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Predicting a Unicorn Startup [Startups
Posted on March 23, 2016 @ 04:40:00 AM by Paul Meagher

Y Combinator is currently the top business incubator in the world so it is a worthwhile exercise to study the W2016 round of startups featured at their recent Demo Day launch event.

Tech Crunch is covering the Y Combinator Demo Day launch event and you can read about the 60 startups that presented at Demo Day 1. As you read through them you might ask yourself which of these companies will be the most successful? You might also ask yourself if there is a "Unicorn Startup" in this batch? In Silicon Valley, a company the size of Google, Facebook, Twitter, LinkedIn and so on is called a "Unicorn Startup" or simply a "Unicorn" - a mythical and rare creature mentioned in this interview. Silicon Valley investors are often hoping to find the next Unicorn. A Unicorn can be defined as a company with the potential to achieve a 1 billion dollar valuation in the next 6 years. Which company in this batch might be the next Unicorn?

In a recent series of blogs (see Financial Forecasting, Updating Forecasts, Evaluating Forecasts) I discussed Philip Tetlock and Dan Gardner's book Superforecasting: The Art & Science of Prediction (2015). One of the take home messages from that book is that if you want to become a better forecaster you need to make testable forecasts and then evaluate how well those forecasts fare. The quadratic scoring technique is a simple and flexible technique that can be used to evaluate forecasts accuracy and to guide you to becoming a better forecaster.

The Y Combinator Demo Day events provide an ongoing opportunity to hone your forecasting skills in the domain of startup investing. Here is how it might work. Pick one or more startups from this batch that might be a Unicorn startup. Now assign a probability score to your forecast. Evaluate that forecast when the next Y Combinator Demo Day event happens and make new Unicorn forecasts and adjust your previous Unicorn forecasts as necessary. Do this for awhile and you will improve your knowledge of and skill in Unicorn forecasting.

I think there may be a Unicorn hiding in this batch of startups. To make a defensible prediction I would have to read more about these companies but my gut suggests that Magic Instruments might be a possible Unicorn. Magic Instruments is redesigning the guitar interface to make it easier to learn and use on an ongoing basis.

Magic Instruments is charging a reasonable price for the guitar ($299). They have a revenue model that also includes ongoing fees from customers ($6 monthly subscription service for chords and lyrics of popular songs). The trade name, Magic Instruments, is very fitting. Finally, the success of Guitar Hero established that the market for electronic guitars and software can reach up to 6 billion dollars. On the downside, it is one thing to claim to be able to redesign the guitar interface, it is another to actually pull it off. There are competition and patenting issues that are unknowns. I don't know anything about the management and what the financial situation of the company is. Really not the best situation to make a prediction but for the purposes of this blog I'll go with my gut and test how good that method is.

So what probability should I assign to Magic Instruments being a Unicorn? If I think they might be a Unicorn then from a semantics point of view the starting point for my assignment should be above 50% to make it a non-trivial prediction that can be evaluated. I'm not that confident in this forecast so I'll say it is 60% likely to occur (i.e., p(MI = U) = 0.6). I won't say I'm 56% confident because claiming such accuracy would be misleading. I'm implicitly claiming accuracy to within 10 percentage points at this stage.

Predicting Unicorns from Y Combinator Demo Day events is a fun pastime that could also be a teachable moment for would be private investors on picking the next big thing.

At last count, VentureBeat listed 229 unicorn startups with a disproportionately large number (101) located in California (image below from VentureBeat article). A non-trivial portion of that number were incubated by Y Combinator so this method of predicting unicorns has a decent chance of succeeding.

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Strategic Small Monopolies [Startups
Posted on February 23, 2015 @ 05:54:00 AM by Paul Meagher

In his 2014 book Zero to One (which I reviewed last week), Paypal co-founder Peter Thiel argues that a startup business needs to aim first at becoming a small monopoly.

By small, I mean that the type of customer a startup business seeks to serve is identified as belonging to some unique class that no-one else is specifically serving, or there is very little competition for. In the case of PayPal, it became servicing the payment needs of Ebay users, specifically, the top sellers in the Ebay market. At the time, no financial services company was specifically catering to their needs. PayPal targeted a small monopoly consisting of Ebay PowerSellers that it would base its early growth upon.

For many companies, serving a small monopoly may be its ultimate goal. It is a good place to start a company and it could be a good niche to continue to operate your company in if you have a good subscription model figured out.

For some startups, such a PayPal, they select the small monopoly very strategically so that they can grow as fast as possible from that base. By targeting Ebay PowerSellers, PayPal found a way to increase usage of its services by an influential nucleus of users that could help it grow. The PayPal service depended on network effects, the more people using it the more people would want to use it. PayPal knew that for it to become ubiquitous they had to enlist users as fast as they could to their service. The starting point would be Ebay users and after that they would even resort to paying users $10 for enrolling to their service (this was a good inducement). They felt that over the lifetime of the user they could recoup the offer cost. This, incidentally, is an example of a crazy business model (pay your customers to join) prevalent during the dot.com days that worked out.

For PayPal to grow as it did it needed to be strategic in which market it tackled first, which market it would try to become dominant in first. Had it failed in the attempt to dominate the Ebay financial marketspace, it would probably not be here today. Ebay could have come out with it's own payment gateway for its users, but PayPal may have had too much of a lead by then or the service was so in demand that any wait for Ebay to deliver a service would have been too much delay. There is no guarantee that you will achieve your small monopoly once you set out to attain it. You may also come to realize that your small monopoly might not be so distinct as you think it is as you discover significant competition for the same customer. Perhaps your delination of the ideal customer is too broad, and narrowing it further in some way might help to better identify a small monopoly that might work better to begin with. Thiel sometimes uses a Venn diagram, and other times, unions and intersection symbols, to illustrate how to segment your customer. As an example, here is how the universe of big data customers might be delineated. This would still be too big (maybe a further breakdown by preferred software) but it illustrates how Venn diagrams can be used to identify a set of customer segments and the one you might want to initially target.

Perceived competition can be a signal telling you that you have not delineated the scope of your monopoly properly. When properly delineated, you should feel like you don't have any significant competition for your type of customer and that the customer actually exists in sufficient quantities to be worthwhile and would be interested in your product or service. When all these things come together you have the basis for starting a company. Thiel comes out strongly against the idea of "competing" as the basis of starting up a company. He does not think a company should consciously try to disrupt a large marketplace because this strategy is likely to fail. Better to start by cooperating and find your niche than competing against established businesses in a bigger market.

When starting your small monopoly it is can be very rewarding if your market is also a growing market (the Ebay marketplace) so that ongoing growth is assured. Paypal was able to say that they had 30% of the PowerSeller market enrolled after 3 months. They knew who they were targetting and could measure how much of the target market they were enlisting. They could also measure the growth rate of their market to verify that it was a potentially durable market.

In chapters 3 to 6, Peter Thiel has alot of interesting things to say about monopolies as good for business and competition as bad for business. The idea that startups can be viewed as strategic small monopolies comes from these chapters. I have also written about the importance of finding your niche but used a different set of arguments to arrive at similiar conclusions regarding the importance of avoiding competition.

I want to leave the last word with Peter on why starting small and monopolizing is important (p. 53):

Every startup is small at the start. Every monopoly dominates a large share of its market. Therefore, every startup should start with a very small market. Always err on the side of starting too small. The reason is simple: it's easier to dominate a small market than a large one. If you think your initial market might be too big, it almost certainly is.

On an unrelated note, Christina Martin has a new record out. You probably don't know who she is but I got to see her 4 months ago (at a Music Week festival) so was interested in hearing some of her new stuff. The record is called "It'll Be Alright" and this is a song by the same name. They are touring Europe for the next few months.

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Defining Startup Hardiness [Startups
Posted on March 18, 2014 @ 07:56:00 AM by Paul Meagher

In yesterday's blog I discussed the idea of "hardiness zones" for plants and suggested that startups might be more or less hardy which would determine what types of economic zones they might be able to survive and thrive in. I didn't offer up any account of what startup hardiness might consist of because I frankly didn't know how to tackle defining it in a plausible way. I now think I have a method that might be used; namely, to examine failed startups or businesses, figure out what factors caused them to fail, and thereby identify the factors that contribute to startup hardiness. The companies that fail lack these factors and are less hardy; the companies that succeed have the factors and are more hardy. The assignment of a startup hardiness score is not the result of measuring some single underlying factor but the outcome of multiple underlying factors that determine the hardiness of a business relative to an economically defined "hardiness zone". Just as plants have many adaptations that allow them to survive and thrive in tough climate conditions, business have adaptations that allow them to survive and thrive in economic zones that are more or less difficult to survive and thrive in.

In my daily newspaper, they reported on the closure of a bakery & cafe business that was well known in my home town and very popular. They were in business for 7 years all told, but had to recently declare bankruptcy and close their two locations. The cause of the failure was well documented. They did very well at their first location, decided to expand into another location at the prompting of a local successful businessman, but the startup costs ($265,000 loan for renovations), loan financing costs (%18.5), monthly utilities ($2000 per month) and monthly rent (undisclosed except to say it was "high") put an untenable financial burden on their complete enterprise. The businessman was lured into the second location because he thought it would be a better economic zone to do business in because it was growing again and had a larger potential customer base than his first location; however, he arguably got into bed with the wrong businessman whose success may have blinded him to the poor financial deal he was getting into. The businessman owned the building so stood to make large profits off the startup if he could make it work, but the startup couldn't and it sunk his whole enterprise.

So what can we learn about business hardiness from this case? We should keep in mind that the business did well for 6 years prior to their failure in a very tough economic zone that required considerable hardiness to survive. They had overflowing parking lots and had to expand their first building to handle the volume of customers. This in an area with a sparse local population base and below-average to average incomes. The quality and uniqueness of the product they were offering drew people in from far outside of their local population base and it became a destination point in a popular tourism route. So having a quality product delivered in a quality manner is a factor that made them a hardy business. The business may have done very well in an economic zone that required less hardiness, but they wanted to live where they were and try to make a go of it there. The owner was a nice guy and got along with many people in the community including local farmers and fisherman who he sourced product from. They returned the favor and frequented his business and promoted it. Goodwill and reciprocity are important hardiness factors in small rural communities because local negative gossip can easily kill a business. This is a factor that is important to some degree in more urbanized businesses with a larger population base, but it is arguably critical to survival in depressed rural zone where only the hardiest of businesses can survive.

The downfall of the business could be summed up as poor financial acumen. So a hardy business needs to be good with finances not just in the initial stages of opening and operating a business, but also when you decide to grow your business. Once you achieve initial success operating on a shoe string, it might be easy to overestimate your growth potential and make unwise financial commitments when entering into a second phase of growth. So another factor that is important in determining the hardiness of a business is the ability of the business to manage their finances during the startup phase and during growth phases.

The concept of startup hardiness can be fleshed out via a comparative examination of businesses that have failed and succeeded in your economic zone and in other economic zones. Through this process you can come up with a list of factors that it takes to survive and thrive in your economic zone as a startup or as an expanding business that may be entering a similar or different economic zone. My analysis suggested that there are at least three factors involved in determining startup hardiness - the level of good will and reciprocity towards the startup, the quality of the product and/or service being offered, and the ability to manage finances during startup and growth. The hardiness of the startup might be evaluated according to how many factors are present, to what degree, and according to a factor weighting that is determined by the type of economic zone the startup is operating in.

The concept of startup hardiness may offer a framework you can use to organize and understand why some startups fail or succeed. The metaphor of plant hardiness and hardiness zones can stimulate productive thinking about what startup hardiness consists of.

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Startup Hardiness [Startups
Posted on March 17, 2014 @ 07:29:00 AM by Paul Meagher

I went down to the farm during march break. My main productive activity was to move three loads of hay bales from the mow of my barn onto a trailer for sale to a vet/farmer who was going to use them to feed various animals. A local 4H group is involved in the venture. I'm glad the hay is being used to raise animals and teach kids. Other than that, I was not able to engage in much productive work because the farm is still in the grips of cold icy snow making it difficult to do much without falling on your back (which I did 3 times). Such is life. Things will get busy soon enough.

We've had a colder than normal winter this year which makes me wonder how my grape vines and apple trees will do this year. Watching the cold icy blasts of snow, rain, and wind make me wonder if I'm crazy to try to grow grapes in this open ridge-top location. The vines, however, are supposed to be hardy to USDA 4 and 5 zones so, theoretically, they should survive another winter as I'm at around zone 5.

I was intrigued to learn more about hardiness zones when my permaculture book (Permaculture: The Design Manual) suggested each hardiness zone was simply a division of the farenheit temperature scale into 10 degree F zones. This seemed pretty arbitrary to me so I investigated further. As far as I can tell this is true as evidenced by this USDA hardiness zone map:

So the USDA hardiness zone map is basically a color-coded temperature map that maps minimum average annual temperatures to a set of colors corresponding to zones 1 to 11 where each zone corresponds to a 5 or 10 degree F range. There is no apparent science behind this particular division of the F temperature scale; it is just a useful device we use to guage whether a plant might be able to adapt to the minimum temperatures present in a particular location. The color patterning is largely determined by latitude of the location and nearness to large bodies of water.

So when you buy a plant you should only buy plants that have a hardiness zone that is appropriate to your location. You can buy a plant that is hardier than your zone (e.g., hardiness 3 or 4 when you live in hardiness zone 5), but you shouldn't buy a plant that is not hardy in your zone (e.g., hardiness 6 when you live in hardiness zone 5). This is just a general rule and there are many exceptions depending on natural or artificial microclimate effects.

Which leads me to wonder whether startups might be more or less hardy? Just like there is a wide variation in plants and the conditions under which they can live, perhaps there is variation among startups and the conditions under which they exist. Some hardy startups might be viable under a large range of conditions including inhospitable conditions where only a very hardy startup might survive, all the way up to pleasant conditions where a variety of startups with different hardiness levels can survive. Depopulated rural areas with depressed economies might represent zone 0 with populated urban areas with vibrant economies might represent zone 11. Startups exist in different socio-economic hardiness zones and a startup has to be more or less hardy to survive in the zone in which it chooses to live. Sometimes a startup that is not hardy enough to survive in the zone it has chosen to live in can survive if it moves to a zone where it is less difficult to survive. One lesson for startups that might be gleaned from the hardiness concept is that hardiness is not simply a feature of the startup, it is also a feature of the socio-economic landscape, and success comes about when the hardiness of the startup matches or exceeds the hardiness-requirements of the socio-economic zone the startup is competing in. Startups, unlike plants, have mobility and can move to markets where conditions are less severe in order to remain viable or thrive.

One question that remains unanswered in this discussion is what factors determine the hardiness of a plant, and by extension, the hardiness of a startup?

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Measuring Startup Success [Startups
Posted on September 27, 2013 @ 07:28:00 AM by Paul Meagher

Tom Bloomfield has a useful blog post on measuring startup success. Citing Paul Graham he argues that, "merely measuring something has an uncanny tendency to improve it".

Tom makes some useful suggestions such as:

  • Start by measuring one thing. You need some key metric to track whether you are improving or not.
  • Choose a proxy for long term value. Because startups may not be profitable from the get go, it is important that you still figure out what measure needs to be constantly improving to help guarantee the long term survival and growth of your startup.
  • Break down you key metric into Key Performance Indicators that track sub-activities that need to be performed if you are to meet your improvement goals. These should be objective measures of performance that are shared within the company among all employees.
  • Use your KPI planning to implement a business strategy.

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Joint venture agreements [Startups
Posted on February 22, 2013 @ 09:52:00 AM by Paul Meagher

According to Revenue Canada, a Joint Venture is defined as:

An arrangement where two or more persons (participants) work together in a limited and defined business undertaking. Ordinarily, all participants of the joint venture contribute assets, share risks, and have mutual liability.

A joint venture agreement is not a continuing relationship between participants. For example, the venture may be for one specific business project. Once the project is completed, the joint venture ceases to exist.

A joint venture is not considered a "person" for registration purposes, whereas a partnership is. Therefore, a partnership can have a BN; a joint venture cannot. A joint venture is limited in scope; a partnership is generally an ongoing business relationship that exists between persons carrying on common business.

A joint venture agreement is simply a framework for parties to work together. It doesn't require a business number, it doesn't own anything, and it doesn't pay taxes. The individuals involved own their own assets and share in the revenue generated from those assets after expenses. The venturers report the income from the joint venture on their personal tax filings. Because the joint venture does not own assets, the Capital Cost Allowance is claimed by the individual venturer who owns the assets. The simplicity of a joint venture means that it is easy to setup and easy to dissolve (which can be good or bad depending on the situation).

Joint venture agreements are common in farming where, for example, an individual owning land and equipment might partner with a farmer who supplies the labor and management required to grow a cash crop. The Ontario Ministry of Food and Agriculture has a useful factsheet on Farm Business Joint Ventures that can be consulted to see practical examples and considerations in setting up and doing the accounting for a joint venture.

If you are thinking about starting up a business, one option is to setup a joint venture with another person or company for the purposes of jointly maximizing your individual skills and resources.

Because "the whole is often greater than the sum of its parts", a joint venture agreement can form the basis of a profitable business relationship. What one person can do with alot of effort and inefficiency, two people might do quickly and efficiently if they contribute complimentary skills and resources. On Dragon's Den we see angels look for ways in which the resources and capabilities they have might complement what the entrepreneur is bringing to the table. In such cases, it would be interesting to know whether the final deals that are formulated between the dragons and the entrepreneur are setup as partnerships or joint venture agreements.

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Excessive fees for angel investment services [Startups
Posted on February 20, 2013 @ 09:09:00 AM by Paul Meagher

In the last couple of days, the Startup North group blog has posted some blogs that are critical of the operating practices of First Angel Network (FAN) that describes it's mission as follows:

First Angel Network is a not-for-profit organization formed to bridge the capital gap for companies with extraordinary potential in Atlantic Canada. Created by angel investors for angel investors, FAN provides entrepreneurs and investors with a confidential, disciplined, high-quality private equity investment experience. FAN also delivers education and networking opportunities in the areas of investment readiness, angel investing and commercialization.

The First Angel Network is funded by government but that does not stop them from charging entrepreneurs $3000 to participate, and 8% of any closing fees. You can read some of the details here:

I am in agreement with David Crow and Jevon MacDonald on many of the points raised in these blogs, but the idea that entrepreneurs should never have to pay to pitch is dubious because it doesn't address the reality of where investment network funding comes from.

I understand that entrepreneurs are often cash strapped and consequently charging them $3000 for consulting fees and 8% of your company is way over the top, especially, if the organization is supposed to be a non-profit getting over $250 thousand a year through government sources to run the show.

Contrast this with our service where entrepreneurs can in fact anonymously pitch their idea for free; however, if they generate investor interest, they are required to pay our referral fee of $149 for the contact details of all the investors who expressed interest in their proposal. If no investor expresses interest, then no money lost. The basic $149 fee we charge entrepreneurs for investors contact details is comparable to the fees a person might pay on a dating site to be introduced to potential mates. These hookups may or may not work out for a variety of reasons. Sometimes a hookup does work out and that is what we ultimately strive for even though we we are only an introduction service and generally don't know if our hookups have been fruitful or not.

We have never solicited or been awarded government money to develop or maintain the dealflow sites. The fees entrepreneurs pay are used to pay hosting fees and my time to review all proposals and all investors applying to join the site. It is not a simple matter to screen potential investors and this is a time consuming part of the work involved in running a site like this. There are also marketing costs.

That being said, we agree that it would be good if investors bore more of the burden of funding hookups. We have offered a number of services to investors that never really took of. We are working on a new service and we'll see if that works; but it will only work if investors perceive value in the service and to date we have not found the right service to offer. Perhaps this time it will be different.

Even if investors are not funding the hookups, our investors are providing a valuable service to entrepreneurs. They are reviewing proposals when they could be doing something else with their time and if they are interested in a proposal and contact the entrepreneur, it is an opportunity for an entrepreneur to dance with an investor for awhile to see if they are compatible. Often the investor will be a better dancer and the entrepreneur will trip over their feet a few times; but this is part of becoming a better dancer. Our site does not promise that you will find a permanent dance partner, only that we can hook you up, you can dance for awhile, and after that decide if you want to dance some more or find new dance partners. If you do not become permanent dance partners, then you should at least have learned some moves from a more experienced dancer that you can try on future dance partners. The cost of the dance ($149) should not break the bank for entrepreneurs.

Hard to say whether this story will continue to have legs. It was picked up by the Halifax Chronicle Herald (largest circulation in the Maritimes) and I expect the First Angel Network to publish a rebuttal in that paper. My initial thoughts, however, are that it might be the beginning of increased scrutiny into other government-funded Angel Investment organizations in Canada. The manner in which these organizations operate, and why they need funding in the first place, needs more scrutiny which Start Up North has helpfully begun to shine a light on.

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Do It Yourself in 2013 [Startups
Posted on December 30, 2012 @ 09:28:00 AM by Paul Meagher

One trend that I expect to become more pronounced in 2013 is the do-it-yourself trend. Also called the Maker movement. I have not read the manifestos but see it emerging in amateur electronics where technically-inclined people are experimenting with sensors, actuators, and microcontrollers in new ways. There are magazines, books, websites, forums, and a large number of electronics components distributors that are feeding this movement. More recently Raspberry Pi has been emerging as a powerful new microcontroller with all the input/output channels that make it easy to intregrate into your projects. You can listen to this Spark discussion of Raspberry Pi for more information.

The trend also reveals itself in technically oriented fine-arts programs where you can earn your degree by assembling electrical and visual elements together in novel ways. Or you might integrate electronics into your textiles - skills that might produce the next mass market clothing hit. Art embraces the technical to produce new art.

In my experience to date in a farm startup, the need to do-it-yourself is fairly obvious; otherwise you will need to hire someone to do your plumbing, roofing, construction, mechanical, mowing, plowing, baling, fencing, etc.. for you. Usually the capital is not there to pay for all the skilled professionals that you might need to do each job properly. I did hire skilled professionals to help me to do alot of the work that has been required so far; however, I have picked up alot of skills during this process by working with the people I hired and doing my own research. It is now time to increasingly do it myself with regards to managing farm operations.

Everyday we face the choice of whether we are going to get someone to renovate or repair something for us, or whether we should try to do it ourselves. Everyday we are confronted with the option of being a Maker or someone who funds a Maker to take care of the problem for us. What I expect to happen in 2013, is that North America will increasingly move towards a do-it-yourself mentality. They will do this for practical, educational, and entertainment reasons.

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Trial Balloons and the Mothership [Startups
Posted on December 21, 2012 @ 11:39:00 AM by Paul Meagher

Joel Salatin, his extended family, interns, and business associates run Polyface farms. Joel's role in this enterprise is to articulate, in his many books and speaking engagements, the entrepreneurial skills and abilities that successful collaborative and sustainable farming is all about. I enjoy his writings. Something he said in a recent Acres USA article entitled "Keys to Success" has continued to resonate with me and is the inspiration for this blog.

The context is that Joel is listing off the most important determinants of success in farming. Number one on that list was for the farm to distinguish between trial balloons and the mothership and investing your time and resources accordingly. In the context of farming, the idea of trial balloons equates to experimenting with growing new types of produce (e.g., carrots, potatoes, tomatoes, etc...), raising different types of animals (e.g., chickens, beef, sheep, horses, etc...), using different types of growing techniques (e.g., pasture fed versus confinement fed, till or no-till, etc...). The combinations are endless. At some point, however, it is time pick a trial balloon out of the mix that looks the most promising and to invest more of your time and resources into growing it. This is the mothership. Joel advises that a farmer that can't distinguish between the trial balloons and the mothership will have a hard time being successful in farming.

It is one thing for Joel to say this and it is another thing for him to enact it in his own practices. When you look at what Polyface farms does it is all over the map and that is because he runs the farm as hives of independent entrepreneurial activity spear-headed by different members of the extended family, interns, and business associates. Neverthess, Joel claims that it his his pastured poultry products that are his Mothership. He argues that if you can't indentify your mothership then the overall business will not thrive. Pastured poultry play a critical role in his farming methods while also generating significant revenue. Quality in poulty products is also a significant and distguishing part of the Polyface brand. This being said, there are other Polyface enterprises in the mature trial balloon category that might be making more money, but Pastured Poultry products is still Polyface's mothership because it is critical to the sustainable farming he wants his brand to represent.

Entrepreneurs need to be always launching trial balloons in the early stages of their business to see what idea has the most lift off and/or the right fit with your beliefs and motivations. You can't remain, however, in the mode of always launching new trial balloons. At some point, you have to locate the mothership amidst the trial balloons and invest more of your time and resources into guiding and inflating it. If you pick the wrong mothership, the consequences might be devastating; but perhaps less devastating than not picking any mothership at all.

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Getting serious about a hobby [Startups
Posted on October 18, 2012 @ 08:46:00 AM by Paul Meagher

In the farming industry, there are lots of "hobby farmers". Presumably this refers to people who are into farming for the lifestyle aspects of it rather than to make it into significant source of income. The tax code also likes to distinguish between hobby farming versus serious farming, where hobby farmers are more likely to get audited if they claim too many expenses - the Canadian Revenue Agency views it as a potentially illegitimate tax shelter.

What is true of farming is probably true of many entrepreneurs who have "hobbies" that they invest money into and improve over time. The amount of expenses they want to claim on a "hobby" might be limited by their fear of upsetting the tax man by claiming "personal" expenses.

It could be argued that the difference between a hobby and a real business is how willing you are to manage the tax accounting for that business as a real business. So if you are fishing around for a new business to start up, consider the option of turning your hobby into a serious line-of-business by starting to journal all the income and expenses related to that business. Consider investing more into your hobby and claiming the full tax-sheltering benefits of doing so.

Sometimes starting a new business is not about coming up with a innovative new concept but rather getting serious about a hobby by deciding 1) to investing more into it, and 2) running it as a fully journalled and expensed line-of-business. When your new business is ready for, and has a plan for more investor capital, consider registering with Planet Dealflow and submitting your proposal to our network of business investors.

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The power of vision and using the dark side to achieve it [Startups
Posted on October 4, 2012 @ 06:55:00 AM by Paul Meagher

I am 188 pages into the Steve Jobs biography - he is just reaching the 30 year old mark. By this time he is very wealthy and Bill Gates and Microsoft are still a small company compared to Apple, but Steve has let Bill into Apple to work on developing software for the Apple and Bill has picked up alot of ideas about where he wants his company to go as a result. Apple is also going into a decline after a very impressive launch of the MacIntosh computer as people are realizing its hardware shortcomings.

The main point of interest in my reading about the early glory days of Apple was how abrasive Steve Jobs was towards his employees, yet how this seemed to drive them to achieve more than they thought they were capable of. There are probably very few people in this world that can pull this off and the question becomes how Steve was able to do so. One aspect of it was that he was consistently abrasive in terms of not putting up with sub-par performances or employees rather than erratically abrasive. Another aspect was that when goals were met, he could be lavish in his praise and promotions. His charisma and intelligence were also factors, but perhaps the biggest personal factor was the accuracy of his vision with respect to how computing technology would evolve. To prove this point, you should listen to a speech he made in 1983 at the age of 28:

The Lost Steve Jobs Speech

All startups believe they have an accurate vision of the future. It is one thing to believe this, it is another for it to be actually true. Also, even if you have an accurate vision, you need to be able to communicate it effectively and persuasively and, again, Steve Jobs had this skill in abundance. It should be kept in mind, however, that the metaphor of "vision" is somewhat misleading - as if the future exists in the distance and some people have better eyesight in discerning it. This ignores the transformative aspect of "vision"; that what you see in the future is what you strive to put there and that the world will evolve in such a way to make this possible and desirable (many people also talk about Jobs "reality distortion field" when talking about his vision). So you can ask yourself what is your vision of the future both in the near term and the long term, what forces are conspiring to make it so, and do you have the personal and institutional means to make it so. Your employees are not dummies so the "truth" of your vision will determine whether they will go along for the ride, even if you need to be occasionally abrasive to them in order to achieve that vision.

I suspect that Steve's more unpleasant attributes as a human being may have been required in order to achieve what he achieved in business. Business is not all fun and games, and if you can't be ruthless and abrasive when required, chances are you will not achieve the level of business success that Steve Job's did. Very few will. And very few have the vision and intelligence of a Steve Jobs so I'm reluctant to promote the dark side that Steve Jobs seemed to effectively weld in achieving company goals. I do, however, think that business leaders need to be able to summon their personal dark side to deal with goals that are not being met, employees that are not performing up to par, and business relationships that are not working out. Steve dealt with these issues decisively and in no uncertain terms by summoning his dark side, where most others would be less nasty and clearly confrontational - and perhaps less effective?

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Analytical and intuitive modes of understanding [Startups
Posted on September 27, 2012 @ 08:32:00 PM by Paul Meagher

Reading the Steven Jobs biography. About 50 or so pages into it. Good read so far.

Mostly reading about Jobs' intense search for spiritual meaning in his formative years, or at least up til about 20 years of age or so - difficult to tell sometimes because the cronology is not always evident in the narrative.

One point of interest for me so far was Jobs' early intellectual recognition of a distinction between analytical mode and intuitive modes of understanding. Jobs felt it was actually more important to cultivate the intuitive mode of thinking than the analytical mode which he felt was more dominant in North American society than Indian society (the main lesson he took from his 7 or so months in India looking for enlightenment).

Meditation, Zen, drugs, and extreme diets were some of the early tools that Jobs used to cultivate his intuitive side (I haven't read that far into the book so can't say more at this point). He was also passionate about electronics during his formative years so his analytical side was sufficiently well fed that the importance of cultivating his intuitive side may have been obvious to him. His analytical mode was also his more tempermental mode (think anger management level) so some Zen mode served him well early on and throughout his life.

The point I wish to make from this discussion is that the analytical/intuitive distinction is recognized in commonsense, spiritual, and scientific literature (Kahneman's thinking fast and slow) so perhaps there is some truth to it. Given the existence of these modes, we can ask the question about the relative importance of each mode in the roles of those involved in a startup. In many ways it is a false rivalry because the issue is not whether one or the other mode is better but, probably, how to successfully intergate both modes in all who are involved so as to drive innovation at the rate it needs to be fed. I expect the book to continue to explore this theme.

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