Introduction to Entrepreneurialist Culture

1. Introduction to Entrepreneurialist Culture ADM 3396: The Road to Financial Security and Independence • Date: Nov. 2009 Professor Bruce M. Firestone, B. Eng. (Civil), M. Eng-Sci., PhD.; Entrepreneur-in-Residence, Telfer School of Management, University of Ottawa; Founder, Ottawa Senators; Executive Director, Exploriem.org; Real Estate and Mortgage Broker, Partners Advantage GMAC Real Estate • http://twitter.com/ProfBruce • http://www.eqjournalblog.com/

2. Introduction to Entrepreneurialist Culture • Create significant value for yourself and your family. • A business that you own and control. • Greater control over your own destiny: both professional and financial. • Also for intrapreneurs who work in large companies, public service, NGOs, charities, museums, hospitals, universities, public school administration... • Artists, architects, writers, musicians and other creative persons are also entrepreneurs.

3. Introduction to Entrepreneurialist Culture The entrepreneurskillset includes: • creativity, innovation, adaptability, discipline, focus, • business modeling and planning, • bootstrap capital, finding launch clients, • smart marketing (guerilla marketing and social marketing), • checking everything, • doing everything in parallel, • ability to think on their feet and • sell, sell, sell. (HIGHLY VALUED IN ESTABLISHED ORGANIZATIONS TOO.)

4. Introduction to Entrepreneurialist Culture • Kevin Rose, Founder, Digg.com. • Spent his last $5,000 on Digg instead of a house. • His girlfriend left him. • He made $60 million in the next 18 months. • How did he do that?

5. Introduction to Entrepreneurialist Culture • Web 2.0. • A new model for a newspaper uniquely adapted to the Internet. • Readers are contributors. • Readers dig up interesting stories from all over the web and post brief synopses to the site and links to them whereupon other readers vote on them—the most popular ascend the page.

6. Introduction to Entrepreneurialist Culture • The site harnesses the competitive instincts of the readers/contributors to compete to see whose story will lead. • The site works because of its homogeneous demographic—contributors only post stories that will be of interest to the group. • The site is dynamic—leading stories change by the minute or hour.

7. Introduction to Entrepreneurialist Culture • Digg.com’s cost for headline writers = ZERO. • Digg.com’s cost for journalists = ZERO. • Digg.com’s cost for editors = ZERO. • Digg.com’s cost for distribution = ZERO (at least, the marginal cost is practically zero).

8. Introduction to Entrepreneurialist Culture • Digg’s sustainable competitive advantage (“pixie dust”) is its business model and its readership. • You might be able to knock off its business model but it is extremely difficult to knock off its millions of dedicated (mostly males 15 to 55) readers/contributors. • The key is that the readership is relatively homogeneous and has similar interests.

9. Introduction to Entrepreneurialist Culture • How to first populate Digg.com? • Each co-Founder personally called 1,500 people in a month. • That’s 50 calls a day for 30 consecutive days. • Then they let scalability and network effects take over. (No pushing on a string.) • The more readers, the more contributors, the more contributors, the more readers. • Clients (readers) are also suppliers!

10. Introduction to Entrepreneurialist Culture Harnessing the Internet effectively means: • you can ‘make money while lying on a beach’—i.e., your enterprise can run without you being there; • the enterprise is scalable—outputs grow non-linearly with inputs—i.e., more hours worked will produce way more money for you; • you have reversed out the work—let your suppliers and customers do the work for you like, say, Digg.com does; • you can mass customize products and services for clients in a cost effective manner; • you can connect with new clients and customers in a cost effective manner using things like social marketing!

11. Introduction to Entrepreneurialist Culture Why not sell it for $60 million? • Go lie on a beach somewhere? • Ideas are in infinite supply. Execution counts. • Just try counting from zero to infinity! • Kevin trapped ‘lightning in a bottle’. (According to: http://siteanalytics.compete.com/ Digg.com had 39.7 million visitors in July 2009.) • Hard to do, twice. • Build and hold!

12. Introduction to Entrepreneurialist Culture Scotty’s story: • Butcher in local supermarket. • Arthritis before age 30. • Buys a PC and cutter/self-teaches sign making. • Mr. Charming– sell, sell, sell. • Donates one $25 banner to the Ottawa Senators.

13. Introduction to Entrepreneurialist Culture Can he produce? • Works out of his basement/moves to warehouse. • Delivers on time and on budget. • Outcompetes march larger, more established rival. • Turns one banner into $3 million in sign sales.

14. Introduction to Entrepreneurialist Culture Competitor offers to buy him out for $2 million/should he sell? • “Imagine me, a former butcher, with 2 mil!” • “Whoa, wait a minute, Scotty.” • $150,000 salary/Francis another $60k. One truck and one car fully paid for by the co. • Plus $250,000 increase each year in retained earnings. • Total value: nearly $500k per year versus $1.5 million > taxes invested at 3% p.a. = $45k per year!

15. Introduction to Entrepreneurialist Culture Would you trade $500k per year for $45k per year? • Sustainable. • Recurring revenue. • No matter how much money you start with, if you spend more, you will eventually run out. • Scotty would need to re-start within 3 years.

16. Introduction to Entrepreneurialist Culture What is a PB4L? • Stable business. • Fallback position. • Bootstrapped so you end up owning it.

17. Introduction to Entrepreneurialist Culture How would you like: • To work half days. • Be profitable less than ten days after launch. • Make $120,000+ per year. • Start your business for less than $100.

18. Introduction to Entrepreneurialist Culture Ryan North, (now famous) online comic: • Can’t draw (he is a brilliant IT specialist). • In 2003, he creates Qwantz.com, an online dinosaur comic. • Six panels using clip art/characters that never move. • Only dialogue changes, day-to-day.

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20. Introduction to Entrepreneurialist Culture Key facts: • Turns disadvantage (can’t draw) into advantage. • Guinness Book of Records application– longest running comic strip where characters never change/move. • Quirky personality. • Revenue streams: merchandise sales/book sales/appearance fees/advertising by Project Wonderful, PW. • PW created by Ryan: profitable < 10 days > launch.

21. Introduction to Entrepreneurialist Culture Startup Budget: • $15.00 for domain name: www.poo.ca. • $15.00 for domain name www.qwantz.com. • Web hosting: $35 per month. • Fulfillment costs: outsourced. • Won $500 in 2003 Business Model Competition. • Startup Budget = -$400.

22. Introduction to Entrepreneurialist Culture Marketing: • T-Rex cardboard cutouts. • Placed around campus with this domain on them: www.poo.ca. • Resolves to: www.qwantz.com. • Ryan is a wealthy person today with plenty of time to explore new ideas…

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24. Introduction to Entrepreneurialist Culture How would you like to own a business that made you $100,000 per year and took about 200 hours of your time ($500 per hour)? • Richard Rutkowski, former Kanata City Councillor, REALTOR, Owner, Best of Kanata. • $600 per page to advertise in book. • Lots of pages. • Books sell at retail for $20 each. • Two main sources of revenues. • Each book buyer becomes a member and gets 10% off at all participating retailers using BOK CARD.

25. Introduction to Entrepreneurialist Culture • “Secret sauce”: his advertisers are also one of his main distribution channels. • They buy books to sell to their customers at $20 and keep $10. • If a full page advertiser sells 100 books, the cost of their ad is -$350! • What a great value proposition: BUY AN AD IN THE BEST OF KANATA FOR A –VE $350.

26. Introduction to Entrepreneurialist Culture • Another channel– charities and minor hockey/soccer groups buy the Books for $5 and sell them for $20. • Low tech. • Richard can SELL. • Richard is trusted. • Advertisers pay 50% on signing contract and balance on delivery of books.

27. Introduction to Entrepreneurialist Culture • Pre-sold enough advertising to pay for first printing and then some. • Cash required to start BOK: -ve! • This biz is scalable. • Maybe there is a market for: Best of Dartmouth, Best of Cole Harbour, Best of Lower Sackville, Best of Manhattan!

28. Introduction to Entrepreneurialist Culture • NEVER, NEVER sell this. • It is like: a sinecure, a franchise, a license, a concession, a Personal Business…for life.

29. Introduction to Entrepreneurialist Culture • Perhaps, we should each have one micro business that we hang onto for life; • It would be pretty cool if every man, woman and child on the planet each had their own Personal Business. • It’s a fallback position or, as my Dad used to say, your “iron reserve”.

30. Introduction to Entrepreneurialist Culture • A PB4L does not include things like the guy who tells you: "I can show you how to make a million! Just send me ONE dollar, and I will tell you how." • And, of course, the answer is: "Get a million fools to each send you a dollar to tell them how..."

31. Introduction to Entrepreneurialist Culture • They have to be real businesses. • One way to find inspiration might be to go get a copy (from your library) of the Encyclopedia Britannica and look for crafts from the 1930s. • Say, for example, making high end paper for writers, socialites and important persons who want acid-free paper to preserve their writings. • Or a high end chef sells his restaurant to his employees and canning his recipes (like smoked canard) which he then sells with his two partners at shows and high-end shops in Québec and elsewhere…

32. Introduction to Entrepreneurialist Culture Bootstrap Capital, BC • Self-capitalization. • Allows you to start with no money down (or little money down). • Allows you to control your own destiny and not be beholden to (or slowed down by) Banks or VCs. • You end up owning the enterprise not them.

33. Introduction to Entrepreneurialist Culture Bootstrap Capital • When student entrepreneurs or others tell me that can’t start because they have no money– that’s just an excuse. • So how do you start? • Another example– the NHL’s Ottawa Senators!

34. Introduction to Entrepreneurialist Culture • Franchise cost: $50,000,000 USD in 1990. • Pre-sold 15,000 PRNs for $25 each for a team that does not yet exist. • Pre-sold 500 Corporate sponsors for $500 each. • Pre-sold 32 Original Corporate Sponsors for $15,000 each. • Pre-sold media rights for radio and TV for $250,000 and $4,000,000, respectively.

35. Introduction to Entrepreneurialist Culture • Pre-sold 30-year arena management contract for $15 million + a corporate guarantee. • Pre-sold pouring rights for $3 million. • Pre-sold product rights for $1 million. • Pre-sold 10,000 season tickets 22 months before the first game for $22 million in cash. • Pre-leased 100 suites at $100,000 per suite per year or $10 million per year for 5 years = $50,000,000.

36. Introduction to Entrepreneurialist Culture • Bought 600 acres for $12k per acre, won a NHL franchise, built a MCF (Major Community Facility– aka, Scotiabank Place) in the middle and sold extra 500 acres for $112k per acre to make $50,000,000. • You get the picture… PRE-SELL, PRE-SELL, PRE-SELL… find ‘launch clients’ before you launch.

37. Introduction to Entrepreneurialist Culture • Oh, this doesn’t apply to me! • Yes, it does. • No excuses. • Two former students start Maple Leaf Design and Construction. • They have NO MONEY. • They have ideas, energy, focus and dedication.

38. Introduction to Entrepreneurialist Culture • They purchased options on 20 housing lots for $500 from a friendly landowner. • They set up in a field: in a trailer with nice signs and two handsome smiling faces plus a lot of cool floor plans and elevations. • Pre-sold 10 homes and got deposits of $20k per home. • Now they had $200,000 in their bank account.

39. Introduction to Entrepreneurialist Culture • They negotiated 90 to 120-day terms with their suppliers. • They pledged their Agreements of Purchase and Sale to their Bank for a LOC. • (In effect, they borrowed the credit rating of their customers.) • They made $40k per door and after three years and 20 homes, they had $800,000. • Now they are multi millionaires and still in their 30s.

40. Introduction to Entrepreneurialist Culture • Does this also apply to large companies? • You bet it does! • People in established firms who have the skill set of entrepreneurs are called ‘intrapreneurs’. • They like the role of an entrepreneur but not the risk profile of actually being one. • They know how to: take initiative, be innovative, create terrific B. Models and B. Plans, find launch clients, use bootstrap capital and smart (guerrilla and social) marketing, check everything, do everything in parallel and sell, sell, sell… • They also require zero babysitting and get promoted fast!

41. Introduction to Entrepreneurialist Culture • I could bootstrap a Lunar Colony! • Just ask me how!

42. Introduction to Entrepreneurialist Culture • There is a lot of real estate on the moon– it has a surface area of approximately 37.8 million sq. kilometres. • That’s about the size of the US, Canada and Russia. • What if living in 1/6th gravity helped you live 20, 30, 40 or 50 years longer and let you boogie like a teenager too?

43. Introduction to Entrepreneurialist Culture LIVE FOREVER…!

44. Introduction to Entrepreneurialist Culture • Now maybe I could convince 100,000,000 people to move to my Lunar Colony when they turn 70 or 80. • I might charge them $15,000 per month for their condos. • That’s $18,000,000,000,000 in revenue per year (18 trillion dollars, about 1.35 times the GDP of the United States)! • I would ask for one year’s rent up front! • I could build a lot of spaceships and lunar condos with 18 trillion dollars!

45. Introduction to Entrepreneurialist Culture • So don’t tell me you can’t pull yourself up by your bootstraps– you can. • Primary sources of bootstrap capital: Soft capital (Mom, Dad and rich Uncle Buck), Home equity loans, Future customers, clients or launch clients (pre-sales), Future suppliers, Strategic partners,

46. Introduction to Entrepreneurialist Culture • Primary sources of bootstrap capital (cont’d): Consulting, Partners, Receivables factoring, Financial leasing, Sponsors, Trading activity, Credit cards,

47. Introduction to Entrepreneurialist Culture • Primary sources of bootstrap capital (cont’d): Co-guarantor, Extended family savings, Retainers and deposits, Franchising, Sweat equity.

48. Introduction to Entrepreneurialist Culture Build and Hold—The Difference between being Rich and Being Wealthy • Let me quote actor and comedian Chris Rock: “Shaq (Shaquille O'Neal who plays in the NBA) is rich but the man who signs Shaq’s pay check is wealthy.”

49. Introduction to Entrepreneurialist Culture • Remember Scotty, the former butcher? • Why go through all the trouble, risk and stress to capture lightning in a bottle just to sell it or see someone else take it over?

50. Introduction to Entrepreneurialist Culture The Impeccable Warrior • Ever wonder how Actors get Shakespeare right? How do they memorize all the lines in Hamlet, for example, and deliver them so eloquently and profoundly? • They practice. A lot.