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Wednesday, October 22, 2014

9 steps to building and selling a company in 24 months

By Rob Johnson

Step #1: Find a single customer to buy a service from you

Business startup tips
Following a business plan helps reveal the route to success
Preferably this is a service that's hot and growing. Check out Google Trends and see if the search terms for this particular service are growing. Right now some things that are hot are:
  • Social media marketing
  • Helping companies accept bitcoin
  • Providing services to companies who want to publish a kickstarter campaign
It doesn't necessarily have to be something that's growing massively, it can be something that's stable as well like carpet cleaning or moving services. Figure out what you're interested in and what you're good at and build a service offering around that.
When you do find that first customer, over-deliver on value. Truly give them the 5 star treatment.

NOTE: If you really struggle finding that first customer, offer to sell a service to one customer for free. When you have a customer take you up on that offer, over-deliver significantly and use the success that you bring them as marketing material to sell your first paying client. How you do this is dependent on your business, but think about getting testimonials, measuring how much you've helped them, etc.

Step #2: Find 9 other customers

Believe it or not, finding that first customer is much harder than finding the other 9. Now you know how to find them, how to craft your offering, how much to charge, the logistics, etc.
Now go find 9 others.

The reason is for doing this is two-fold:
  1. Every subsequent customer that you find teaches you more about the business and the industry. It also gives you one additional contact that you're giving the 5 star treatment to that will go out and talk about you.
  2. There's a psychological boost that you'll get each time you exchange goods or services for money. It's really a thrill the first time an entrepreneur receives money from something that they've created.
Use this time while finding the 9 other customers to start analyzing the business model. If the business never grew further than providing this service, is it profitable? Does it at least provide an adequate living for the people delivering the service?

You need to start to get a feel for the numbers around the business. If you're in the fortunate position where the business is already profitable (or even break-even) you should be really happy. Getting enough clients on-board for a service business alone can make it attractive for a potential acquirer.

Step #3: Sell one customer on a recurring package

Steps 3 and 4 may not apply to all business types. If it doesn't apply to you, feel free to continue down to step 5.

If there's a way to take what you're selling and sell it on a contractual term or a package, do it.
For example, if you're doing social media marketing for small businesses and up until now you've been selling one-off marketing campaigns, see if you can get one customer to hire you as their primary marketing firm on a monthly, quarterly or annual basis.

This will be more difficult to do obviously than selling a one-off package, but it provides your business with more security because you have reliable income.

Step #4: Find 9 other customers to sell on the recurring package

For the same reasons as step #2, we want to scale up our recurring package to 9 other customers.
Depending on what type of business you're running, having 10 recurring customers alone has the potential to be a respectable lifestyle business.

At this point you'll be in a position to really understand a lot about the business, the industry and have a lot of great contacts. You'll know where your customers spend a lot of their time and have marketing channels in place to reach them.

Step #5: Productize the service

Start experimenting with ways to productize the service that you've been providing. It might be through an info product of some kind like an online video course or eBook. Or perhaps it's a software-as-a-service platform that helps your clients manage all of these tasks for themselves. Perhaps some other combination.

Talk to your customers about what specific pain your service has really helped them with. Really try to get down to a small specific burning pain that you've helped them with, then package that pain into some sort of a product.

As you're building the product, get frequent feedback from your existing customers that you're still providing the service to.

Step #6: Sell the product off the back of your service business

This can mean that you try to upsell your existing service clients or just use it as an alternative offering in your sales channels. Take note of what works and what doesn't in terms of selling the product. Pay special attention to the feedback that any buyers give you.

Step #7: Iterate until they love it

This is really just a continuation of step 6, but you need to iterate on the product until everyone who uses it absolutely loves it. Really pay attention to feedback. What do your customers like about it? What do they hate about it? Experiment with alternative forms of delivery.
Can you make it more valuable in some way? Is there a way to deliver it in a different format?

Step #8: Scale

Now you're in a position where you have several service-related consulting clients who are probably a mix of recurring and one-time fees, plus you've got a great product that helps them.
Now it's time to scale.

Once you're confident that the product is truly exceeding the needs of your clients, figure out how to get it in the hands of as many people as possible. All of the products that I listed above (infoproducts, SaaS solutions, etc.) should scale quite easily from a dozen customers to hundreds or thousands.
This is largely a marketing exercise and spending a little time with Google will push you a long way towards solving this problem, but here are a few places to start:
  1. Content marketing: Start creating content that's useful for your customers. It might be a blog, a youtube channel, a podcast - whatever. Figure out the medium that works best for your type of business and start creating awesome content. This will establish you as an authority in the space as well as start to drive traffic towards your product.
  2. Build an email list: Through your content channels, drive people towards an email opt-in form that gives away a small product like "10 steps to solve [insert a problem that your customers have]" to start building your email list. Email lists are still hugely valuable.
  3. Pay per click (PPC): Give yourself a small budget and try to pay for Twitter or Google ads to drive people to a landing page that sells your product. If the cost of acquiring a customer is less than what you make over the lifetime of your customer, you essentially have a money-making machine.
  4. Partnerships: Is there another product that compliments yours? Approach them and see if there's a bundle that could be built in combination of the two.
There are many ways to drive traffic, those are just a few.

Step #9: Sell the company or collect dividends

A solid service business with a growing product business is a valuable asset. What you do with that asset is highly dependent on your personal situation and goals. You could continue to grow the business and run it as a lifestyle endeavor for yourself. You could try to hire someone else to run the business and then just sit back and collect dividends from the profits which frees you up to do something else (or nothing at all).

You could sell the business.

Selling a business usually takes many months (if not longer), so be prepared for this ahead of time. Start by approaching all of the potential acquirers: competing companies, competing products, etc. Tell them that you're looking for potential ways to work together and sit down with them.
While sitting with them, let them know that you wouldn't be opposed to selling the asset for the right price.

Most of them will tell you "no" and that's fine. Tell them that you'll send them a monthly status update in case they change their mind.

Every month, email each of them with a short update about how the company is growing, any major changes or initiatives, etc. There's a good chance that one of them will eventually reason that it's easier to acquire you than continue to compete with you.

If that strategy fails and you're still looking to sell the company, consider approaching a business broker or a private equity firm. If the business is profitable, it's an asset. That asset has value and they can help you figure out how to extract the value (for a fee).
There you go. Nine steps to creating and selling a company.

It's obviously a general step-by-step system, but the likelihood of success for a process like this, as opposed to "let's go raise a bunch of VC funding and sell to Google," is much higher. You're probably not going to sell a company like this for hundreds of millions, but for a lifestyle entrepreneur this is a great process for understanding the intricacies of coming up with an idea, building an offering, scaling that offering and then navigating the waters of an acquisition.

Good luck and let me know how it goes :)

About the author: Rob Johnson is the cofounder of Makers Academy - Europe's largest coding bootcamp. Rob consults with organizations like Tech Stars, Startup Britain, LeanConf and Imperial College on how to help entrepreneurs validate their business ideas cheaply and quickly.

Image: Author owned and licensed

Taxes for U.K. LLPs set to be introduced

Since April this year, members of Limited Liability Partnerships (LLP) have been subjected to new taxation rules.   

U.K. LLC taxes
Tax law changes reduce partnership classifications
These changes have been introduced in order to limit the number of people working for LLPs who were classified as partners rather than employees.

For businesses affected by these changes, it’s important to understand exactly what the new rules entail and to ensure your company doesn’t fall outside of the legislation.

Why were the changes brought in?

Traditionally, there have been a number of different sectors that have gone down the route of converting into an LLP. The practice has become fairly common amongst legal and chartered accountancy firms. This was often used as a way of saving on salaries, as members were classed as self-employed. This meant that they could benefit significantly from senior members of the firm transferring to partner status.

HMRC looked at a range of measures to reduce tax avoidance. This included making changes to the way LLPs were governed, which for some members has had a significant effect on their financial standing.

Many of the major firms within the affected sectors have been warning businesses and their clients about the potential pitfalls. Trade organisations, including the Institute of Chartered Accounts in England and Wales (ICAEW), have been holding sessions to highlight the changes to member companies. There are details of a tax guide on the ICAEW website detailed in a report by the chartered accountancy firm Francis Clark.

What are the changes?

The changes to the taxation regulations for these companies were introduced from 6th April 2014. They apply to all firms in England that have been formed after the LLP Act 2000. The rules form part of the Finance Bill 2014, which includes an amendment to the Income Tax Act 2005, part 9.

These amendments will have an impact on those who are not deemed to be partners under the new rules. To be classified as a partner, they will now have to meet any one of the three criteria that have been stipulated by HMRC. Anyone who does not meet one of these requirements will be reclassified as an employee, losing out on any benefits for themselves and the business that came from being self-employed.

The first of these criteria is that 25% or more of their income must be dependent on the profits of the company. Some partners could be affected, even if they believe they meet this stipulation, if their share is based on profits of an individual office or region rather than the company as a whole.

For partners on a fixed income, they can still keep their status if 25% or more is put into the business as capital. The third criterion is that they have some form of influence over the partnership.

For those partners that don’t satisfy one of these rules, they will become classed as an employee when paying taxes and National Insurance. This will bring employer contributions into play, including 13.8% for National Insurance.

We are yet to see the full impact of these changes, but it was expected that many businesses would try to restructure to work around them. This could include more partners putting capital into the business to satisfy this condition.

Image: Alan Cleaver, "Tax by definition"; CC BY 2.0

Financial news: October 22, 2014

CNBC: Changes in currency valuations are showing up in multinational profit margins
CNN: The U.S. wealth to income ratio of 6.5 is at the Great Depression era level
Fox: Consistent cyber-security rules and value-added approach sought by Wall St. group
Bloomberg: The cost of fraudulent forex-rigging could reach $41B this year per Citi
NYT: Only $1.6B of $264.3B digital purchases were made via contactless devices in '13
BI: Market close ↑ S&P 500's 200-day M.A. after breach weakens technical indication
MW: Retirees commonly downsize too little, too late and not investing the difference
NAR: September existing home sales rose to to an annualized 5.17M units from 5.05M
Zero Hedge: ECB asset purchase stimulus may include corporate bonds by December
Reuters: EU find 3 large banks fined $120M  for rate rigging and/or cartel affiliation
AP: China's Q3 GDP grew 7.3% annualized, down from 7.5% in Q2
BBC: China's economic growth is at a 5-yr low, additional economic stimulus possible

Tuesday, October 21, 2014

Air travel quality has been stagnant among U.S. airlines

Americans complained three millionths of a percent less to the government about a declining quality of air travel last year. In other words, out of every 100,000 people, less than one or .3 people had fewer qualms with airline logistics than in 2012. Perhaps it is because they do not have time or because expectations of airline travel are lower, but according to a study conducted by academics at Embry-Riddle Aeronautical University and Wichita State University, the lower level of consumer satisfaction is evident in the Department of Transportation's published Air Travel Consumer Report.

Reasons for lower quality

Air travel quality standards
Traveler complaints fell despite lower quality of service
Consumer complaints were one of several variables used in the air transportation quality study. These consumer complaints where themselves divided in to several smaller categories such as flight problems, reservation complications, baggage issues, discrimination and several others.

Among the majority or 64.5 percent of consumer complaints made in 2013, dissatisfaction with flights, customer service and baggage handling were prevalent. The consumer complaints were weighted in a formula that seeks to provide a less subjective airline quality rating. However, the very small difference between year-over-year data is too small to be considered a substantial decline.

Reasons for complaints

It is worth noting that the research data used in the co-authored study was not consistent among different airlines. Moreover, independent of consumer complaints, airline quality was actually found to have improved. To explain further, various airlines had differing levels of performance based on the study data. For example, according to the Associated Press, smaller regional airlines received poorer grades. In addition, the nature of smaller airlines is said to make them more vulnerable to poor weather and therefore more likely to incur problems that negatively effect fliers. Of the best performing airlines, Virgin Atlantic scored best per CNN.

Other research

Although the aforementioned research claims to have a statistical advantage due to consistent annual measurements, it is not the only industry research. For instance, J.D. Power and Associates also conducts surveys about the airline industry and the resulting data is published on its website. Furthermore, its data found that Alaska Airlines/Horizon Air had the highest level of consumer satisfaction among several airlines. Whether or not either of the studies is truly reflective of consumer opinions is debatable as the population sample for the government related data consisted of less than 10,000 people.

Consumer variables

Consumer satisfaction is not always within an airline's control. For example, some airlines recently announced they will no longer be including limes for in-flight beverage services due to supply problems; unforeseen airplane maintenance issues also have a negative impact. Another factor is ticket prices; if they rise more than the average rate of inflation, but service quality remains flat or decreases, then there is chance consumer dissatisfaction will increase. Yet another variable are the airports themselves; if they become more crowded and the airports do not adjust their services to accommodate that increase, then the pre-flight portion of air transportation services is also influenced.

As demand for airline services increases and as airline shareholders seek annual profits, pressure on airlines to to trim travel benefits and cut corners on quality of service rises due to cost reasons as well as capacity restrictions. Although the data in the Embry-Riddle Aeronautical University/Wichita State University study was largely unchanged in regard to the overall Airline Quality Rating, several of the year-over-year changes measured were small. In light of this, it is difficult to quantitatively conclude that the quality of air travel and consumer satisfaction with air travel was significantly different in the last two years based on the research results.

Image: Pbsouthwood, "Lufthansa 737 interior", CC BY 2.0