In the last three weeks, I have carried out some training in Winnipeg, Halifax and of course stunning Cape Town.

The first thing that struck me as odd was the demographics of the groups I was dealing with. My time in Cape Town was the first time I had spent in Africa and although I interacted with around 100 or so people in the ten days I was there, I only came across three black people. The strange this was that one of them was from Kenya and one of them was from Dallas!

When I recanted this to my friends in Canada and in the UK, they immediately jumped to the conclusion that this was racism. They were right, but not in the way that they thought. The government of South Africa through its black empowerment policies has instigated race related economic policies which guarantees low participation rates for the white population in employment and therefore forces them to pursue a path in entrepreneurship.

As it happens, I think this will be a very interesting business and social experiment – and it will be good to see the results in a few years. What does happen to the business prospects of a country when much of its talent is forced into entrepreneurship?

Can you imagine if in the UK or in places like Nova Scotia, talented people were prevented from taking jobs in government or large businesses and had to start their own business? Interesting.

Halifax is my second home (The Prince George Hotel at least!). And it really is an awesome place. You do notice that there are almost too many initiatives and organizations in the ‘entrepreneur’ space. As an entrepreneur you have to be very careful about whose advice you take and you should always really judge the people that are trying to judge you.

Much of my credibility came from being a mentor at Seedcamp in London – and the feedback that came from that. But as a trained salesperson, I know that I am only as good as my last business deal, or coaching interaction or talk.

Managing people can be very rewarding and certainly it was one of the best aspects of my last role at Ernst & Young – where I was directly responsible for managing six people. But I was lucky; the people in the team were high performers and wanted to get on with it.

The reality is that although you may really believe you are founding the next Google; your new employees may not share your passion. And recruiting the first few people is actually easy. Certain types get attracted to start ups and love being called co-founders. I realised last year how motivated I was by this when a company recruited me and said I would be a co-founder.

Your problems really start when you look for employees for non-core roles (yes, I know that every employee is important and that everyone is part of a winning team etc – but back in the real world). You will not be able to recruit the best talent for roles such as credit control (which I actually think is one of the most important roles in a fast growing business). And you will not be able to compete with the big corporate in terms of salaries that you can offer or the terms of employment (gym membership, subsidised canteen, pension arrangements etc) and the employee share pool will soon dwindle if you start offering everyone access to the share pool.

So, what is my advice to start ups in terms of recruiting and retaining staff?

Firstly, find a really good HR person/ part time director/ outsource partner. This is vital to ensure that you take care of the paperwork and create the impression that you are serious and professional about the way you treat your team.

Secondly, take a long time over hiring decisions – at whatever grade. Hire slow, fire fast is a good motto.

Thirdly, treat the interview as a genuine two way sale process. You want to impress the interviewee as much as they will hopefully want to impress you.
Offer an accredited training program with a local University or College. There are many government programs which offer subsidised training. Why not offer employees skills based learning where they get a qualification? Employees rate this very highly as a benefit – and it could be a very effective way of you keeping them with you during the course (the longer the better!)

Fourthly, if you are the key entrepreneur, really do try and stay away from the managing people piece. It is hard work and can take up lots of time.

Wanting to make money is a noble desire. Wealth creation creates opportunities for society and improves the well being for an entire society. It is the only thing that can permanently lift people out of poverty and cycles of low expectations. But dumb people (and you know who you are!) confuse business acumen with something which is Greed.

Business acumen is about how you can generate value for your customers or shareholders, and capture some of that value for yourself and your backers. Greed is very much about what you alone can take out of a situation. A good acid test on whether you are acting with greed or with business is how you feel about describing your actions.

If you are embarrassed or want to blame someone else for what you did, it is greed. If you are able to stand up and tell people how you created value- it is more likely to be good business acumen on display.

I have always tried to behave with integrity in business, but that has not always been the case. When I was very young (pre-University) I did a couple of things which were acts of greed. As such, we should always make allowances for people who are young and in a hurry. But there must come a time in your life when you should know better.

I have had experiences with greedy people (more so recently than in the past bizarrely) but the great thing about greedy people is that they reveal their hand very early. Tell tale signs to look for are

1) If you are not clear about the motivations of your business partners – that is a big red flag. I tend to tell people within minutes what I want out of a situation.

2) They invoke religion as a character reference. One of my best friends and business colleagues is a very devout Christian, but he never uses that as a reason why I should trust him.(a real tell tale sign of a crook. They will say – as a devout (whatever religion I will not do this or that)

3) Strangely, they never want things to be crystal clear in terms of who does what for what. They may stick to broad things like 50-50!

4) They don’t like people they are doing business with.

5) They agree with everything being said (even when they are totally contradictory)

You have been warned!

The competition brought together some great judges, VC’s and Angel Investors as well and there was business to be done there!

The thing that I really noticed was the quality of the pitching at the event. Each company got to pitch for two minutes to a very large audience and then they did 10 minute pitches to a panel of three judges.

During the detailed pitches many companies used videos. Some used it badly and some used it with brilliant effect. Of course I am biased as Chairman of www.wooshii.com, I hope that more and more companies switch on to the benefits of using video to either explain their pitch or what the company does for consumers.

I am also on the board of another company, www.curingresin.com that recently used Wooshii to get a great video produced which explains what they do (which is very technical) in a great impactful way. It was also incredibly cheap to produce and is a great intro to the business on the website.

Adding a video to the deck you email a prospective investor is also a great idea as it gives you an engaging way to pitch your business. Sites like CrowdCube, (business crowdfunding), Kickstarter and IndieGoGo, (creative crowdfunding) have seen that projects with video pitches raise on average 122% more than those without – http://www.indiegogo.com/blog/2009/12/indiegogo-insight-videosraisemoremoney.html -

It is easy to see why when you thumb through some of the projects.
If you are pitching something which is difficult to explain or very technical, nothing beats using a great video to explain what you do. But, I think video can be very badly used.

First off there needs to be a discipline in terms of time. You can really have no more than 2 minutes of someone’s time – and the first 10 seconds will determine whether or not the entire video is viewed. Secondly it needs to be good quality. There is nothing worse that a poorly made video shot on someone’s webcam being used to try and pitch for my investment. I expect to see business plans that are well laid out, neatly formatted and professional in style. Your video should be the same to gain my confidence.

Of course, it is in my own interest for you to use Wooshii – but I recognise that many other companies provide video services. You should just look at using video to enhance your pitch.

But you have to make sure it doesn’t take over – or actually interrupt with the pitch. It has to enhance it.

Best of luck

Economic concepts are so highly relevant to understanding business models and profits and I think more entrepreneurs need to understand concepts such as marginal cost and marginal revenue. But I think an important piece in this equation often gets missed which I hope to illustrate in this blog; the cost of acquiring and keeping a customer.

Marginal cost is simply the cost of producing the last unit. Some businesses have zero or very little marginal cost. So a cinema for example will have a zero marginal cost (the cost of allowing one more person to ‘consume’ a film). Equally, the transport industry has zero or virtually zero marginal costs. How much extra would it cost to sit one more person on an otherwise full flight from London to New York? Perhaps $50?

Economic theory states that providing you can cover the marginal cost (and do not confuse marginal cost with average cost) you are always better off making that trade. Profit is maximised where Marginal Cost is equal to Marginal Revenue. This is very much the pricing model that airlines and hotels adopt.

But, you can still be making big losses as a business even if you are covering marginal costs (because you may not be covering average costs). Again an airline may have a very expensive average cost of a flight – and the breakeven may be to get the flight 70% full. But given that most of the costs are going to be incurred anyway, providing they can get marginal costs covered, it is always a better decision to accept that additional ‘contribution’ to the average cost.
Digital businesses often assume that they have zero marginal costs. This is true to a certain extent. But what is often missed by a lot of businesses I deal with is the cost of selling to a customer and then keeping that customer.

It is easy to think of your cost of production – and thats it. But what about the time, effort and SEO cost that goes into acquiring that customer?

And many people will want customer service – that can be thought of as a marginal cost (if x% of people will phone and take up y% of time, you can add that to the cost). Often businesses fail to make a profit because they confuse this element as a fixed rather than a variable cost. The business plan assumes that this overhead is fixed and not related to sales volume. This is not true.

One of the companies I spent some time with recently, wanted to employ some account managers and I had to show them that there simply was not enough margin in their pricing for them to afford to do this (even though it would grow revenue).

Entrepreneurs have to remember the old adage from Economics “Sales is vanity, profit is sanity, but only cash is reality”.

Have you worked out the true cost of each sale?

He had tried this with his business and found that the revenues went down. I then remembered lessons I had learned from my experience at Amano (still miss you terribly Johnny RIP).

Consumers in our sandwich shop would always choose one of three sandwiches – and 80% of the time, they would have just one sandwich. But if you only offered the consumer the three sandwiches they want, they will really not like the lack of choice and go somewhere else.

This is very odd but it is a real phenomena. How would we feel about going to supermarket that didn’t allow us to ‘browse’? I know I don’t want to buy biscuits, but I want to see them there either to satisfy my sadomasochistic instincts or to congratulate myself on not buying them!

Most people feel the same way. Hence, you must avoid the temptation of only giving consumers what they want to buy? What they want to see and what they want to buy is not the same thing.

I also learned last week (during a fantastic pitching event in Winnipeg, Manitoba) that most consumers use the same formula to choose a bottle of wine at a restaurant. They will choose the second least expensive in any given category. Amazing and yet – they want choice. One of the whole points of a wine list is to be able to browse and choose thereby looking cultured.

This is not the same as ‘confusion marketing’ which mobile phone companies shamelessly use. This is where you deliberately confuse the consumer with too many choices and confusing ones, so that they choose one which is not the best for them.

Websites suffer from the same problem and Alan Sugar (whom I have to say really impressed me with his Biography) has always used menu pricing to help consumers feel they have choice in what they want to buy.

So the lesson; theory is great and just because you are doing something very clever in the digital world; basic rules of psychology still have to be understood and applied.

And then one day, I was at a meeting with a client and someone had ordered sandwiches and I remember being totally and utterly wowed by how good it was; it was from Pret. Since that day I have become a premium sandwich addict. Extra quality is worth paying for.

I was reminded of this episode this week because it was the first time I was flying from Heathrow since I became an ‘Elite’ flyer. The perks of this status included being able to use the Star Alliance business lounge. I had always questioned why someone would pay £20 to use one of these lounges – and after just one trip, I am wondering how I survived without using it!

And it just got me thinking about the problem that a lot of businesses have is in persuading potential customers in a market that the premium service they provide is worth paying for. With a branded product like cars, clothes sunglasses etc, it has always been easier. With a service it is difficult because you are asking people to take a massive risk. They have to pay for something and they will only know if it was worth it when its too late.

So what can you do to de-risk this?

Well, if my experiences on both sandwiches and airport lounges are anything to go by, it is essential that you find a way to get customers to trial the product. With clever targeting you can ensure you are providing this service to just the right people.

Internet based services have always struggled to get consumers to pay for premium services (LinkedIn and newspapers for example). There are several reasons for this. Firstly, most people are too content with the free model that is often offered. (And I simply detest people who say Fremium model – what does that mean?) There is also the question of competition that is offering services for free.

And finally, many premium services require personalisation and personalised delivery that many digital companies are not best placed to deliver (and indeed it does not make economic sense for them to do so).

So if I can invent a meaningless word to compete against Freemium – it would be Trymeum!

In the movie Denis Quaid is the senior sales person teaching a young up-start how to sell. They get a really good sale and Denis seems very pleased because he customer has got a good deal. “You really believe in this, don’t you?” asks the young up-start. “Of course, why else would you do it?” replies a slightly startled Denis.

There is a real truth in this and yet we all come across businesses and sales people where you sense the objective is just to make money rather than seeing making money as a by-product of providing a really useful service that adds value.

The business I have recently started up and am now focusing much of my attention on is www.springleads.com and I do not mean for this blog to come across as an advert for this business, but I want to use it to explain exactly what I mean by alignment.

My background is in sales and my career break came through my cold-calling efforts at PricewaterhouseCoopers. I was very good at it and went around the country training others across the firm on cold calling. It is something that I enjoy enormously and have a passion for.

With all of the mentoring I have done recently, I know that the big issue many start ups face is having to make many cold calls just to find the few customers that would be interested in talking to them. The most effective sales person in a start up tends to be the CEO, and yet the most precious resource they have is their time. Cold-calling for them is not a good use of their time.

www.springleads.com provides that service for them and for any other company that needs a large number of calls being made. So how did we set about differentiating between other call centres? Again through understanding the pain that start ups have, we were able to realise that having a set up fee and a minimum order number of hours acted as a barrier to many cash-strapped start ups. As such we set up a cost structure where there would be no set up fee and a flat £15 per hour.

Of course this is a plug for the business, but I hope it illustrates that when you are starting a business, it is important that you have (or you rapidly acquire) knowledge about the problem you claim to be solving. The other lesson is that you have to make money from the activity whilst still providing an enhanced service. So your cost structure has to demonstrate not just the needs you have – but also the needs of your client.

Ensure your personality and experience are aligned with your business and that most critically your business structure is aligned with the needs of your customers.

In the last couple of weeks, many of the companies I have come across could do well to remember this. You should always have a clear message which is also intelligent rather than generates lots of noise. This is particular true of many internet based businesses.

The key to a successful campaign is to get your distribution right. Companies like Unilever, Mars, Coke, Kellogg’s etc, can get good return on advertising investment because they have excellent distribution. If an advert makes you want to purchase one of their products the chances are if you live in a city, you are less than 300 meters from a store stocking the product.

Whenever Energizer advertised, they reminded people that they needed to buy batteries, or that they should stock up. However, as Duracell had won the battle for distribution, when the consumer went to the store, they would find only Duracell available.

I suffered the opposite problem when I worked for Fujifilm, we were playing second fiddle to Kodak and as an ‘impulse’ category, it did not make sense for convenience stores to stock both brands.

So, when a start up tells me of the very clever PR plan or marketing strategy that they have in place for their start up – I get very nervous, as I tend to ask questions about the distribution – which will ultimately determine the effectiveness of the marketing plan.

I always like asking people the difference between sales and marketing, and you are guaranteed to hear a lot of MBAesque answers. The best one I have ever heard (again from Duracell) is.

“A sales person’s job is to make sure the product is on the shelves, the marketing person’s job is to make sure it does not stay there”.

Are you getting your sales and marketing efforts the right way around?

There are many reasons for this inertia; the biggest one is probably fear of rejection. It is one thing to pitch for money from angels, to ask your friends for some feedback etc, and quite another to ask someone to part with their hard earned cash for your product or solution.

However, there are steps you can take to help yourself get over that fear/ inertia

1. Ensure you are maximising your sales time and effort.

If you are the CEO of a startup and you have a million and one things to do, you should focus your time on the warmest sales opportunities. If cold calling works on a conversion ratio of less than 20%, you should try and outsource this activity. (I do have a conflict of interest in this because I own www.springleads.com – a company that does this type of activity for companies).

People do often think of their time as ‘free’ and there is a very dangerous fallacy in that belief. You should work out what the opportunity cost of your time is. If it is less than £50 per hour, you are not aiming high enough –you are not going to get to be a large (£1m + company) if you value your time at less than that.

If there is something you are doing that can be outsourced for less than £50 per hour – why are you doing it?

2. Ensure you really believe that your solution meets a real need.

It is very hard to sell something we don’t believe in. I always remember the driving force of the Jehovah’s witnesses. Part of their belief is that each person on the planet has to be told about the Good News Bible. This explains why they remain so cheerful even when people slam the door in their face; their objective is still being met in terms of giving people the choice.

If you ask your potential customers the right questions you will find out if your solution really is the right thing for them. And if it is, the rest really becomes easy. You shouldn’t be in the business of selling, you should be in the business of helping people buy.

3. Monday – Friday 8am-6pm is prime time

It is a cardinal sin to be doing sales process stuff during the prime time hours. It really is like buying a luxury car just to do shopping trips for groceries. Your admin for sales should be done outside of these hours so that these hours are being used for ‘real’ sales stuff which involves interaction with customers.

4. Just do it

There is no such thing as the best time to call, or times to avoid. Just go for it. And there is no such thing as the perfect pitch either. Just get on with it!

If you are talking to a potential customer and engaging them – you are doing wonders!