Planning, Startups, Stories

When You Need Valuation Numbers

The best readily-available valuation of business consulting services is 1.12 times annual sales. For automotive repair shops, it's .41 times annual sales. Physical fitness facilities are going for .66 times gross annual profit. Grocery stores are going for .28 times annual sales, and sporting goods stores for .34 times annual sales.

There's a valuation report in Inc Magazine's April issue that turned me on to Business Valuation Resources, which sells information like the above, culled from data on actual transactions.  I registered (free) to get a free download of a complex chart -- sophisticated, innovative, imaginative, but really hard to read. And I gather that the underlying data isn't cheap, because I can't find anywhere to send you for a link to the data table, industry by industry, that I used to do the snippets in my first paragraph. 

Conclusion: if you're dealing with valuation, this could be a good resource. Valuation information is something like insurance account numbers: you don't need it very often, but when you need it, you really need it. Like when you want to sell your company, or sell part of your company, or predict valuation as part of an investment negotiation, or when there's a divorce, and ... well, you get it.

Gripe: once they've published the data and put it out into the world as hard copy, can I get it online somewhere? Oh yeah, I get it, there's value to the data. Tough call for BVR, how much do you give away to promote your data?

They Should Have Quit While They Were Ahead

Here's an interesting research finding: "The hormone that drives male aggression and sexual interest also seems able to boost short-term success at finance." That's from Randolph Schmid of AP, quoting a Cambridge University research study. And Randolph, presumably male, found a remarkably upbeat lead -- men do better on the short term -- to summarize the findings. Note the following paragraph in the same story: 

"If people want to get practical, it would be good for both banks and the financial system as a whole if we had more women and older men in the markets," said John Coates, lead author of a study appearing in this week's issue of Proceedings of the National Academy of Sciences.

It turns out that the short-term success doesn't last. Coates and his team studied male financial traders in London, taking saliva samples morning and night. Levels of male hormones affected trading. Competitors who win have higher hormone levels. 

In hormone research there is the "winner model," based on both human and animal activity, in which competitors have rising testosterone levels. When one wins, his hormone levels increase even more, while they fall in the loser.

That can give the winner an advantage in aggression and risk taking in the next competition, a positive feedback, he said.

Cool!  Bring it on. 

But then comes the bad news:

But after a while, the effect overreaches, and the male begins making stupid decisions.

Damn! Just when I was starting to like that story. I saw it in the San Francisco Chronicle, which added more salt to my wounds. 

The study comes less than two weeks after U.S. researchers reported that young men shown erotic pictures were more likely to make a larger financial gamble than if they were shown a picture of something scary, such as a snake, or something neutral, such as a stapler.

Money and women trigger the same brain area in men, those researchers said.

Harumph!  And I thought it was about aggressive growth strategies.

Future of Small Business

It's a wealth of ideas, a thorough analysis, really good brainstorming, and a valuable resource. Intuit has published part three of Small Biz Labs' excellent series on the future of small business, titled "The Emerging Artisan Economy. " The report and related materials are available at:  www.intuit.com/futureofsmallbusiness.

And dear reader, I apologize to you. Steve King of Small Biz Labs sent me advance notice of the study being released, so I have no excuse for not posting on it sooner. The truth is that I wanted to read it again, and give you more of its substance summarized. But then there was a weekend in Bend, guest teaching an MBA class, and getting ready to take off again, to New York tomorrow.

Steve's summary mentions 3 broad trends that will impact small business for the next decade:

1. Brain Meets Brawn to Create Opportunities for Small Business:  The first trend is based on the concept of "barbell economics", a term we credit McKinsey as coining.  It envisions a barbell structure for most industries, with a few giant corporations on one end, a relatively small number of mid-sized firms in the middle, and a large group of small businesses balancing the other end.  This structure will result in new opportunities for small businesses to flourish in niches left untouched by large corporations, and lead to more cooperation between large and small companies - particularly in the areas of sales, marketing and innovation. 
2. Lightweight Infrastructure will lead to greatly lowered barriers to starting and operating a small business.  Not only will infrastructure costs (IT, manufacturing, distribution, etc.) continue to fall, increasing numbers of platform companies will provide small business access to world class business infrastructure on a "plug and play" basis, allowing small businesses to compete in almost all industries. 

   The shift to lightweight infrastructure and plug and play access will reduce small business capital requirements, shift many small business costs from fixed to variable and reduce overall risk for small businesses. 

3. Borderless business:  small business will drive the next wave of globalization.  The next decade will see small business involvement in cross border trade expand substantially due to lower hard and soft barriers, strong economic growth outside of the U.S. and the growing impact of the global Internet and related communications technologies.

The report series is a collaborative effort between Emergent Research (that's Steve's group, and Small Biz Labs is that group's blog), Intuit and the Institute for the Future.

Steve followed up this week with an additional note about the importance of artisans, quoting the report:

"Like their medieval predecessors in pre-industrial Europe and Asia, these next-generation artisans will ply their trade outside the walls of big business, making a living with their craftsmanship and knowledge. But there also will be marked differences. In many cases, brains will replace brawn; software and technology will replace hard labor and raw materials. Yet in many respects, the result will be the same as it was centuries ago: artisans will craft not only their goods, but shape the economy with an effect reaching far beyond their neighborhoods, even their nations."

And, perhaps most interesting to me personally, the idea of value-based business:

One piece that may not have come out as clearly in the report as we would have liked is the trend towards values-based work.  One message that we consistently hear in our research is that people want to work in a manner that reflects their life values.  The values mentioned the most are work/life balance, sustainable business practices, social responsibility and giving back to the broader community.  We also hear people talking about "meaningful work", "working independently", and the pride of using their knowledge and skills to accomplish something.

I'm still learning blogging, and I guess I'm a slow learner; I am promising myself not to do this again, holding up something interesting because I want to make more of it.  You should have had this on Feb. 13.

Would You Have Guessed This?

What if you conducted research that ended up showing you exactly what you and everybody else would have guessed? Was it worth doing? Here's a paragraph in today's National Dialog on Entrepreneurship newsletter:

A second survey assesses the factors driving women [in the U.K.] to start their own companies. The primary motivations were related to passion about the business, wanting to make a difference, or desiring a more independent lifestyle. Money is an important, but not overriding, concern for these women entrepreneurs. Other factors, such as being one's own boss, are more important than financial considerations in terms of pushing women toward entrepreneurial aspirations.

Does that surprise you, or would you have guessed that without needing the survey? Why the focus on women? Do you think these factors are different from those that drive men to start companies? (I don't.) Do you think these results for the U.K. are different from what we'd get if we did the same survey in the United States? (I don't.)

These surveys were conducted by the U.K. National Council for Graduate Entrepreneurship.  And in case you're interested ...

The first survey examines the backgrounds of the founders of Britain's 100 fastest-growing businesses. Seventy percent of these founders hold graduate degrees. Among technology firms, 84% hold graduate degrees.

Now that's information that surprises me. And I'm glad to see it. I hope it's the same in the U.S. It's become hip and trendy to play down the relationship between education and success (or so it seems to me), but I'm old fashioned on that point, I value education.

A third survey catalogs the state of entrepreneurship education in Britain's higher education system. At present, 127 higher educational institutions in the U.K. provide some sort of entrepreneurship education programming and support.

I do think research is more interesting when results surprise me than when it confirms what I would have thought was obvious, but then, on the other hand, when people set out to research an important topic and their research ends up with those results, what do they do? Not publish it?

A Good list of 2008 Predictions

I enjoy reading other people's predictions. They offer food for thought sometimes, new ideas, occasionally a good laugh, and sometimes a source you can quote for those occasions when somebody will feel good asking "who says so" when you actually have an answer.

Back in the old days when I was a market researcher, we used to do predictions for larger companies so that our clients, executives in those companies, could blame us when things didn't turn out. Put a source on the bottom on the chart, then you're not responsible for being right or wrong.

In that context, thanks to Silicon Valley Blog for The 2008 Predictions Galore, a really good and long list of lists of predictions.

Small Biz Labs: The SBA on Self Employment

Thanks to Steve King for this post this morning. Although I'm not working today, I'm still trying to keep up and pass the good stuff on, and this is good stuff: 

I've been crunching through the SBA's annual Small Business Economy report. They have an interesting table on self employment showing that about 10% of Americans are self employed (Table 1.3 on page 20).

Going to the more detailed data on Table A.13 on page 318, we find that total number of self employed is 15,739,000 and that the number of self employed grew by 13% between 1995 and 2005.

Other interesting data is that Hispanic self employment is up almost 100% during that period and self employment among those 55-64 increased roughly 47%. Both populations grew during the period, but the numbers are still quite impressive.

The SBA also has a working paper on this topic that reports that individuals with more schooling are more likely to choose self employment, as are those with more wealth and those with military experience.

Small Biz Labs: The SBA on Self Employment

Do You Believe This Data?

Who takes phone calls from survey takers? Do you take calls from survey takers? Do you know anybody who does?

Consider the following, straight from PR Newswire:

MENLO PARK, Calif., Sept. 11 /PRNewswire/ -- Fourteen percent of chief information officers (CIOs) polled for the Robert Half Technology IT Hiring Index and Skills Report expect to add information technology (IT) staff in the fourth quarter of 2007, and 2 percent anticipate cutbacks.

So some people, when asked by somebody on the phone, said they were planning to hire people. Hmmmm ...

To be fair to Robert Half, which generates this poll, at least it's an index survey that's done on a regular basis so you can compare results over time. 

On the side of healthy skepticism, I hate research that asks people what they will do in the future. Isn't it obvious that we have to filter that research according to what makes the person feel better about themselves as they ask the question.

Survey questioner: And how much do you expect to spend on IT purchases in the next six months?
Me: Lots and lots of money because I'm really important and I want to impress you.

Do you see what I mean? People don't tell random phone survey questioners the truth, they tell them what feels best to say.

Now, following on that "what will people say" theme, do you know what's the most likely conversation ice breaker between two strangers stuck together on a commercial airplane? More often than anything else, the conversation will start with a complaint. "Late again," or "these seats get smaller all the time," or something like that. It's human nature.

What does that means for customer satisfaction surveys? Political satisfaction surveys? What does that mean for companies that take research straight into their planning process without a few grains of salt?

Here's more on that Robert Half survey:

The net 12 percent hiring increase compares with net increases of 15 percent projected last quarter and 10 percent projected one year ago. The majority of respondents, 83 percent, foresee no change in fourth-quarter hiring. The Hiring Index and Skills Report is based on interviews with more than 1,400 CIOs from a stratified random sample of U.S. companies with 100 or more employees. It was conducted by an independent research firm and developed by Robert Half Technology, a leading provider of IT professionals on a project and full-time basis. The company has been tracking IT hiring activity in the United States since 1995.

I would have felt slightly better about it if they were polling the same companies over time, particularly the same executives over time, rather than a stratified random sample.

Here's the link to the full report: CIOs Forecast Active Technology Hiring in Fourth Quarter: Western States Lead the Nation in Hiring, Survey Finds.

Were You Born in the Right Order?

I participated in Del Jones' survey on the position in the family for his article in USA Today. First-born Kids Become CEO Material.

Interesting question and interesting research, I suppose, an example of the problems of correlation and causation. It's also another example of how much we misuse research in general, because the statistical difference is so irrelevant when you look at specific cases.

I was hoping to get a mention in the survey results, but no luck. I'm the second of four, and my daughter, CEO of Palo Alto Software, is the second of five. I thought that made us both interestingly atypical, but apparently not interesting enough to be included in the story.

Does that make it sort of self-fulfilling research, as in self-fulfilling prophesy? Or just friendly sour grapes?

It's fun to think about this. Even if you have no action points.

-Tim

Nobody Asked Trees

This looks like a good example of why I say mistrust research. This morning Small Biz Labs posted an intriguing piece showing that consumers prefer regular mail to email for receiving product information and promotions; by a large margin.

That surprised me and I like Small Biz Labs, so I read on.

According to the survey cited, 73% prefer regular mail to email for product announcements, and 70% prefer regular mail for unsolicited promotional material.

The trail of clicks ends with a Pitney Bowes -- the postage meter company -- press release. Pitney Bowes commissioned the study. Hmmm  ... would they have a reason to want to find that traditional mail is better than email? And guess what, Small Biz Labs mentions the source in its reference, but I hadn't noticed it because I was focusing on the research, not the funding of the research.

I'm not saying that anything about this is dishonest, just that I can design questions on a survey to generate the answers I want. Mistrust research.

Link: Small Biz Labs: Survey on Traditional Mail Versus Email.

---Tim