding harsh, this decision should be made solely on the strategic and financial merits - lifestyle and heartstrings considerations be darned!
3. Contemplating Investing More of One’s Own Money in One’s Own Business. When one is lucky enough to have capital to invest, the Chief Shareholder “Hat” needs to be worn far more tightly than the Chief Executive one.
Because as the Chief Executive, it is just too easy to overlook portfolio diversification considerations, as it is not possible to “diversify” from the huge time and energy investments necessary to be an effective CEO of a growing company.
From this perspective, the right decision is to almost always try to invest as much as one possibly can away from and outside of one's own business.
I know, this is extremely hard to do as more often than not every instinct screams out to just pour more time, energy and treasure into it to the exclusion of everything else.
That is the Chief Executive talking and is the kind of “irrational” commitment to success that is at the heart of what makes being a small business and an entrepreneur so intoxicating (and admirable)!
BUT when the three scenarios and opportunities above present themselves, take a pause and listen to Mr. and Ms. Chief Shareholder, too.
If nothing else, your wallet will thank you.
To Your Success,
This post is a based on a thought piece I wrote for Entrepreneur Magazine last year. The original article can be viewed here.
You've probably heard the term "a level playing field" which refers to a scenario where everyone has an equal chance of winning.
For example, the desktop computer leveled the playing field by giving individual entrepreneurs virtually the same computing power as individuals working at multi-billion dollar companies.
When starting a business, you should choose a space where the field is level; meaning going into a market where you have a fair chance of winning.
But after you start your business, and/or if you have a more mature business, I encourage you to unlevel the playing field.
What I mean by unleveling the playing field is to make it so that nobody wants to compete against you. I want you to have an unfair advantage (using ethical tactics of course) so that you win the game.
So how can you unlevel the playing field? One of the best ways is to create organizational assets that your competitors don't have.
Here are five examples of organizational assets you can build:
1. Customers: Most mobile phone companies offer 2 year service contracts that all new customers must sign (and face penalties if they leave before the two years are up). This essentially "locks up" customers making it harder for new entrants (or existing entrants) to come in the market and take their customers from them. Customer agreements and contracts are one of the most powerful organizational assets you can build.
2. Systems: Most franchise organizations (e.g., Dunkin Donuts, McDonalds) have made significant investments in systems such as systems to serve customers, produce products, handle customer complaints, etc. These systems make it easier and less expensive to hire and train employees and better service customers, making it harder for others to compete against them. Likewise, I know many companies who have built customized software systems that allow them to perform faster, cheaper, and more consistently than their competitors.
3. PPE (Plant, Property and Equipment): When I was a teenager, I made a lot of money shoveling snow. I used that money to buy a snow blowing machine. Equipped with the snow blowing machine, I was able to remove snow ten times faster than my competitors. This allowed me to dominate the market.
4. Product or Service Variations: A local pizza shop promotes itself as having 36 varieties of pizza. Offering this large variety makes it harder for new pizza companies to enter the market. Because a new company would have a very hard time creating 36 varieties from the start, it would be harder for them to satisfy customers.
5. Partnerships: I've created several partnerships with major websites and organization to be the only business plan provider they promote. This excludes my competitors from working with those organizations and serving their customers.
What I want you to consider now is how you can build organizational assets that unlevel the playing field. How can you make it so that nobody wants to compete against you?
Importantly, whatever answers you come up with, realize that building these organizational assets will take time. Often times they may take as much as a year (or even longer). So make sure to properly plan their development. Set a long-term goal for when you want the asset built. And make sure that you build time into your daily, weekly and monthly schedules to move the development forward.
Suggested Resource: Would you like to know the eight other assets you can use to unlevel the playing field and dramatically grow your revenues and profitability? You'll learn this and more in Growthink's 8 Figure Formula. This video explains more.
How are the best business-to-business (B2B) companies and brands getting past the noise and the online clutter and connecting with their clients and customers?
Well, marketing research firm Motista recently surveyed 3,000 purchasers of 36 B2B brands to find out.
I encourage any executive whose business sells primarily to other businesses to read the full report here. It is chock full of fascinating and very high ROI B2B marketing and sales nuggets.
In it, I found three particularly prescient ideas as to the Mobile Internet Revolution we are all currently living through, and how smart entrepreneurs and investors are playing and winning with it. They are:
1. Mobile, Mobile, Mobile. Mobile browsing, shopping and buying is growing at such a rapid rate that it has become now virtually indistinguishable from the traditional, desktop-driven Internet.
This is obviously having a dramatic impact on not just consumer markets (i.e. tweeting and texting Millennials), but on B2B markets and interactions as well.
Which leads to takeaway number two…
2. Personalization. As well demonstrated by this awesome Grainger ad, even older line industrial companies and brands selling to other old line companies are now connecting their brands and messaging to the personalized needs, wants, fears, and aspirations of individual buyers.
In other words, it is no longer enough to just demonstrate business value (i.e. functional benefits and business outcomes), but personal benefits must be communicated as well.
Things like promotion, popularity, influence, and confidence.
AND do so in a way “that delights, inspires, and surprises…and makes a person want to own it, riff on it, and share with others…”
Yes, this is hard.
But when done right, the rewards can be the kind of word-of-mouth viral campaign effects that to date have only been available to consumer brands and marketing campaigns (see Old Spice, DollarShaveClub).
3. Multiple, Digital Touchpoints. From personalization of message follows multiplication of medium.
With B2B buyers porting their iPhones and Galaxies-trained “always on, at my fingertips” sensibilities to the work place, B2B sales cycles are now increasingly “multi-dimensional.”
These cycles involve not just in-person and on the telephone analog selling, but also multiple digital touchpoints and nudges - texts, tweets, LinkedIn connects, YouTube favorites, Facebook likes, Instragrams, and more.
These are the new rules of the B2B marketing and sales game.
And we either learn to play by them hard and well…
…or we consign ourselves to being left behind in our mobile, so very personalized, sometimes annoying, but also so often delightful and always opportunity-filled world.
To Your Success,
I wish I could just say that if you do X, Y & Z, you'll magically raise millions of dollars for your venture. But unfortunately, that's not how raising capital works.
One key reason for this is that most sources of money, like banks and institutional equity investors (defined as institutions like venture capital firms, private equity firms and corporations that invest), are essentially professional risk managers. That is, they successfully invest or lend money by managing the risk that the money will be repaid or not.
So, your job as the entrepreneur seeking capital is to reduce your investor or lender's risk.
For example, let's say that two entrepreneurs want to open a new restaurant. Which is the riskier investment?
• Entrepreneur A has put together a business plan for the new restaurant.
• Entrepreneur B has also put together a business plan for the restaurant...and he has also put together the menu, secured a deal for leasing space, received a detailed contract with a design/build firm, signed an employment agreement with the head chef, etc.
Clearly investing in Entrepreneur B is less risky, because Entrepreneur B has already has already accomplished some of his "risk mitigating milestones."
Establishing Your Risk Mitigating Milestones
A "risk mitigating milestone" is an event that when completed, makes your company more likely to succeed. For example, for a restaurant, some of the "risk mitigating milestones" would include:
• Finding the location
• Getting the permits and licenses
• Building out the restaurant
• Hiring and training the staff
• Opening the restaurant
• Reaching $20,000 in monthly sales
• Reaching $50,000 in monthly sales
As you can see, each time the restaurant achieves a milestone, the risk to the investor or lender decreases significantly. There are fewer things that can go wrong. And by the time the business reaches its last milestone, it has virtually no risk of failure.
To give you another example, for a new software company the risk mitigating milestones might be:
• Designing a prototype
• Getting successful beta testing results
• Getting the product to a point where it is market-ready
• Getting customers to purchase the product
• Securing distribution partnerships
• Reaching monthly revenue milestones
The key point when it comes to raising money is this: you generally do NOT raise ALL the money you need for your venture upfront. You merely raise enough money to achieve your initial milestones. Then, you raise more money later to accomplish more milestones.
Yes, you are always raising money to get your company to the next level. Even Fortune 100 companies do this - they raise money by issuing more stock in order to launch new initiatives. It's an ongoing process-not something you do just once.
Creating Your Milestone Chart & Funding Requirements
The key is to first create your detailed risk mitigating milestone chart. Not only is this helpful for funding, but it will serve as a great "To Do" list for you and make sure you continue to achieve goals each day, week and month that progress your business.
Shoot for listing approximately six big milestones to achieve in the next year, five milestones to achieve next year, and so on for up to 5 years (so include two milestones to achieve in year 5). And alongside the milestones, include the time (expected completion date) and the amount of funding you will need to attain them.
Example: Launch billboard marketing campaign over 6 months, spending $18,000
After you create your milestone chart, you need to prioritize. Determine the milestones that you absolutely must accomplish with the initial funding. Ideally, these milestones will get you to point where you are generating revenues. This is because the ability to generate revenues significantly reduces the risk of your venture; as it proves to lenders and investors that customers want what you are offering.
By setting up your milestones, you will figure out what you can accomplish for less money. And the fact is, the less money you need to raise, the easier it generally is to raise it (mainly because the easiest to raise money sources offer lower dollar amounts).
The other good news is that if you raise less money now, you will give up less equity and incur less debt, which will eventually lead to more dollars in your pocket.
Finally, when you eventually raise more money later (in a future funding round), because you have already achieved numerous milestones, you will raise it easier and secure better terms (e.g., higher valuation, lower interest rate, etc.).
It might surprise you what you can accomplish with less money! So write up your list of risk mitigating milestones and determine which must be done now and which can wait for later, focusing first on what is most likely to generate revenues.
Suggested Resource: Want funding for your business? Then check out our Truth About Funding program to learn how you can access the 41 sources of funding available to entrepreneurs like you. Click here to learn more.
The other day I wrote an article entitled "10 Obstacles That Are Limiting Your Growth." In it, I revealed 10 common things that block entrepreneurs and business owners from achieving the success they deserve.
Those 10 obstacles included:
1. Lack of Skill
2. Bad or Negative Attitude
There are many mental and personal blockages that can hinder you from achieving your full potential in business. Blockages in business can be compared to fatty deposits around your arteries that impede blood pumped from the heart from reaching its destination.
For you to succeed in your business, you must identify and eliminate such blockages promptly.
Here are 10 common blockages that can impede your success. As you read through the list, mark any of them that might be affecting you and/or your business:
1. Lack of Skill - As information increases, many business owners soon find out that there is much to learn. Whether it's getting up to date on new tax laws, learning about social media, or practicing negotiation techniques, take the time to keep your skills sharp.
2. Bad or Negative Attitude - While it may be easy to learn new skills, attitude is what makes or breaks a company. Whether you think you can or think you can't - you're right! Check your attitude frequently.
3. Lack of Focus - I always tell people that if they do one thing, they can do an A+ job; but that the second they do something else, they can only do a B+ job on each. And the bottom line is that to succeed in business, you must do an A job or better. So, make sure you focus on specific projects so you can excel at them.
4. Procrastination - Procrastination is high among the top five time wasters. Creating deadlines is an effective way of preventing procrastination. Though it may feel restrictive or even stressful, having a deadline can activate your brain and infuse new thoughts and ideas.
5. Monotony - It pays to try out something new once in a while. There is always a new instructional video with a different method from the text book methods learned in school. Doing something differently offers you the necessary relief from the routine and repetition that is common in many businesses.
6. Control Issues - Sometimes the tiny voice in your head may urge you not to give up control, so you end up micromanaging everything. It is important to have faith in the people you hire. Hiring qualified people for your business helps you to focus on specific tasks and minimizes your chances of overworking yourself.
7. Overworking Yourself - Sometimes you may overwork yourself even without realizing it. When you get overworked, you become less productive. Take it easy, go on vacation if possible. Your decision-making abilities become compromised when you are tired. Stick to a schedule and get some rest.
8. Seeking Approval - In business, you may sometimes unconsciously or even consciously wait for someone to encourage you or give you permission to take a step. Acknowledge your own abilities and make decisions on what is best for business, not based on pride of emotional approval.
9. Lack of Creativity - Keeping a journal can remedy a lack of creativity. Sometimes a new idea will pop up at a random time or place. Jotting down ideas and inspirations helps to unblock your mind. Apart from noting down random ideas for future reference, journals provide a useful way to track personal progress.
10. Thinking Small - With the current technological capabilities, it is easy to access success stories. Surround yourself with people who think big. Read books, blogs and watch motivational videos, etc. In business, if you aim low, you strike low. Aim high.
How many of these blockages did you circle? There is no right or wrong answer. Whether you picked one or twenty, you have work to do. Study the blockages you marked and start with the one you feel is impacting you the most.
Work on removing this blockage for 30 days. Then pick the next one that is having an impact on your business and start working on that one. As you stretch beyond your comfort zone and tear down barriers, your business will grow.
Last week, I shared three themes percolating in the dynamic Internet of Things (IoT) movement: 1) Wearable Devices driving health and wellness breakthroughs 2) Embedded Sensors “incrementally” improving industrial productivity, and 3) The converging trends of miniaturization, affordability, and “de-wireization” driving energy efficiencies and cost reductions the world over.
These are big themes - breathtaking in their “macro” - but sometimes very difficult to translate to specific opportunities from which we as entrepreneurs and investors can individually benefit.
But try we must, both because of the sin that it is to see an opportunity and to not pursue it, and if we don't…
…we run the very real risk of being overrun by transformations so profound and all-encompassing as to threaten to the point of obsolescence virtually every business and investment model.
Overly dramatic? I don't think so.
For if the last 20 years of technology advances have taught us anything, it is that global, online connectedness naturally creates conditions where choosing winning strategies don't just give companies a leg up, but allows them to capture all of the market (including its profits).
Examples of this phenomenon?
Think Google for search, Facebook and LinkedIn for social networking. Twitter for one-to-many communication.
And how about SpaceX for rocket technologies? WhatsApp for free SMS? EBay for online marketplaces? Craigslist for classifieds?
The list goes on and on.
And this coming Internet of Things - with estimates as high as 25 Billion devices being online in some form by 2025 - will provide far greater opportunities for new entrants to rapidly scale and for incumbents to be rudely displaced than your “Father's Internet” ever did.
The revolution here can be boiled down to one word.
And the need to manage and interpret the vast and ever-streaming treasure trove of it that will always be flowing from these billions of interconnected devices.
I thought General Electric's Head of Software Bill Ruh, explained it best at Kamal Ahmed’s and Ali Tabibian’s IoT event last month. The example he used was of the jet engines that GE makes for Boeing and other aircraft manufacturers that both create and allow for tracking on huge amounts of performance data.
Now when that data confirms the belief of the technicians managing those engines, it is used.
But, when it contradicts long held assumptions and beliefs, more often than not it is ignored.
In an IoT world, this belief system, this hubris, one’s qualitative judgments in contradiction with “the facts” needs to be quickly and ruthlessly discarded.
And it must be replaced by the conviction, faith, and sternly pursued managerial practice that these facts, this data above all else is king.
Sound harsh? Un-feeling?
A foreshadowing of a Rise of the Machines world where we humans are regulated to a feeble processing power second class?
But the optimists among us see many examples of long-held human prejudices cracking and disintegrating in the face of impersonal yes but also agenda-free data.
And another point – quality data analytics drives efficiency which in business and in life ranks right up there with sound strategy and impeccable ethics as pillars of asset and profitability growth.
When looked at this way, that in an IoT world good data analytics and analysis no matter the business trumps all, what naturally follows is that the particular business that one intends to start, build or invest in is almost secondary.
More important is one's relationship, one's willingness to let the data - well collected, accurate, and regularly and properly analyzed data - guide ones business decisions, strategies and tactics.
This is very hard to do in practice, as old habits and ways of thinking and doing die very hard.
But, as the habit is built, the competitive cost, and positioning advantages - built up incrementally over time in a business’ product and service offerings, in its marketing and sales conversion funnel, in its operational efficiencies - become unassailable.
And then, in the eternal words of the great Charlie Munger - Warren Buffet's investment partner for over 50 years - a business approaches a Low Cost, Hiqh Quality nirvana where assets and profits build steadily and wildly over time.
Hail to the Machines.
To Your Success,
What Is Crowdlending?
In brief, Crowdlending is when individuals lend you money.
This is important because oftentimes banks don't want to lend money to entrepreneurs and small business owners.
Crowdlending eliminates the banks as an intermediary and allows individuals to lend money to other individuals. Another name for Crowdlending is "peer to peer" lending.
A Brief History of Crowdlending
Crowdlending has been around for several years. The biggest two Crowdlending companies/websites are Prosper and Lending Club.
While the crowd-loans on these sites are structured as personal loans to the business owner, they can be used for business use. For example, small business owner and clothing designer Lara Miller has received three loans via Prosper which she used to launch her new website and clothing lines.
Clearly, you could consider taking a loan for your business from a friend or family member. However, with Crowdlending, you have a much larger number of potential lenders. Also, while not being able to repay your loan is always a terrible situation, it's clearly worse when you know and see the lender often.
Additionally, many individual lenders on Crowdlending websites take a portfolio approach. That is, they lend to several people. So one of their loans defaulting may not be devastating to them as it might to a friend or family member making just one loan.
Debt Versus Equity
In brief, raising equity is selling shares of your company. You are not required to pay interest on the funding or the principal back. However, the investor owns a piece of your company and if/when you exit, they will take their share.
Conversely, with debt, you have to pay both interest and the principle back.
It is important to note that equity is oftentimes MUCH more expensive than debt in the long-run. Let me give you a simple example.
Let's say you sell 40% of the equity in your business for $1 million. A year later, you are able to sell your company for $10 million. The investor would get $4 million of the sales price (40%). So, the cost to you of the $1 million investment was $4 million.
Conversely, let's say the investor lent you the $1 million at 10% interest. In that case, the cost of the funding would have been $1.1 million - which is the principle and interest you would have to pay back.
In this scenario, debt funding would have cost you ONLY $1.1 million, nearly 75% less than the $4 million cost of equity funding.
Crowdlending Versus Debt
Crowdlending, gives you several benefits over traditional debt or bank loans:
1) Your chances of raising Crowdlending are much higher since banks reject many more loan applications
2) Crowdlending gets you lower interest rates than banks because you are eliminating the bank as a "middle man"
3) Crowdlending has much fewer requirements with regards to the application and documents you need to submit
4) Crowdlending dollars are generally raised much faster than bank loans
Crowdlending For Businesses
I have been telling entrepreneurs about Prosper and Lending Club for years. Because they are relatively easy and low-cost forms of funding. However, they both have a big negative, in that you can generally only raise loans less than $35,000.
That's why I will thrilled when I recently spoke with Endurance Lending Network.
Endurance has amassed a bunch of non-bank lenders including successful entrepreneurs, wealthy individuals, family offices and institutional investors. And, these individuals lend between $25,000 and $500,000 to businesses - the amounts entrepreneurs and business owners actually need.
Crowdlending is a great new way to raise money to start or grow your business. It's much easier, faster and less expensive than both bank loans and equity funding, making it a perfect choice for most entrepreneurs and business owners.
I had the good fortune to attend GTK’s and Pillsbury’s amazing Internet of Things Private Executive Event in Palo Alto last week.
It was a star-studded, technocratic affair - drawn from Kamal Ahmed’s and Ali Tabibian’s amazing Silicon Valley network, by the high-profile speakers and panelists including Qualcomm’s chairman Paul Jacobs, General Electric's Head of Software Bill Ruh, Cisco's Vice President Tony Shakib, Splunk CTO Todd Papaiaonnou and by the incredibly exciting and timely topic itself.
Whatever name you want to call it - the Internet of Things (IoT), the Internet of Everything, Machine-to-Machine Computing, the Embedded Internet, Smart Services - the fundamental idea is that we are moving rapidly to a world where online connectedness exists not just on our desktops and smartphones, but rather is woven into the very fabric of our world (cars, planes, factories, our bodies and more).
This coming reality is scary to some for sure, but the myriad of productivity and efficiency gains an IoT world promises is as exciting as business gets.
And so the attendees - from Fortune 500 tech stalwarts like Intuit, Amazon, HP, and Oracle, to high-profile VCs like Andreessen Horowitz and Google Ventures, to some of the hottest IoT start-ups in the world (StreetLine, Jasper Wireless, Liquid Robotics) - listened as the speakers shared both the key IoT tech. advances (miniaturization, affordability, de-wireization) and the corresponding best areas of business opportunity.
My Three Takeaways:
Better Health and Wellness. Any fears of big brother and losses of privacy in an IoT world are well offset by the opportunities to save and prolong lives via inexpensive, unobtrusive, and accurate monitoring of “on the body” health data and events.
We can see the possibilities in the early successes of the quantified self-movement, pioneered by companies like FitBit and Jawbone that monitor sleep, exercise, diet, heart rate, and body temperature, and more.
As technology and the collective data sets naturally grow and improve, the opportunity to intervene quickly (and remotely!) in both catastrophic and chronic health events is incredibly exciting.
The Industrial Internet. General Electric’s Billion Dollar Bet to transform the 122 year old company from one based on building and selling large and complex machines - jet turbines, locomotives, and power plants - into one based on selling analytics and services to ensure that these machines run incrementally ever-more efficiently highlights the promise of the Industrial Internet.
Its decidedly low glamour goal? To apply a form of Moneyball to the gigantic Old Economy backbone of our modern world and “eek out” 1%, 2%, and 3% efficiency gains that in their aggregate represent trillions of dollars of increased productivity and profitability.
Energy. Energy is a HUGE area where converging and coalescing IoT tech advancements are starting to allow for massive reductions in our global carbon footprint while making the energy to power our cars, drive our factories, and light our homes cheaper and more accessible and reliable.
Great for those of us in America, but life-changing for the three billion people around the world without daily access to electricity, heat, clean water, and reliable food.
An overly optimistic take? Perhaps.
But even if only 1/10 of the productivity and efficiency promises shared in Palo Alto last week come to pass, IoT represents a business opportunity so large, multi-faceted, and all-encompassing as to make even the most grizzled and cynical market observers more than a little giddy.
And that about sums up my time in Palo Alto last week - a bunch of big, technologically literate kids talking and acting as if we all together are about to enter one of the biggest candy stores in any of our lifetimes.
To Your Success,
The incredible prices paid for high flying technology stocks this past year - whether it be in the form of acquisitions, in the cases of Dropcam, Open Table, WhatsApp, OcculusVR, and Nest, or in the form of financings, in the cases of Uber, Airbnb, Dropbox, has raised the age old questions, worries, and doubts about whether this market and these technology deals constitute a bubble.
And if so, when and how it will burst.
These concerns are mirrored in the recent price run-ups in both the stock and real estate markets.
As detailed last week, since March 2009 the S&P index has almost tripled, while real estate prices are up 10.5% this year and are now approaching their 2007 highs.
So, will it all inevitably come crashing down? Again?
And more importantly - whether it is or isn't a bubble - how can the individual entrepreneur and/or investor profit and win in the current conditions?
Let's take the bubble question first.
By almost any objective standard, paying into the billions of dollars for businesses with little revenues and/or significant operating losses - as is the case with all the companies mentioned above - is absurd.
There are very few plausible scenarios where the cash flow that these companies will be able to generate can any way justify the prices being paid for them now.
It is just hard to see how Nest will ever be able to sell enough thermostats, Occulus enough virtual reality headsets, Uber to take on enough ride shares, Airbnb enough spare bedroom rentals to justify the prices being paid for their businesses.
So, in this context yes, these businesses are wildly over-priced and there is a very good likelihood that the investors in them will experience a painful comeuppance.
This, however, represents a theoretical view of pricing, one driven by the relationship between current and future cash flows.
In the real world however, prices are determined by supply and demand.
And more to the point, by the relative abundance or paucity of Next Best Alternatives.
In this context, these prices make a LOT of sense.
You see, what we have in the world today is a lot of cash chasing a very small number of growth opportunities.
Some of this cash comes from expansionistic Monetary Policies pursued by the Federal Reserve and other Central Banks.
And a lot more of it comes from massive commodities-driven wealth in places like Russia, Africa, South America, and the Middle East.
And the owners of all this cash - trillions upon trillions of dollars of it - are naturally seeking to put it to work.
And their options for doing so are far more limited than one might think.
Bank interest rates the world over remain pathetically low.
Political instability, corruption, immature financial systems and securities laws close off private equity-type investments close to home.
So when it comes to true growth opportunities – the kinds driven by technologies that transform industries and markets - businesses like these are extremely unique and relative to the amount of cash out there seeking to be put to work, also in exceedingly short supply.
These global macroeconomic conditions show no sign of abating, so from these perspectives No are not high and the current conditions can and should continue for some time.
So that leads to our second question - how can today's investors and entrepreneurs benefit and win in these markets.
Well, as discussed last week, first of all by cultivating a bullish mindset in line with these strong economic times.
By recognizing the Sucker’s Bet that cash now is and likelihood will remain for the foreseeable future.
By fully embracing that this is not 2009 anymore - that the Great Recession has ended and that we are in the beginning stages of a Technology-Driven Growth Boom with no end in sight.
And to be resolved to grab your piece of it.
To Your Success,