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Business Start Up Advice, from Bo Keely

August 18, 2014 |

3 Comments so far

1. John ( other John ) on August 18, 2014 3:06 pm

   Long time since I dropped by to read here, so forgive me if I’m out of turn, but doesn’t this post really just say that the idealized startup is a frictionless, risk free, perfectly liquid, investment?

   “operated itself as much as possible” - no sweat equity?
   “not subject to trends or fads” - looking for risk free return?
   “Invest very little initially … be sure you can step out on 24hr notice” - liquidity is free, also?

   ‘if the business is unique or can’t be copied… or franchised the better still ….” - a frictionless investment that has barriers to entry?

   I’m tempted to say that this is wishful thinking posing as advice, but i’m downright confused, if only because nothing relates to startup business as I understand startup business at all. If anything, the “not subject to trends or fads” line, inclines me to believe that the objective must be within a mature market, not a classical startup looking to sell innovative product or technology or delivery of product, where some disruptive angle gives arise to massive growth potential.

   I’d that the bit I am missing out?

   I can point to a business curiosity of my own observation, that in some ways fulfills all of these criteria, however: financing contract magazines, as are produced for sporting events, and trade associations. Quite a few of these contracts trade only when a sales team moves, and every few years a team breaks away to start a publisher which lasts about as long as the team’s social cohesion. Selling ads for the PGA official guide is a known, stable, market. Risk is low, it’s the same sales team as before. But capital is very poorly managed in many of the publishers I at least used to look at in depth, there’s literally no published accounts for many. So the only way in is as a kind of invoice factor, taking credit risk against the sales and accepting a component of your fees as warrants. Often a few hundred thousand dollars will meet their needs to break away with the contract (non compete is much harder to enforce in the EU, and can be avoided by a clean room design of the new company), to pay wages, and you can extend according to invoices coming in, and even with warrants, fees (return) is good, and on a short horizon. Warrants have no value in a unlisted new private company with no share capital paid, but are simply another way of saying, as Mike Millen once did, miss a payment and i’ll take the company away. (warrants pegged to a valuation so they potentially can dilute other stakes, or with a first right to be bought out on any equity round)

   Forgive me a very loose and fast example, because I did not go into covenants that allow a exit, or mitigate risk, such as being paid down when normal bank financing is in place, or the things you have to do in default event to publish a title to get receivables paid. But really very nice contracts for single issue or infrequent magazines used to change hands frequently, and I used to pay attention. At one time, here in London, publishing startups were grown like mushrooms, often with some usual suspects at the helm, and they always over reached and blew up, with incredible predictability. They are highly profitable, or can be, but lack of ready financing and something of a cultural shift also, has led to the large conglomerate publishers rounding them up, and burdening them with middle management fat. But for a long time, the only information you might need was who was leading sales. Then there is the fun of what can be done with vanity magazines which get discovered by a good sales team, finding a good demographic in e.g. a private bank cardholders magazine, and that’s a arbitrage that was effected by roving teams of sales guys, but never exploited to the extent it could have been. Even better, lay off your risk by selling options to other advertisers who are borderline customers: worst case is they take the fill and offset the expense against their marketing and get a full tax expenditure ticket, and they’re almost always effectively covered for losses up to their tax deduct for marketing. Go one further, and treat selling to the marginal advertisers as a cash and carry component, and they can participate whilst financing your position.

   My apologies, it’s not a corner store, and more complicated than something you might assume as a hobby, but it is potentially a example of a business that has short horizons, potentially no cost of entry bar identifying and new company registrations set up by existing sales managers, some equity risk and equity like returns but, depending, a credit risk component that is far better known, and you could quickly effect a exit in most conditions.

   In my neighborhood, not a single corner store, with which the streets are lined, gets the idea that when inventory is sold, they might order some more. I go shopping for my usual odds and ends I am too lazy to remember, and end up .. I fib, I have quit lately after years of this.. lecturing on the concept of identifying lines which sell, out of frustration in my failure to make a simple purchase. I gave up, because I proposed casually, but into some debate, to one store I knew well, a partnership deal.. they had no stock, no working capital, as we talked a potential customer literally walked out in disgust having found nothing.. they smiled and brushed me off, saying they were okay, and closed their doors for good, only days later. Given they’re not unique, and few small stores about here seem to have adequate working capital, one could strike a number of deals. I’m glad I didn’t have to end up negotiating my way out of a lease, though. Small stores are so profitable, big chains are opening in improbably small locations, but the carried lines are so restricted by shelf space, I believe there’s opportunity yet. There’s ten small stores down shy of half mile stretch… and not counting those on side streets…

   Back to my original point, though, was this really not wishful thinking? Chance of a follow up?

2. Bill Herrmann on August 18, 2014 5:48 pm

   As a terrific writer, Bo Keely is perfectly positioned for a startup that meets his criteria. Internet publishing of books (any adventure will do) as outlined by a post of a few months ago allows for working (writing) when one feels the urge and when finished can be sold on Amazon.Com while exploring the world (including the Amazon). For the more ambitious, a low cost subscription service of a post a week could bring in a nice cash flow with very little capital (in $, not time) risk.

3. Kelvin Meeks on August 19, 2014 5:29 pm

   A friend once told me of someone he met once that operated a cotton candy machine out of a modified Air Stream trailer. The fellow claimed he traveled to various festivals, flea markets, rodeos, country fairs, etc. and made profits in the 6 figures.

   Seems like a small business that would also have the added benefit of allowing mobility/travel