The Dubious Value of Starting a NEW Business …


In the last couple of weeks I have had a re-birth of sorts. I have seen the new vision of entrepreneurship in another phase of the Internet industry that is just starting and promises to be the source of the next tide of wealth.

For the last 20 years I have been working in what had been an emerging industry — the Internet. It all started out with a lot of money and activity aimed at creating the future but, as with most new industries, the creation of the technology that would power the future was extremely expensive. Also, many of the startups of the dot-com era were just too far ahead of the technology, so they failed and the technology they spent million$ on was sold off for thousand$ and built the next generation of startups. This is how new industries get started. I wrote an article that went viral at the time: Bonfire of the eVanities.

Well, the Internet industry has emerged and is now mainstream.

For years, my thinking centered around starting something entirely NEW. You know, identify the pain and find a way to solve the pain. A whole decade of entrepreneurs have been searching for pain and ignoring the value that sits staring them in the face! Would-be Internet billionaires pitch ideas for products and services to serve niches that are only half-way interesting. I have to admit that I rarely hear a totally new and exciting business idea anymore. 

Perhaps this is why there isn’t a feeding frenzy on the part of venture investors anymore. They’re tired of backing good but not revolutionary ideas. They want to see at least 3 years of revenues before they’ll invest because they know from past experience that the totally new idea that will revolutionize the Internet is normally a chimera. 

I totally understand why people spend long dark nights of the soul devising startup ideas.

From where most people sit these days, the prospect of getting a great job is … well … daunting at best. You get out of school with a load of debt and the only jobs available seem low-paying and low-opportunity. Or you have been laid off from a great job and have no prospects of being re-hired by anyone at that same level. Or you took early retirement and need to work to supplement your income. Under these circumstances, putting together a startup can seem like the answer to all your problems.

The real truth, though, is that for most people a startup venture is just the beginning of their problems. 

A startup is pure risk. I don’t care how great the idea or how thorough the planning, it is still pure risk. That is why it is so difficult to get financial backing from anyone but Mom and Dad and your best friends.

One of my specialties has always been showing my clients how to bootstrap their startups to avoid becoming the victims of vulture capitalists. I believe in building a revenue base and using that revenue to power innovation. A flow of reliable revenue attracts even the most skeptical investors.

Do you think the cloud is where you want to create your innovative idea? Why not start with this already-established provider.

Have an idea for an eco-friendly product line or an entrance into cultivation of organic foods or medical marijuana? Your base of operations might be well served by an already-established enterprise.

There are three forces at work that you should know about:

The Builders and Sellers – There are tech-savvy people who build web properties, set up all the sophisticated SEO and advertising income, and then sell the turn-key operations. Similar to franchises where you buy a turn-key operation, these situations are better because they already have customers and revenues.

The I Want to Do Something Else Sellers – There are a lot of people who started web enterprises years ago and have built them up to be successful operations, but want to move on to something else. These web properties produce valuable consistent revenue and can be built on using your own ingenuity.

The Scammers – Yes, there are people who build a website and populate viewership using techniques that produce worthless traffic. That is why you should be careful to use a web property broker that does research into the validity of the seller’s claims. Not all do this.

The point I am trying to make is that it isn’t necessary to come up with a great new idea to get started in a business of your own. It is possible to buy an existing revenue-producing web property, get financing for the purchase, and use it to build out your most innovative ideas.

There is also another trend you should know about:

The Web Property Investment Funds – Many revenue-producing web properties require just a few hours a day to update the content,  SEO and advertising. There are investors who hire tech-savvy people to do this, and maintain a fund of income-producing web properties. This is a new space for the private capital crowd and it is going to grow.

I really encourage you to look into this emerging industry. As always, I am available if you have questions vduff @


Why All Companies, Public and Private, Should Write Annual Reports

An annual report isn’t just for shareholders.  Writing an annual report forces you to look deeply into the activities of the past year and see what worked and what didn’t. Those insights are vital to planning your next 12 months.

An annual report also creates a history of your decisions and their outcomes that can be used for future planning and dealing with unexpected problems. Being able to find an answer to a current problem by looking back through your annual reports for that similar situation you remember from eight years ago is a big time-saver and can help you dig into other records that you used to create that annual report.

This article gives you an idea of how to write a good annual report:

Simplified Structure of an Annual Report

An annual report is necessary if your company is a corporation with shareholders or limited liability company with members. Even if you have a sole proprietorship or a one-person corporation, writing an annual report can be a beneficial exercise. If you apply for a loan or hire professional services, you may be asked for a copy of your annual report. A simple document of a few pages in length is adequate.  MORE

How to Write a Vision and Scope Document

You should be doing this whether you are just starting to plan your new business, working on your plans for the new year, or preparing a presentation for funding.

Sitting down to write a vision document and a scope document helps you see holes and inconsistencies in your business activities and can give you a great new idea …

Vision and scope documents define what your customer or company has in mind as well as describe the work process necessary to reach that vision. For example, entrepreneurs benefit from writing a vision and scope document to define their business ideas and list how to develop them into reality. Project managers use such a document to identify the expected result of the project and to set forth the methods and activities necessary to achieve that result.

The Jaws of Death – Entrepreneurs Beware!

The Jaws of Death - Entrepreneurs Beware!

This is an article from Kitco everyone should read!

It shows a likely stock market crash on the way, and that brings on very difficult times for everyone. In this case, on top of the most sluggish and prolonged recovery from recession I have ever witnessed, it could quite easily create a situation much worse than the Great Recession.

I know you get sick of hearing me warn about over-expanding before you know what is around the corner … well … this just might be the monster around the next corner.

I know you are also tired of me warning about taking on debt at this time, but if things look like like what this chart is showing, debt will strangle you!

And, although I no longer carry my mountains of securities industry licenses, and I can’t give investment advice, I can say that you might want to read up on the subject of “Protective Puts” if you have any investments in the stock market.

What ‘No Fed Tapering’ Means to You and Your Business

Yesterday, the Federal Reserve blew it.

Ben Bernanke nervously [and he did look nervous] announced that the Fed would continue quantitative easing (QE) because the Board of Governors didn’t think the economy was strong enough to curtail monetary stimulus.  Oh, but inflation is not a problem. [Yeah, right. Have you been to the supermarket recently? Has your rent increased? Your cable bill? Your fuel costs? And are you making more money to pay for all this? No?]

As you already know from our statement, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and to make no change in either its asset purchase program or its forward guidance regarding the federal funds rate target. [see for the text of Chairman Bernanke’s statement]

The carnivores on Wall Street couldn’t believe their luck because the bond market rallied and the stock market rallied and every one of them made a lot of money. However, the Fed’s actions also caused them to worry.  Here is the problem:

The markets had already adjusted

I have already talked about how rumors of Fed tapering off its stimulus buying of Treasury bonds [also known as monetizing the debt – dumping $85 billion per month into the economy] caused the bond market to take a dive, which drove interest rates higher. The markets had already discounted Fed taper. Now we know tapering won’t happen until unemployment reaches 6 1/2 percent … expected in 2015 or 2016. That means the stimulus will continue for the foreseeable future.

Where is all that money going?

The money has gone into the coffers of financial institutions, which is where it always goes when the Fed adds money to the nation’s money supply. This is done under the assumption that when the financial institutions have money, they will use that money to lend out to consumers and small business. When money is lent to consumers, they buy houses, cars and other expensive items. This creates jobs in the manufacture and distribution of these products and that helps the economy recover from recession. When money is lent to small business, it is used to expand the businesses by creating new products, buying raw materials, manufacturing and hiring new employees.

Very little of that has been happening since Fed stimulus began after the Credit Crisis of 2008. Part of the reason why it hasn’t happened is interest rates were already very low thanks to Chairman Greenspan’s extensive lowering of rates to spur the housing market [which resulted in the housing bubble and mortgage woes].  The reason is that, at current interest rates, banks aren’t getting paid to take on risk so they are making loans to only the safest borrowers — major corporations and wealthy individuals.

Banks are businesses, too

No matter how much you hate your bank, it is a business and it must make profits to survive. In fact, back in the 1980s when I was the asset/liability manager of a major financial institution, banks needed 200 basis points above their borrowing costs to break even and I bet that they now need an even larger spread. In other words, if they borrow money at 1%, they have to lend it out at 3% or higher to break even — that’s not making a profit, by the way. With interest rates so low, banks resist lending money long term in hopes interest rates will rise so they can increase earnings. You may have noticed that you are getting higher fees on nearly everything you do at banks plus all kinds of offers of things to buy. Banks have been forced out of the banking business and into the sales and marketing business, in effect.

So where is $85 billion a month going?

The big corporations are using their borrowing power to invest overseas in factories and employees where such investments are inexpensive. After all, big corporations are businesses, too, and they need to make profits. This is important to understand in terms of how little extra money the American consumer has to spend these days. Corporations must be able to supply goods and services at low prices, and to do that, they must go overseas for their manufacturing.

The stock market is rallying because corporations are making profits and institutional investors can buy lots of stock on very low margin rates and even borrow extra money at low rates, and they dump all this money into the stock market to get a bigger return than they could get at the bank or in bonds.

So the $85 billion a month is primarily going everywhere else than it was intended to go, which was into loans to consumers and small business.

So why did the Fed make a mistake?

Well, they decided to continue the QE and that means the problem described above is going to continue, as well. Even Wall Street realizes that low rates are bad for the economy, so the bond market and stock investors carefully prepared for the expected rise in interest rates. The markets discounted the rise in rates. However, now the Fed will continue the stimulus and not raise interest rates. That doesn’t mean that the bond market won’t raise rates because of the risk to the economy. There is a term for this: Bond Vigilantes.  They show up when the Fed is doing stupid things that are actually harmful to the economy. The bond market traders and investors start requiring higher interest rates on the money they invest because they see risk in the economy and the possibility of serious inflation in the future. [‘Inflation‘ refers to inflation in the money supply which creates way too many dollars chasing a fixed amount of goods and services. When that happens, prices rise because they can. Someone will always pay the higher price.]

As I write this, I am monitoring the movement of the bond market on the Treasury 10-year and 30-year bonds. Since yesterday, they have rallied only about 15 basis points, which is not huge in terms of rallies. Yes, anyone holding bonds yesterday made money today, but the market didn’t return to the levels of prior to the tapering talk. I think the Bond Vigilantes are just waiting to jump in.

I am going to continue this diatribe later. For now, feel free to ask questions by emailing me at or fill out the contact form below.

Funding is not the problem …

It’s the first day of the new business year and reality is overwhelming. Where to start?

If you are thinking about starting a business …

The first thing to do today is start writing down your ideas. I suggest getting a cheap composition book, sitting down with a cup of coffee, and just writing down things you can do that people will pay you for.

What are your areas of expertise?

You don’t have to know how to program software or build a dynamic website – I know outstanding people who can do that for you.

You don’t have to know how to figure costs and estimate earnings – I know outstanding people who can help you with that.

You don’t have to have a lot of money in your pocket – I know people who can show you how to bootstrap the development of your company.

Are you beginning to get the picture? The real truth is all you need is a good idea. 

There are always ways to make your business idea happen. You don’t have to be an expert on everything – there are plenty of people around who can give you true insight and information based on experience and knowing the marketplace.

One thing I have learned during my nearly 20 years of startup and small business consulting is that the most successful entrepreneurs realize they can’t do it all themselves so they develop an idea and find good people to help them start their enterprise.

Don’t let the mere fact that you don’t have million$ stop you from planning your business.

There are ways to get a business launched on its own earnings and then build it out as money comes in. It all starts with providing a product or service people will buy. It doesn’t have to be a unique or revolutionary offering. In fact, investors are looking to fund good basic companies that provide a better way to do ordinary things. So, if you have a good idea for how to improve something basic, write it down and start thinking about how you can put your idea into action.

A good example of an improvement on something basic is Papa Murphy’s Take n’ Bake Pizza. This company provides all the wonderful things that its luke-warm delivery competition provides, but Papa Murphy’s charges lower prices, which are important in this economy. Not only that, the company doesn’t have the cost of expensive pizza ovens and high electricity bills so its profit margin is probably higher. Its fresh ingredients and the ability to choose the toppings  certainly make it my choice over frozen pizza, and if I heat it up at home, it is hot on my table – not sort of warm.

Sometimes a business breakthrough is made by simply changing how the product or service is presented. Mike Diamond Plumbing became “the smell-good plumber” and is probably the first call I would make if I needed a plumber. Why? I remember the “smell-good” part. Not that I have ever had a dirty plumber answer my service call … but it sure sounds better to call a smell-good plumber.

Finding something to improve a basic business and marketing it properly is a great way to get started without the big investor money.

Another thing: Take advantage of expertise. If you have never started a business, call people who can give you good advice. It will save you lots of time, money and disappointment later.