Timing and Capital - Early Bird or Second Mouse

Timing and Capital

This is one of a series of posts on useful tools for entrepreneurs leaving the Armed Forces. Here is the full list and links.

If you never leave home without a wrist watch and wallet, you already know the importance of timing and capital. In a competitive commercial context these two tools are of vital importance.

Service leavers can bring their skills to bear usefully at every stage in the life of a company and an industry, and this post aims to illustrate some of the timing and capital considerations that may help a service leaver to choose a market that best suits their skills and expectations.

Timing

As the market for any product or service develops, demand typically follows a predictable pattern. After development and launch, a small number of "early adopters" are gradually joined by a growing group of customers. The market grows to maturity and then eventually declines.

Understanding the importance of timing and capital is essential if you are to harvest the best results from the market you are in - or thinking of getting into.

Early stage - to the victor the spoils

If you join a market at a very early stage - or create it - timing is critical. Get it right and you can enjoy high profit margins and high growth as early adopters sing your praises and spread the word. Get it wrong and you may find that demand doesn't appear - or takes longer and costs more than you expected.

While many early stage markets don't require large quantities of capital to enter, unless you are sure of your timing it is essential to have sufficient resources to survive if demand takes longer to pick up than you expected - you may also need to refine what you are selling so that more people want to buy it.

Of course any given quantity of capital will last much longer if you have a tight grip of costs and keep the "burn rate" as low as you can.

Growth markets - more capital required and less timing risk

If you choose to join the market later in its development - perhaps as a "fast follower" improving the initial offerings of others (Apple and Virgin are great examples of companies that do this), you are less exposed to the timing risk - the danger that you will have launched something that is ahead of its time - but you will probably also need more capital in order to capture customers and gain attention.

Mature and declining markets - optimisation and big balance sheets

Once a market has matured, the profit margins typically reduce and competitive success turns on being able to run the leanest operations. The search for economies of scale lead to consolidation and the creation of larger and larger organisations - along with the need for larger and larger quantities of capital. Strategic timing becomes less of an issue - but tactical timing is essential working capital management in particular becomes a key determinant of success.

You choose - bird or mouse

Military experience can fit people for each of these stages. The early stage of the development of a market is typically characterised by uncertainty - one of the staples of a military career - while fast following involves learning quickly from the experiences of others and seeking to build on their insights.

"The early bird catches the worm, but it's the second mouse that gets the cheese"

Since the military in the UK could fairly be described as a mature and declining market, servicemen and women have plenty of practice in optimising systems and processes to try to find efficiencies - particularly in large supply chains and communications systems.

Capital - be sure of your budget and backup

Each of these options depends to some extent on the capital available. While (except in some industries like mining or pharmaceuticals) there is often little capital required in the early stages of a market, joining an established market can require massive scale and resources.

Beyond the resources and expectations that an entrepreneur can bring to bear personally, they may need to seek additional capital from other investors or lenders. Understanding the expectations and constraints of those investors - whether they be friends and family or formal investors like business angels and venture capitalists - is essential to ensuring that the entrepreneur has the resources to realise their vision.

So gaining a clear understanding of the investor perspective should be high up the list of tasks for any entrepreneurial service leaver.


This is one of a series of posts on useful tools for entrepreneurs leaving the Armed Forces. Here is the full list and links.

Financial Analysis and Marketing - Two Key Skills for Entrepreneurs

This is one of a series of posts on useful tools for entrepreneurs leaving the Armed Forces. Here is the full list and links.


When I left the Royal Marines in 2000 I knew I had a lot to learn about civilian life (and I still do!). Two of the subject that were particularly alien to me, coming from an armed forces background, where finance and marketing.

I was fortunate enough to have a great introduction to each of these in the 2 years after I left the Corps. First I joined JP Morgan and was sent to Wall Street for their analyst training programme, and then during my MBA at Warwick Business School, I studied marketing and strategy under the legendary Professor Peter Doyle.

Financial Analysis

Financial analysis, an understanding of the way financial information is recorded, presented and interpreted, is essential to anyone who wants to understand how an enterprise works. The single most important piece of financial analysis is probably "can I sell this product or service for more than it costs me to make or buy?" if the answer to this first question is no, then it's time to go back to the drawing board. But this is only the beginning, and I would encourage any would-be entrepreneur - especially with an Armed Forces background - to spend some time learning how bookkeeping, accounting and financial modeling work.

While I was at JP Morgan I was analysing the financial statements of a major international energy company, when I noticed a $47 million discrepancy between two sets of reports. At first I thought I had uncovered some criminal activity, so I spoke to my boss who meticulously checked though the details, and after several hours pointed out the problem - on a billion dollar balance sheet, the $47m had disappeared as a rounding error!

Marketing

While the Armed Forces are a monopoly provider of services to a single client - the British Government - most businesses are competing with a wide range of capable rivals, each vying to take away customers. In any market where supply exceeds demand, an entrepreneur has to find ways of ensuring that they can sell their products or services at a premium. This is the realm of marketing.

I recommend spending time on a sales and marketing course, or at the very least reading widely on the subject. Peter Doyle's Marketing Management and Strategy is a great top level introduction.

While Doyle puts marketing into a strategic context (he trained as an economist before becoming a marketing guru), there are also simple tactical questions that every entrepreneur should keep a close eye on, such as:

• do I know my customer as well as possible?

• does my product fit my market as closely as possible?

• what can I measure to improve the performance of my marketing activities?

For me marketing remains the most interesting of the disciplines involved in entrepreneurship - and also the most challenging!

This is one of a series of posts on useful tools for entrepreneurs leaving the Armed Forces. Here is the full list and links.

Nine Tools for Entrepreneurs

On Tuesday I was asked to join speak on "Inspiring Entrepreneurs: From Battlefield to Business" at the British Library.

Following a keynote speech from Clare Perry, the MP for Devizes Matthew Rock from Real Business, who chaired the event, introduced me, Peter Fitchett of Absolute Rubbish, Sarah-Jane Hill of Bish Bosh Becca and Mark Palmer of Green & Black's.

You can see the full webcast of the event here. My presentation starts at 17:17.

I shared nine tools that I believe can help service leavers in their journey from the Forces to Entrepreneurship. The nine tools are:

1. Determination
2. Adaptability
3. Financial Analysis
4. Marketing
5. Timing
6. Capital
7. LinkedIn
8. Coffee
9. Crowds

I'll explore each of these tools in more detail in following posts.

After the presentation we faced questions from the audience and also via twitter from the online viewers. I asked what tools other people would recommend and "Mentor" was a frequent suggestion - what additional tools would you suggest?

Worthy isn't enough - the message has to be sexy

I recently met up with a university friend who has become a marketing professional. Since he has been in Canada for the last 5 years we had plenty of catching up to do. He was the massive oarsman who used to sit in front of me in a rowing boat day in day out, so I've always felt we were pretty well in sync and I was very interested to learn what insights he has gleaned over the last few years.
Storytelling
Rolf is a fantastic communicator. He has worked extensively with Native American communities in British Columbia, helping maintain their traditions and develop and share the narratives that embody their culture. In fact, narrative was a central theme of Rolf's conversation as he described how we make sense of the world around us by storytelling. My last blog post was on the subject of storytelling, so I was quick to agree.
I've recently been studying several businesses that could be described as "good". They major on providing excellent value for clients while applying waste-eliminating techniques to traditional processes. All these businesses (in financial services, healthcare and renewable energy) have a common feature: they improve on traditional business models and pass most of the benefit on to their customers.
How to tell an ethical story?
I mentioned this to Rolf and asked his advice as a marketing expert. How could these businesses engage with their customers without increasing their prices to the point where they were no longer competitive with traditional incumbent alternatives? Perhaps the clearest illustration of this is in financial services where traditional banks are widely reviled, yet organisations like Zopa which match borrowers to lenders and reduce the spread retained by traditional banks struggle to be noticed. Their ability to advertise is limited by the modest fees they charge. In contrast in particular with payday lenders, some of which charge APRs of more than 4,000%, the media profile of Zopa, Ratesetter and others is tiny.
Good isn't good enough
Having myself built a business with a strong ethical message - maximising the impact of donations to charity - I have wrestled with this challenge for years. As Rolf points out, it's not always the ethical marketeers who win - he cites the US food market as an example in which obese consumers harm themselves while encouraged by barely regulated marketeers.
So the challenge is to avoid the trap of thinking that one is marketing to homo economicus, the mythical hyper-rational consumer beloved by traditional economists. Instead, we need to tune our messages to real people, taking note of behavioural economics - the irrationality and short-termism that characterises consumer behaviour. No amount of rigorous mathematics can overcome the primal decision drivers that really shape consumer choices.
Sex sells - almost anything
Rolf expresses it very simply: "Worthy isn't enough - the message has to be sexy." Whatever you are marketing, it's vital to appeal to the base of the brain. Transparency and economic justification are nice-to-have, and indeed they are essential in justifying the ethical business tag, but they are not sufficient on their own. The marketeer's magic is in adding a frisson of excitement to the subject which really turns customers on.
Rolf is living the message - as marketing director of a company that makes concrete additives, he has a far greater challenge than selling fast cars or designer clothes. Yet take a look at his marketing material with its beautiful images of towering structures and verdant scenery and it's clear that this is a man who can make concrete seem sexy!