5Aug
Failing; a Checkmark to Success

Ben Syne was the founder of Dog Sync, a
task management app for dogs with multiple owners.

Most every entrepreneur can provide a laundry list of errors and miscalculations. Failing is part of the course, but the most successful entrepreneurs actually benefit from their failures. It is their ability to learn from their mistakes and move forwards that significantly contributes to their professional and financial accomplishments. A little over 50% of start-ups fail in the first 5 years, it is a common occurrence yet nobody ever talks about it.

For many entrepreneurs, setbacks, which are for the most part, unavoidable, can become debilitating. But that need not be the case.

Ben Syne was the founder of Dog Sync, a task management app for dogs with multiple owners. It allowed owners to keep track of when the dog was fed, walked etc. DogSync was part of the statistics of start-ups that failed, despite this Syne looks back at this as a learning opportunity and shares with us how he overcame this. He shares with us what he learned and how he has evolved, which is something a lot of entrepreneur’s are unable to achieve.

What motivated you to start DogSync?

At the time, my family and I faced this problem. We all had six different schedules and it was difficult to know who did what. It especially became an issue when our dog started taking medication because sometimes it would be given to him twice in a day. I saw this problem and wanted to create a solution for it.

When did you first start seeing warning signs in DogSync?

The initial warning sign was that our drop off rate started to increase.Our users were not taking to our app and we were not keeping our customers. We realized that there was not that many groups of people who cared for one dog and even for family members; there was always one person who would be designated to ensuring the maintenance of the dog.

Once we realized we were not getting enough traction, we decided to pivot into sometime entirely different which was called BarkMiles. With BarkMiles you earn points while walking your dog that got you discounts on your favorite dog products. That was doing well too except we had one major issue, cash flow. We took too long to bring our first idea to market. When we realized we needed to pivot, we started to run out of cash. We did not have enough cash to take it all the way and that’s the major thing that shut us down.

Why do you think dog sync didn’t turn out to be successful/ what mistakes did you make?

The main thing that shut us down was that we did not have enough cash flow to take it as far as we could have. This was due to our poor management of capital over time. I think it would have also been useful to have check in every few weeks to look and reassess where our financial figures stood. Therefore, a big issue for DogSync would be use of finances and capital.

Starting a business and failing at it can be very hard, how did you deal with it?

I have to admit it hurts a lot. I put a lot of my time into this and it was something I was very passionate about. Learning to meditate and achieving a calm state of mind was super important for me because it allowed me to look back at everything objectively. When things like this happen, it’s important to absorb and understand what’s happening because these are the best learning moments. When I start a business again, I do not want to trip over the same rocks I did the first time. Let the dust settle, go back and look at the situation with fresh eyes. Failure is learning, and I try to take as much as I can from that experience because it was a very expensive one.

What advice could you give to other founders who have been in the same position as you?

Don’t take your failure personally. Associating yourself to this failure will only make you think of yourself as a failure and it will not allow you to try again. It important to remember that the way you frame any bad situation will have a big effect on the outcomes of this event. If you read about successful entrepreneurs in the media, most of them have had 80-90% of failures in their careers and just a bit of success that took them very far. The thing that differentiates a successful entrepreneur is their ability to look back and grow from their failures, which allows them to come out better and stronger than everyone else.

Do you regret starting dog sync

Absolutely not. It is almost as if it’s a checkmark on my path to success and I’m ahead of the game now. I look at this as an opportunity because I am only coming out better and smarter from this whole experience. Take for example, Ray Dalio founder of Bridgewater and one of the world’s top hedge fund managers. Early on in his career, he failed at the same thing three times in a row. He tried starting a fund and went bankrupt two or three times. It was because of those failures that he overcame and persevered through that made him as successful as he is today.

I do not look at dog sync like a failure because even during the process of it, I still learned an enormous amount. It has allowed me to evolve and come out smarter than before. Being thrown into these kind of situations allows you to learn eight times faster than if it were in any structured environment. I also had great people to work with and I would not have given up that opportunity up for anything.

Do you think you will ever start another business in the future and or what are you currently working on

I have started another business; unfortunately, we are not at the stage of releasing any information. However, post dog sync; I spent some time working on the skills I thought were important to improve on before I started up another business. I was also waiting for some inspiration until an idea sparked and I began researching for 2 years. This is was a subject I had no previous knowledge on. I had to spend a lot of time researching and learning about it. I got interested in a completely different field, it was something I saw randomly on the web and it got me excited on an idea. This is something I will be launching this year.

What lessons learned from dog sync will you be incorporating into your new venture

I realized having a coach or someone to check in with every week is something that is super valuable. I wish I did this for dog sync, but now I have a coach that I have weekly check ins with. It allows me to reflect on decisions, ideas and map out where business is at and where it should be. Having someone who can objectively give you feedback that is not emotionally invested in what your doing can help shape ideas and decisions. Being an entrepreneur, there are a lot of up and downs. It’s useful to have someone to talk to just to be able to see the whole picture. All top athletes have coaches and I think an entrepreneur having a coach brings the same value in order to be the best you can possibly be. I found my coach by putting an ad online and I received quite a few responses.

Management and planning are extremely crucial and is something that is worth sitting down and investing your time. Having a good management structuring goes a long way especially when you have a team under you.

Effective planning of resources, like I said a company dies when you run out of money so every decision should start with your team budget and what you’re going to be doing over time to achieve these metrics.

Every entrepreneur should take note on Syne’s ability to transform his failure into something positive. Being able to fall and get back up is one of the hardest things to do but once you do, you come out better and stronger. Don’t be afraid of failing because it’s only part of your journey to success.

11Mar
Equity Split to Maximize Motivation

When deciding how much equity split to give to a co-founder, your goal as CEO is to create a split that will maximize motivation. The amount of equity you give to a co-founder will determine the amount of work and energy they put into the start-up.

1. Its about what your co-founder wants

According to Michael Siebel, a common mistake founders make is coming to the terms of the equity split based on negotiations. You should be thinking about what your co-founder wants, even when they lose sight of their long term interests It is normal that founders are hesitant in being generous with the equity split. However, by implementing methods such as a vesting and cliff period you should have no problem in gaining the trust of your co-founders. A Vesting period is when an employee only receives partial benefits gradually over a specific period. A cliff period is when the employee only receives the benefits after a specific time.

2. Using a 1 year cliff with 4 year vesting

Most co founders do not understand the long-term time commitment that is a start-up. You need co founders that you can trust to be there for a long term period. That is why by introducing a 4-year vesting with 1-year cliff, you can guarantee their loyalty to the start-up. Even if they leave they will not be entitled to their full share of equity. A 4-year vesting period with 1-year cliff means that the co-founder will only begin receiving their equity stakes 1 year later. After the 1st year, the co founder can receive a quarter of their equity share every year for 4 years. They are only entitled to their full shares once they dedicate at least 5 years to the company.

3. Long term commitment

By implementing this hedge, you do not have to worry about choosing the wrong co-founder. You will have at least 1 year before they can receive any of their shares. After that, the co-founder will only receive their full shares of equity if they committed 4 years to your start-up. This is a minimum 5 year commitment which is enough time to grow your start-up. If they do not agree to the 4-year vesting period with the 1 year cliff, it means they are not willing to commit and should not be a co-founder.

Once you have this hedge in place, it should be easier for you to be generous in splitting the equity. The co-founders will be entitled to their share once they commit at least 5 years with you. You want to make sure your co-founders are willing to put in the same amount of time and energy that you are. The equity split will be the motivation your co-founders need to get through any challenges your company will face. Having this trust between you and your team is key in order for your start-up to become successful. There is no exact number of what the equity split should be. it depends entirely on what expectations you have for your co-founders.

18Sep
3 most important e-commerce metrics

In e-commerce, data is everything. There are so many different metrics to consider it becomes overwhelming. That’s why we’ve narrowed it down to the three most important e-commerce metrics that you need to pay attention to. E-commerce has become very popular over the years, especially with the rise of social media. When you are new to e-commerce, your time is usually spent on binary decisions and tasks that help you get closer to launching your business. For example, what products you want to sell, who your audience is and how you are going to reach them. You build a website, put the right tools in place and create processes for shipping and fulfillment. However, beyond post-launch date, you will need to step up your game and quickly evolve from business builder to data analyst. Although it may seem like the easier route to take, there are a lot of important metrics to consider and analyze to ensure the success of your business. Here are the three most important metrics that matter.

1. LTV:CAC ratio

The customer lifetime value ( LTV) to customer acquisition cost (CAC) ratio is important in calculating how much you should be spending to acquire a customer. It can help you identify if you are spending too much or not enough on marketing strategies. You can then find solutions to increase profits and revenue. First, we will define both customer lifetime value (LTV) and customer acquisition cost (CAC).

Customer lifetime value (LTV)

Customer lifetime value, or LTV, is one of the most important metrics to track in e-commerce. LTV is the total you earn from a customer over the course of their life. For example, if a customer makes five purchases over there lifetime that was 30$ each then the LTV would be 150$. LTV helps you understand how much profit you earn during the average customer lifespan. Knowing the lifetime value of each customer you acquire can help with forecasting, budgeting and marketing strategy.

Customer acquisition cost (CAC)

Customer acquisition cost ( CAC) or customer acquiring cost is the amount of money spent on acquiring a customer. This value is calculated by taking the expenses that were used on acquiring customers and divided by the number of new customers that were obtained over that given time period. Knowing your CAC is important because it can help you decide how much money you should be spending to acquire new customers each month.

2. Page speed / load time

This metric is extremely important and can be easily overlooked. Just a one second delay can have detrimental impacts on your business. Pay close attention to page load time on your website. Page load time, or page speed, refers to the average number of seconds it takes for a page on your website to fully load for visitors. A slow website can negatively affect user experience, your ability to build trust and your likelihood to convert new visitors. It can also increase your bounce rate. Your bounce rate is the percentage of visitors who arrive on your page and leave before taking any other action.

According to a Financial Times Case Study, a 1 second delay results in a 7% reduction in your conversion rate. Your conversion rate is the percentage of customers who buy something once they visit your site. It takes as little as one second to slow down traffic on your website not to mention, take a toll on your brand. A customer research report indicated that 66% of people said that website performance influenced their impression of the brand. While 35% of people reported they are less likely to shop there again due to poor website performance. Since you do not have the opportunity to meet your prospective customers in person, your website is your primary tool for creating the right first impression with people.

Page speed directly affects both conversion and brand but will also affect your search engine optimization (SEO). Google has stated that they use site-loading page as a factor in the algorithm for ranking sites. Therefore, if your site has a slower loading page it will become less visible to customers when they use google search engine.

3. Revenue by channel

When you are spending money on different marketing tactics, it is important to know what is bringing you the highest conversion. Whether it be from social media, email opts or advertisements it’s key to understand what is fueling business growth. This way if you are generating higher conversion rates from advertisements on social media as opposed to sending out emails, you will want to focus more of your marketing strategies on advertising on social media.

To build a profitable and sustainable e-commerce business, pay attention to the data. Having a firm understanding of e-commerce analytics will help you become successful. You should be obsessing over these analytics as it reveals the current state of your business. You need to be constantly looking to improve the data. However, do not be overwhelmed by the numerous different metrics that are available focus on these three main metrics especially in the early stages of your business.

4Sep
How Etsy Can Help Your Small Business

For those of you who are unfamiliar, Etsy is an online buyer and seller community that focuses mainly on handcrafted and vintage goods. Etsy allows sellers to customize online shops with full e-commerce capabilities. This platform has allowed many people to turn their hobbies into full on businesses. If you are a small business or someone who simply wants to turn their hobby into a source of income, here are a few reasons why you should have an Etsy shop.

It’s user-friendly

You don’t need much technological knowledge to operate your Etsy shop. For your website you would have to do a lot of design and coding in order to get a layout as professional and clean as Etsy’s. To start your shop you simply need to follow a few easy steps that takes just a few minutes. The difficult part is the decision making with regards to pricing, when to offer promotions, how often to add new listings, etc. But these are difficult decisions you will have to make no matter the platform you choose to operate on. Etsy also has an iPhone app, which will help you manage your shop and stay organized. The app’s features will help you manage your orders, access shop statistics, communicate with other buyers, update listings, get alerts when making a sale, and much more.

It’s affordable

Starting a shop on Etsy is free. However there are three small selling fees. You have a listing fee, a transactional fee and a payment processing fee. It will cost you $0.20 to publish a listing. A listing lasts 4 months until the item is sold. Once you make sale there is a commission fee of 5% and a payment processing fee of 3% + CA$0.25 for Canada (domestic orders or orders from the US) and 4% +$0.25 for international orders.

Access to a large yet targeted customer base

>Etsy has approximately 54 million members all specifically looking for hand-made goods and more than 2 billion views every month. The average Etsy consumer is an adult woman between the ages of 18 and 34. She is a member of the working or middle class. Most of her yearly Etsy purchases include jewelry that cost between $21 and $40, often purchased as gifts. She values the variety offered by Etsy in terms of handmade and eco-friendly goods. If your product remotely caters to such a demographic, there is no other platform that will allow you to reach your clientele in such a targeted manner.

Test your new ideas

Being active on Etsy is a good way to see how receptive people are to your new ideas. You won’t feel as tied to keeping products that don’t sell as you won’t need to call up designers or web developers to make the necessary changes to your platform. If you have an existing business and website and are not sure whether or not a particular product or product line will sell, testing it on Etsy first and reading the reviews on the discussion boards can also help you make your decisions.

Can Be Used as a Cheap Marketing Tool

Contrary to popular belief, you do not have to use Etsy exclusively. Your website and your Etsy shop can work hand-in-hand. Once you’ve gained traction to your Etsy shop, you can redirect your visitors to your website. If you getting a decent amount of sales on Etsy, you can stay there but also consider working on your website behind the scenes. In order to lead your Etsy clients to your website offer incentive. This can potentially include offering lower priced goods on your website, including website promotion cards when you ship your orders to customers, or including your website URL to your product descriptions on Etsy.

If your target market consists of the people visiting Etsy on a regular basis, give the platform a try. Whether you are an artist, someone with a hobby, or already have an existing business, many advantages and learnings can come to you by operating an Etsy shop. The worst thing that can happen is that you don’t enjoy your experience. But even in this worst-case scenario you tried out a platform and you’ve learned what works and what doesn’t work for you.

31Jul
The PME Recruitment and Talent Retention Guide

talent, recruitment, guide

Whether your start-up started off as a solo project or with a co-founder, there will come a time where you will have to hire other employees to support your operations. ProMontreal Entrepreneurs` (PME) has created a Recruitment and Talent Retention Guide in order to help you with this difficult and important step in the life of your start-up. Here is just a snippet on the important matters the guide will address. If you would like to download a free copy of the full version of the guide click here.

Pay attention for cultural fit

Of course, having tangible skills and expertise is necessary. However, your potential employees must fit in with your work culture. Asking the right questions that will bring out your candidate’s personality is key. Here are just a few behavioral and situational questions that are crucial to include in your hiring process:

Can you tell me about a past experience where you had to take charge?
Name a time you failed and how you handled it.
Have you ever dealt with a company policy you weren’t in agreement with? How?

Test skill not credential-

Don’t shy away from hiring new university graduates. Because they are just entering the workplace they are motivated, and more importantly, they are coachable. Coaching employees means investing in helping them work smarter instead of harder. You may be asking yourself “what if we train them and they leave?” This is a risky train of thought. What you should be asking yourself is “what if we don’t and they stay?”

Look for passion-

Passionate employees will go through the hurdles with you. Working at a start-up can come with having to go through uncomfortable and unexpected changes. Therefore, it requires much teamwork. You want someone that will be as motivated as those they are working with, not someone that requires to be motivated by others.

Hire Slow and Fire Fast-

You will be more thankful in the long-run when you’ve hired the right people carefully, and let go of unnecessary baggage quickly. As stressful as times may seem, and as urgent as matters may be, remember that your resources are valuable, and so is your time.

This is just a glimpse of what you will learn from reading our Recruitment and Talent Retention Guide. Your employees are one of your biggest investments. They not only work in order to attain company objectives, they are a representation of your business. Having the right people by your side goes a long way.

18Apr
The Challenges of Being a Social Entrepreneur

Let’s start off by addressing that being an entrepreneur is difficult. However, being a social entrepreneur brings about its own set of challenges and obstacles. It combines social impact with sustainable business growth. Social entrepreneurs are faced with having to solve or alleviate a real-world issue while also maintaining positive financial performance. . Here are the two main challenges social entrepreneurs face. Though considered challenges, many have overcome them in the past.

1. Competing on prices while having enough money to make a social impact
In order to remain competitive, social enterprises need to take advantage of creative pricing strategies. Social entrepreneurs need to establish a pricing strategy that will consider price point, allowing for enough revenue to serve their chosen cause, without compromising their customers’ expectation of their product. Though social enterprises have to overcome additional challenges when pricing, they can use original pricing techniques that are not as readily available to other start-ups. Social entrepreneurs should strategically highlight their cause and mission. Socially conscious consumers who agree with this mission will be willing to purchase at a higher price point in order to support the cause. Furthermore, bundling will incentivize sales. Shoe company, Toms, has made great use of this. For every shoe sold, a pair is donated someone in need. In order to build and grow brand equity, social entrepreneurs should also look into certification. For instance, being certified as fair trade, or B Corp will help maintain a positive reputation and better positioning.

2. Quantifying your impact
Measuring impact for social entrepreneurs can be complex. Not only do you have to establish metrics for your business performance, you have to measure your social impact to prove credibility, as well as attract investors and potential business partners. Impact investments are investments that not only yield financial return, but social and environmental return as well. With the rise of the number of social enterprises, credible organizations have developed frameworks to standardize the calculation of social impact. The IRIS Framework consists of an organization’s description, product description, financial performance, operational impact, and product impact. If your mission is to have impact on a global scale, The Global Impact Investing Ratings System (GIIRS) gathers a range of information with regards to company’s work, size, sector, and region. These assessments are carried out annually and validated by the GIIRS.
Many resources are available to Montrealers looking to take a step into social enterprise. Luckily, numerous grants, and funding opportunities are available, that do not require giving away equity or paying back an investor. YES Montreal, Futurpreneur, Quartier de l’Innovation and PMEMTL all offer workshops and/or grant opportunities for social enterprises in the city, just to name a few.

With millennials harnessing the wave of activism and social awareness, social entrepreneurship has risen for the past decade. They are working towards incubating ground-breaking innovations, alleviating life-threatening issues, and pioneering some of the future’s most resourceful projects. While it is true that many obstacles can interfere with business operations, the key is taking advantage of the resources available your given city and finding creative ways of overcoming these challenges.

27Mar
5 Must-See TED Talks for Entrepreneurs

TED Talks have a unique way of inspiring people to follow their dreams. TED Talks entail more than just watching people speak about their experiences. Viewers get a boost in creativity, and more importantly, exposure to perspective on a matter they hold near and dear. The words of another fellow entrepreneur that has gone through your struggles can introduce you to new strategies that you may not have thought of. Here are the 5 TED TALKS that every entrepreneur must take the time to watch. Take a gander, hopefully they will provide quality insight!

Simon Sinek: How great leaders inspire action

This TEDTalk by Simon Sinek explores the idea of leadership and why some people are better at inspiring action than others. Starting with examples from Martin Luther King’s leadership in the Civil Rights Movement to Apple’s leadership in the business world, Sinek examines patterns that seemingly predict the success rates of various leaders.

Navi Radjou: Creative Problem Solving in the Face of Extreme Limits

This TED Talk by Navi Radjou is about how to make something extraordinary out of very little (or nothing, in some cases). It’s a good one if you’re running short on runway. It’s also insightful if you don’t know how you’re going to do this while keeping your day job.

3. Seth Godin: How to get your Ideas to Spread
This TEDTalk by Seth Godin spells out why, when it comes to getting our attention, bad or bizarre ideas are more successful than boring ones.

Linda Hill: How to manage for collective creativity

This TEDTalk by Linda Hill is perfect for entrepreneurs trying to maximize the creative potential of their top teams. Exploring different tactics as they are used by some of the world’s most respected and most created companies, Hill examines the root causes for creative greatness.

5. Bill Gross: The single biggest reason why startups succeed.
Bill Gross attempts to quantify all the reasons why one startup might be more successful than another. As a serial entrepreneur and a mentor for other startups, Gross has had much experience in the business world. He’s seen great businesses fail and questionable businesses succeed. This experience drove him to quantify exactly why these differences exist.

4Mar
Why Investors Like Startups Focused on Solving Social Problems

The social impact of businesses has been held to the highest of regards in the past decade. Part of the reason for that is millennials have grown up with a more socially responsible mindset than previous generations. Though this has now become today’s norm, many entrepreneurs have gone the extra mile by making solving social problems their main focus. Companies such as Thread International, TOMS, Belu Water, and CellInk are just a few example. With unfortunate social problems making news headlines, one thing is for certain, solving social problems has become what the corporate world would refer to as “good business”.

An uneasy relationship has always existed between investors and entrepreneurs when social problems were in question. If you planned on utilizing socially friendly practices the hope was that it did not excessively affect your profit margins, and if you’re main focus was solving a particular social problem the worry was that you wouldn’t be making enough revenue. All this to say that many investors were hesitant to put too much focus in such businesses. However, with changing societal climates, we are in the midst of a shift. What we see today is that investors no longer have to choose between money, and their values. Hence, the rise of sustainable investing. The reason for its rise in popularity amongst interested investors is simple. People want to make a difference, and figuring out which companies are truthful to their social initiatives has become easier to monitor.

Sustainable investing is a term for investment approaches that consider environmental, social and governance (ESG) factors and their impact. Point in fact, after the controversial era of banking secrecy, sustainable investing has come to the forefront and become one of the fastest growing segments in finance. It is an opportunity to make money and make a difference in the world. By acknowledging its importance and popularity, organizations have further facilitated and incentivized investments in companies focused on solving social problems. For instance, PME funded company Co-Power, identifies energy efficiency projects that generate, or are expected to generate steady, predictable revenue streams by either selling clean power or by reducing energy consumption.

With societal consciousness becoming of increased importance in today’s corporate culture, investors have begun to fish out companies promoting such agenda simply for positive PR. Genuine social impact companies integrate doing good into everything they do. Successful social impact ventures balance for-profit work with community-oriented resources. Failing to do so diminishes credibility and increases customer mistrust. Therefore, entrepreneurs should make a habit of working with institutions and platforms that help verify and certify social impact, examine their supply chain, look for like-minded investors, and build a team that understand the importance of its principles. Act on your beliefs instead of just talking about them.

Making the world a better place and making money can go together. Startups focused on solving social problems endure many challenges that other businesses might not. However, it is important to remember that this is a better time than ever before to appeal to investors. Assuming millennials continue to make social responsibility a priority when it comes to where they work, what they buy, and whom they support, it is safe to say that many investors out there are open and willing to contribute to a greater good.

18Feb
How to Read an Income Statement

financials

For many new in the business world, reading an income statement can be a confusing and intimidating experience. However if you know where to look you will realize that it is not as intimidating as it may appear. Understanding an income statement is a very important skill to have for entrepreneurs as it aids with making sound business decisions. Basically, an income statement tells you how much money came into your company during a specific period, how much a business spent in order to generate income, and how much profit a business has after having paid all expenses. Here are a few points that will make income statements easier to understand.

Income statements cover a period of time

Before you delve into reading the income statement, make sure to take note of the specific time period covered. Questions you should be able to answer for the said period include: What are the revenues of the company during the period? Have the revenues increased or decreased over the last few periods? What are the various components of cost? How profitable was the company during this period? What are the earnings attributable to a share or the Earnings per Share?

Income statements follow a simple formula

Income statements may have slight variations, depending on the company. However, they all possess the same data. Essentially, total revenue, total expenses, and net income (Total revenue-total expenses= Net income). Additional information is simply added in order to give the reader a more detailed depiction of financial status.

Don’t let the jargon throw you off

What can make income statements difficult to understand is wording. Keep in mind that businesses can use different words to describe the same concept. For instance, the term “sale” or “income” can be used instead of “revenue”. The word “expenses” can be used instead “costs.” “Profits” and “net income” are also interchangeable.

Expenses are often split into different parts

Expenses tend to be broken down into components. Cost of Goods Sold is the direct cost attributable to goods sold. Selling, General and Administrative Expenses combines payroll costs, except for what has been included in labour costs. Depreciation and amortization are charges with regards to fixed and intangible assets that have been capitalized on the balance sheet over time. Sales & marketing, as well as Research & Development costs are also almost always included in income statements.

Keep an eye for cash flow

Comparing an income statement to a cash flow statement is highly recommended. The reason for this is to see if the profits earned are supported by the cash coming into the company. High profits on an income statement paired with low cash flow can imply weak quality of earnings. Know your key drivers and manage them. Keep a careful eye on areas that affect cash flow: accounts receivable collections and inventory turnover. How are you doing compared to past performance and your peers? Watch key areas that affect profits, net and gross margins, labor and fixed asset utilization. Though this is more acceptable with start-ups since they likely have to make substantial inventory investment before collecting from customers, this is something that should improve over time.

Take note of the profit margin and earnings per share

The profit margin will give you an indication of the percentage of revenue that is left for shareholders after expenses are paid. Earnings per share will tell you the portion of earnings you would be entitled to if you owned one share.

Income statements can be very intimidating if you are a first-time business owner. If you are an entrepreneur needing help with your financial statements, remember that some aspects of running a business are not worth saving money on. There’s no need to turn yourself into a CPA, but you must be able to read financial statements, talk with better qualified financial people and assess your company’s performance.This will lower your stress level and get the job done efficiently.

10Jan
What Is an Economic Moat?

The term economic moat, coined and popularized by Warren Buffett, refers to a business ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms. Imagine McDonald’s without cost, convenience and golden arches, Nike without technological and trademarked innovation, or Amazon without its timely customer service innovations. They would be relatively unpopular companies struggling to survive in their respective industries. Business mogul, Warren Buffet has introduced the world to many of his lifelong lessons over the decades. One of the lessons that seems to have stayed relevant throughout the years is related to the coined term, “economic moat”.

As the age-old saying goes: Being the best is great because you’re number one, but being unique is greater because you’re the only one. Buffet has explained the importance of economic moats specifically when describing his investment strategy. His strategy centers on companies with strong economic moats, as they are more likely to withstand their competitors, and remain successful and unique. A company having a competitive advantage that further differentiates it from the competition will help through the highs and lows of operating a business. In its most basic form, a company without an economic moat is like a movie without an engaging hero, or storyline. In such a situation, there would be no way of creating a loyal consumer following, and subsequently no way of overcoming challenges that arise over time. On the other end of the spectrum, companies with competitive advantages can be threatened by competitors who replicate their methods. Establishing economic moats can therefore help companies protect long-term profits.

Thankfully for today’s business leaders, Buffet didn’t simply coin a theory-based term that required a bunch of scholarly analysis. The concept of building economic moats is a tangible one that can be leveraged through different business strategies. For instance, economic moats can be achieved in five ways: cost advantages, the network effect, high customer switching cost, efficient scale and intangible assets. The way you choose to build your economic moats all depends on the nature of your business. Think about what would be a good fit for the strategy you plan to execute. Buffet emphasizes the economic moat as an institution. It is not the mere elements that customers will like. Companies that build moats carve them around their businesses to keep competitors at bay. For instance, people loved Coca-Cola 50 years ago, and it’s fair to assume that they will 50 years from now. This is because Coca-Cola utilized the five sources of economic moats in order to create a loyal consumer base.

Let’s use the example of low-cost advantage. Suppose you have decided to make your fortune by running a lemonade stand. If you buy lemons in bulk once a week instead of every morning, you can reduce your expenses by 30%. This allows you to undercut prices of competing lemonade stands. While profits would increase, it wouldn’t take long for competitors to notice your method and replicate it. However, suppose you develop and patent a juicing technology. This technology would allow you to get 30% more juice out of the average lemon. This time, it would be a lot more difficult for the competition to duplicate. In this example, your economic moat is the patent that you hold on your proprietary technology.
The nature of capitalism is that others will want to come in and take what you have built. The goal for every business should be to build a durable fort around its castle. The goal is to protect it from any attack that would come from the competition. Sometimes an economic moat is having more talent, other times it’s establishing legally protected patents. Just remember to remain patient. You should stay persistent because it may even take a few tries until you get your strategy right.

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