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EBay have just sold 65% of Skype; let’s think about why.  In daily life, just like in the Dragons’ Den, I see too many people with no long-term strategy for what (and when) they want to get out of their businesses.  Entrepreneurs, venture capitalists, call us what you will; but basically we want out and so should you.  We get our buzz out of analysing a business quickly, buying it, improving it or turning it round from loss to profit and then selling it.

I find it useful to look at another example to make the point. Take dealing in shares. 
Start from the basics.  To make money in shares is easy – buy shares when their price is low and sell them when it’s high.  When I say that to people they get very annoyed and frustrated.  It’s a statement of the bleeding obvious and leads to the question – “Yes, but how do you know what to buy and how do you know when to sell?”

OK, let’s think about it.  How many times have you heard people say “Oh, I bought the share at the right time and it shot up but I didn’t sell it and now it’s on its way down?  I still don’t want to sell it because I’m sure it will recover and go back to the price it was at its peak.”  Let’s think about the logic, or rather illogic, of that statement.  In the first place they’ve done well.  They bought a share and it went shooting up, their timing was good.  Why didn’t they sell it?  The only logical reason is that they thought the share was going to go further up.  But is that logical?  After all if a share goes up by 25%, what are the chances of its doing so again?  I know there are special circumstances when this might be the case but that’s probably unusual.  If you want to deal in shares buy them when they are at a low price and remember to sell them when they have gone up.

The second part of the statement is equally fallacious.  If a share goes down it is for a reason.  The market, who have got a lot more time than you to study these matters knows something that is making them take their profits or cut their losses.  When a share goes down - sell it, is a good rule of thumb.  After all, if a share goes down from 100 pence to 50, it has collapsed by 50%.  In order to go back to 100 pence it has to rise by 100%.
I find it useful to use the example of dealing in shares to ex plain how dealing in businesses is exactly the same.  The point of being an entrepreneur is to buy companies for a low price and sell them for a higher one.  The art of being an entrepreneur is to know which ones to buy and when to sell them.

So, EBay is selling 65% of its share in Skype for a sum of money much less than the value they bought it at.  Quite right; they made a mistake, Skype was not the strategic fit they thought it was and they’re cutting their losses.  We can all learn from them.

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The promotional materials like fliers, brochures and emails that come into my inbox or letterbox often surprise me.  Many of them are telling not selling.  They’re describing their product rather than working out from my point of view the benefits to me of buying it.  Let’s look at an easy example first to make the point.  Have you ever enjoyed buying a computer?  A lot of computer salesman are, fortunately, very knowledgeable about quite a complex product.  The good ones can listen to your requirement and then describe the features of their products in terms of how it answers your needs.  They find out what you are going to use it for and say things like, “OK, if you have to print out large reports there is probably a good return on investment in the top model in the printer range.  It’ll save you a lot of time.”  They don’t say, “This printer has a rear entry sheet feeder that holds up to 100 sheets of 64gsm paper, printers up to 32ppm with a maximum of 5760 x 1440 dpi and has an input memory of 64KBs”  You can enjoy buying from the first one; the latter can be a nightmare.
Look at your promotional material with this in mind.  Does your passion and knowledge make you put in too much about the detail of the product, and not enough about what it does for the consumer? If you’re selling gifts, for example, make your first question, “Who’s it for?”  That way you can talk about the how the recipient will enjoy it.
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Tip from Shaf – Focus your advertising on your market
A good way of designing your brochures and so on is to think of the newspaper that your target market reads.  This gives you the level and feel of what your stuff should look like.
 
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Take time to consider your target audience when you are designing promotional materials.  What will make them read it?  Remember it’s quite easy to open a promotional letter and only half take it out of the envelope before binning it.  So you need a simple benefit statement or question to get their attention.  Keep it simple.
 Look too at your order forms and contracts.  If they have more disclaimers and conditions of sale on them warning people why they shouldn’t buy, than benefit statements saying why they should you’ve got it upside down.
Web sites also are often poor silent salespeople.  They’re difficult to navigate and frustrating to use. For an example of a clean uncluttered website which is easy to navigate have a look at the website www.estock.co.uk
 
Whatever you sell and whomever you sell to maintain a professional and smart appearance about everything the customer sees with your name on it.

Lots of people talk to me about starting their own business.  Some of them are obviously just ‘talking the talk ‘ and have no intention of getting round to it.  I call these people the superglue entrepreneurs – they stand on the top diving board saying they are about to take the plunge when in fact something, probably risk aversion, has super glued their feet to the board.  The second type of would-be entrepreneur complains that they would start off on their own if they just had a little bit of capital.  To them I always say “You could have at least £500 in capital in two to three days.  Just sell some assets.”
I’m not talking about the family silver here I’m talking about the stuff in the attic, the presents you didn’t want and other detritus that you never got round to throwing away.  And it’s easier now.  Selling your unwanted stuff no longer needs to involve car-boot sales – use the internet and you can get more customers and better prices.
There are two routes into online selling. Firstly you might just want to declutter your home a bit and raise £500 as a grubstake for your new business. (Incidentally, the glory of offloading your second-hand goods and chattels is that any income you make is almost certainly tax-free.) Alternatively, you might want to consider setting up a fully-fledged online business. For many people who have taken this route, their business is based around a hobby or passion.  A mate of mine is a fishing  fanatic and started a business selling on the Internet his old Fly Fishing equipment along with anything  that he picks up at car boot sales and junk shops – his work is his hobby.

If you are trying to take over a small company you will get a series of figures from their financial people that paint as good a picture of the company’s finance as a half decent accountant can conjure up.  Always make sure that the figures you use to make your judgment on the value of the business are right up to the minute.  It is too easy for your target business to demonstrate reasonable figures for the quarter before last knowing that the last quarter was a different story.  You may pick that up if you go to the expense of doing proper Due Diligence, but by that time there is agreement over the amount that they are expecting you to pay.
Take their figures and turn them into a monthly cashflow document.  Look carefully at the overheads because that is the first area where you may be able to make substantial savings if you do buy the company.
Separate out expenses on premises and the cost of administration.  With regard to premises, work out if you could integrate the people and stock you are taking over into your own premises.  If you can, then look hard at the leases they have signed up for.  Suppose there is still six months to run on a lease on premises that you do not need.  Negotiate with the leaseholder.  If there is a sniff that the target business may go bust then they will probably be open to offers that guarantees that they get paid what they are owed in return for waiving, say, the last quarter in the contract.  Now look at administration: it is likely that you can subsume their administration into your own or one of your other companies without any extra cost.  At a stroke you have improved the performance of the target company by stripping these two items out of their costs.  Look carefully at their insurances – again the combination of two companies together can often lead to savings.

Whether it's a family home or a full on business don't forget the value of the assets you or your businesses live in.  You miss an opportunity if your landlord is the person making money out of the upward revaluation of properties.  This gives me a bias towards buying property assets rather than renting – even including warehouse space.

There is much less employee loyalty around now than was the case, mainly due to the behaviour of employers who, in reacting to very fast, and often very painful, changes in the business environment, have had to become markedly less loyal in the other direction.  This means that people are more willing than before to move to a competitor to build their careers.
So, if you make wrong decisions in staffing and have to put them right by firing people and letting people go, you may find yourself with a morale problem leading to the loss of the people you desperately needed to keep.
One way out of this dilemma of “Do we need another person and is this the right one,” is to use temps and contractors.  (Be very careful of the tax position on contractors, especially in the IT business.  The Government is bearing down on contractors who use their employer’s equipment and only have one customer.  They regard such individuals of being in reality employees and want the tax and National Insurance contributions appropriate to that status.)
But temps and contractors are not in fixed costs.  You can dispense with their services whenever you want and they are never regarded as full members of the team.  This means that their departure is met with more equanimity than if they were.  The two disadvantages of this approach are cost and the fact that you have no real hold over the people. 

i am always looking for the skills and attributes that link successful businesspeople and entrepreneurs. I figure that if I can find the magic bullet that is the common factor of successful people I can improve my own performance and help my people to do the same.

Anything written by these people and the talks and interviews that they give emphasise a basic communication skill. This skill is not only not the gift of the gab but actually the opposite – it’s listening.

I have made a lot of money out of buying businesses where the current owners were either underestimating the value of their assets or, the more likely version, overestimating the value of their assets.  In the first case some owners do not think sufficiently outside the box to realize that their assets could be worth a lot more if they were combined with another customer database, for example, or enhanced with the addition of another line of products.  If I can realize the potential value of the undervalued assets, then buying them for a price that reflects their current owner’s valuation makes good business sense.

The second case often arises because the owners are being unrealistic about the effect of a change in market conditions to the value of their assets; the current property market is a good case in point.  People do not want to admit that the value of their house has gone down along with the rest of the market.  In the case of a house owner this need not be serious; they simply stay in the same house until things recover.  In the case of the owner of a business such unrealistic thoughts are potentially very dangerous.  Suppose I am looking at a business with assets that I think are worth £1,000,000, half the unrealistic value that the owner puts on them.  I offer, say, £900,000 and they reject it.  Three months later I notice that the business is still for sale.  I have another look and it is obvious that things have got worse and that the cash situation must be becoming serious. 

Do I repeat my offer of £900,000?  No I do not: this is getting close to what is known as a fire sale and I go in much lower.  If I have judged the precariousness of the owner’s situation correctly I will get the business for that lower price and the owners have cost themselves a lot of money by forgetting that the value of an asset is an opinion, not a fact.

An alarming number of people go into small businesses with little or no understanding of the financial side of running a business.  I’ve spoken to one woman who is setting up a company. When I suggested she draw up a spreadsheet of her costs and estimated revenues she replied that she just couldn’t get her head around figures and was going to leave all that to the accountant.  To be honest, I think that’s a bit like driving a car and only seeing road signs every six months.  I guess it’s one of the reasons that I get so many opportunities to buy businesses cheaply and turn them round.

How fast should you grow your business: answer, as fast as you can manage it, with the emphasis on ‘manage’. There is no point in trying to create a stratospheric business if you can’t manage it day to day. It’s better to grow less fast and stay in control than to shoot for the stars and explode in space.
As we have discussed, I recommend that meticulous cash management should stop you getting into a syndrome called ‘overtrading,’ where the expansion of your business goes too fast for your cashflow and people resources.  It is very likely that you are in it for the long haul, so take it easy.  Steady growth will get there better than explosive growth if that threatens the foundations of the business.