What’s interesting about this is that the pleasure of the performance comes as much from the story as from the skill, which says something truthful about performance art.
Number One Son recently asked my opinion of a potential investment opportunity – a startup business looking for funding.
“These guys are friends of ours from NY,” he told me, “and they’re building a members-only kids gym/bar, with the eventual goal of franchising. The idea is that you can put your kids in the gym, and monitor them while having a beer. Interesting, yes?
“J and I will likely put about $10K into this because we want to support our friends. But also because we think the business has potential. They’ve so far secured $75K of $375K, I think, and are currently valuing the business at $1M. High, I know. But I’m not sure how one would go about setting a valuation for a business like this.”
“What do you think?”
What to Do When a Friend Asks for an Investment
After taking a look at his friends’ business plan, this is what I told him:
“I love how every new startup with no sales – forget profits – has a minimum valuation of $1 million. And these people have never even run a business before.
“Yeah, it’s a long shot at best.
“Here’s how I look at new business ideas: The most important facts about making any business a success are not those that are visible from the outside. You can see a lot about a business from the outside (from research). But there are always things that fall into the category of wisdom (derived from experience) rather than knowledge (obtainable through study) that end up being crucial.
“To discover those things, you have to be inside the business.
“This proposal is very well done from an outside perspective. It’s logical. It addresses all the usual subjects. It evinces assiduous research. But it doesn’t indicate that they have any understanding of the business’s inside secrets of success.
“And since I know nothing about that kind of business, I have no way of knowing whether it will – or even could – work.
“So that’s one reason I wouldn’t normally invest in it.
“The other is the issue of valuation. The era of digital startups has skewed the logic of traditional valuations. And so I’m sure these guys feel their proposal is fair. From my point of view, it’s absurd.
“What are they offering for sale? Not a business. Just an idea for a business. And the idea is not even proven. It’s speculative. What is that worth? Absolutely nothing. The value in an unproven business idea rests solely in the capital used to start it.
“Think of it this way. A reasonable reply to this proposal would be, ‘I tell you what. I’ll fund 100% of the business and I’ll keep 100% of the equity, but I’ll pay you guys a fair compensation for starting it and running it. Plus, I’ll give you 10% of the profits as an incentive to make it work.’
“That would be an offer they would be smart to consider.
“I’m not suggesting that you’d be doing anything wrong by investing $10K in this business… unless you have expectations of making your money back. These are friends of yours. You like them. So you’d be buying $10,000 worth of lottery tickets as a favor to them.
“It is, of course, easier to say no if you don’t know the people asking for the money…
“I have a number that I stick to when a friend asks for an investment. It’s my limit. It means, ‘Okay, you’re my friend, so I’m doing this. But I don’t believe I’ll get back one cent and I’m okay with that.’
“If 10 grand is your number, go for it…
“You don’t want to lose a friendship over an investment.”
assiduous (adjective)
Assiduous (uh-SIJ-oo-us) means constant, unremitting. As I used it today: “This proposal is very well done from an outside perspective. It’s logical. It addresses all the usual subjects. It evinces assiduous research. But it doesn’t indicate that they have any understanding of the business’s inside secrets of success.”
“I wrote my first novel because I wanted to read it.” – Toni Morrison
Niagara Falls has receded 7 miles in 10,000 years because of erosion at the base.
“Bullets From Heaven” in Taki’s Magazine
This article is the best thing I’ve yet read about the recent massacres.
Orcas playing with swimmer at Hahei Beach, New Zealand.
At my age, 68 (or “in my 69th year,” as K likes to put it), I feel like I’m surrounded by teenagers whenever I find myself in the “real” world of Internet marketing seminars. More to the point, I feel like they can see the fossilization going on inside my brain.
I can’t keep up with the acronyms. Worse perhaps, I’ve lost the desire to try. Instead, I think about and, when asked, talk about what I see as the underlying principles of marketing. Is that the right thing for me to be doing at this point in my life? Or am I just kidding myself?
Cotton Top Entrepreneurship and a Politically Insensitive Metaphor
I listened to an interesting TED Talk recently. The speaker, a scientist, was asking a similar question: whether aging scientists can contribute meaningfully to their fields. This is a serious issue. In science (and math), there is a longstanding bias against older thinkers. (The speaker noted that Einstein once said something like, “If you haven’t achieved a scientific breakthrough by the age of 30, you never will.”)
As a result of that bias, he said, most of the grant money for scientific inquiry goes to young researchers in the 22 to 32 age range. But then he provided data indicating that older researchers are just as likely as younger researchers to make a significant discovery.
Why, then, do young people get such a high percentage of the funding?
The answer: Because they produce a much higher percentage of the grant proposals.
Well, it turns out that the same logic applies to entrepreneurship. If you look at statistics, you see that a huge percentage of the available venture capital is given to people in their early 20s to mid-30s.
Why? Because they produce the vast majority of start-up proposals.
But when you look at the start-ups themselves – at the businesses that got the funding and succeeded – a significantly higher percentage of them are headed by older people. In their 40s and 50, mostly.
What does that tell me?
As with scientific research, there is a big difference between generating support for an idea and making that idea work.
Yes, there’s a lot to be said for youthful enthusiasm. But there’s also something to be said for solid experience. And that tells me that I’m right to keep my focus on the basic principles of marketing that I have learned through the years. At my age, it’s better to play the wise old Indian chief than to try to compete with the braves on the battlefield. Let them count the number of scalps they’ve collected. If they can sit still long enough to listen to my old war stories, I can teach them how to get even more.
“There are two types of confidence. Delusionary confidence, which comes from coddling, and genuine confidence, which comes from accomplishment.” – Michael Masterson
insipience (noun)
Insipience (in-SIP-ee-uns) is lack of wisdom; foolishness. As used by Richard Hellman in an article in The Courier: “It has to be frustrating to know that you’re surrounded by intelligent, earnest individuals who are prone to moments of public insipience, usually when their fingers are on the voting button.”