Category Archives: Startup

Culture of Secrecy

How can companies still think what they do is top secret. Note I’m not talking about intelligence, research or military organizations here. I mean general competitive businesses in a competitive marketplace.

How many of the projects we’ve been sworn to keep secret really needed or benefited from that? How many top secret projects failed to launch? Again I’m not talking about early gestation with limited resources, there’s a time and place for keeping something under wraps until it’s time – however even then most people keep it too secret for too long.

Enthusiasm is the hardest attribute to sustain in any endeavor.

I’ve found many companies with a Culture of Secrecy are really staffed by people avoiding scrutiny or responsibility. If they don’t say what they are going to achieve, they can’t be held accountable when they miss.

Everybody misses from time to time. Me included. Looking at what went wrong often more valuable than succeeding by a fluke.

Fear is the other great cause of the secrecy cult. Every manager worthy of the title has had an employee leave to work for a competitor. Weak managers of weak businesses respond by limiting the flow of ideas and information to the team that drives the business. They hope a defection cannot harm them again, without reviewing  if that harm was more than a bruised ego. This is overprotective thinking. When you fell over as a baby while learning to walk, you tried again until you mastered it. If a business is only as good as its secrets it has no better competitive advantage in the marketplace. Are there low barriers to entry for competitors?

Find your competitive advantange. That may be worth keeping close to the chest, but I doubt it. Your success flows from knowing what you do better than anyone else – what others cannot take from you.

Think of great global brands and great businesses like Coca-Cola, American Express, IBM, Toyota, McDonald’s. While some part of their operations are necessarily private they don’t have a culture of secrecy. Where do you want your company to be in 20 years?

For another perspective check out what Robin wrote a while ago at Snarkmarket on iPhone, Secrecy and Excellence

People+Company Connections

I’ve been playing around with the social web for a while now. One of the things I’m interested in is how people are connected through organisations. For examply take the Australian Stock Exchange, there are about 1800 companies listed on the ASX all of which have a board of directors. Many directors sit on more than one board. So how do I find out who sits on what board?

I’ve maintained a private database in the past but I’m thinking of making it publicly available, in which case I should then wiki-fy it so that people can update it.

One place to build it is Cogmap which lets you create and share organization charts in a wiki-like manner. Alternatively there is Jigsaw a collaborative people and business directory with social media elements (invites and points).

I’m not sure which way to jump, but I want to seed my data and then let the users improve it. Then open the data further with to allow interesting and unplanned uses to emerge – like draw a map of 500 most powerful/influential board members in a country ranked by the market capitalization of their companies. This is sort of like They Rule without the Marxist-Leninist slant. They Rule allows you to create maps of the interlocking directories of the top companies in the US in 2004.

I definitely will build this. If you have suggestions I’m all ears.

Entrepreneurs Should be Reading Anthill

If you are an entrepreneur of any age and any stage you should be reading Australian Anthill magazine. For 24 issues now,  this bi-monthly magazine has covered entrepreneurs, angels, VC’s  and the startup scene in Australia. They’ve grown readership and circulation and are entrepreneurs themselves.

Business is a crazy rollercoaster ride and there is a huge benefit to connecting with others who’ve trod a similar path.

And if you’ve got some experience, consider contributing an article. Read the style and submission guidelines.

How to value a business startup

Richard HayesI met Richard Hayes at the Sydney OpenCoffee Meetup and he’s written an excellent article that he’s allowed me to reproduce below.

All people working in the Startup / Early Stage consistently asked the same question,
“How do you value business?”

The correct answer is there is no correct answer

Without trying to be facetious here is a number of models that may help.

Anyone wanting further information can attend Richard’s BEERonomics in a pub near you.

Courses in advance corporate finances cost you 2 beers / hour (Cheaper than a MBA)

  • Sales Revenue
    Most businesses are valued based upon revenue.
    This means a business with $1 Million revenue would be valued @ $750,000 to $1,250,000
    or values each dollar sales between $0.75 – $1.25
  • Price Earnings Ratio
    This is the number of years of after tax profit it takes to return your investment
    A typical private company sells for a PE of 2-5 where public companies sell for 8-20.
    Google sells with a PE 48Many people use EBIT, Earnings (profits) Before Interest and Tax as a measure of how much extra debt a company can take to help pay for the take over.
  • Discounted cash flow (DCF)
    This technique combines all the cash generated from the business and then discount
    (reduces) them to a present value. (IE A dollar today is worth more than a dollar tomorrow)
    This can be a problem if the wrong interest (discount) it used.
    BTW, The interest rate is ALWAYS WRONG
  • Replacement Value
    How much would it cost to get similar stuff either new or used?In software, many people use COCOMO which is a formula that count lines of code and examines the complexity of code thereby allocating a amount of developers time it would take to replicate it.slccount Is a free COCOMO tool that supports about 27 different languages.

    For many software startups this is a good starting point.

  • Return on Investment (ROI)
    This combines a number of the above techiques to derive a single figure.Many early stage investors Angels / VCs demand +45% ROI as compensation for the higher risk associated with early stage. This is a serious market failure.

Example:
A team of 3 developers have written 13K lines of PHP source code to develop a DIY superannuation management software. It has taken 6 months part time (IE 50 hour/wk)

They are all leaving their “real” jobs to pursue their dream.

Sales: Nil

User: 250

Total Cash Spent: $5,800

What is the company worth?

1. Sale Revenue Nil

Future Sales Revenue 2009 $1,000,000 (FV)
Discounted @ 40% pa $510,000

Company valuation $383,000 – $637,000

2. Price Earnings

2009 Sales $1,000,000
2009 Profit $180,000

PE 2 (180K x 2 x 40%) $183,000
PE 5 (180K x 5 x 40%) $459,000

Company valuation $183,000 – $459,000

Replacement value $413,228

The following output is from a real project

Totals grouped by language (dominant language first):
php: 13409 (99.83%)
sh: 23 (0.17%)

Total Physical Source Lines of Code (SLOC) = 13,432
Development Effort Estimate, Person-Years (Person-Months) = 3.06 (36.71)
(Basic COCOMO model, Person-Months = 2.4 * (KSLOC**1.05))
Schedule Estimate, Years (Months) = 0.82 (9.83)
(Basic COCOMO model, Months = 2.5 * (person-months**0.38))
Estimated Average Number of Developers (Effort/Schedule) = 3.73
Total Estimated Cost to Develop = $ 413,228
(average salary = $56,286/year, overhead = 2.40).

As you can see there is no right answer but valuation is much more about art than science.

© 2007 Richard Hayes RHI Ltd reprinted by permission.