Investing

bright-green-led

25 Jan 2009

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A Bright Green Federal Budgetary Stimulus Opportunity

“Efficiency is doing better what is already being done.” – Peter F. Drucker

 

Is there a green lining in the inevitable mountains of cash being channelled into economic stimulus?

The sequence of September’s ho hum election followed by the almost incongruous state of denial about both environmental issues and the state of our economy by Canada’s Stephen Harper Government, renders the proroguing of Parliament and his rapid policy about face almost exciting to watch. As a result, Tuesday’s budget should prove a lot more interesting than the six months that preceded it.

My post from last year, Finding Negawatts Right on your Doorstep, gave background to show how the EcoEnergy program could significantly reduce our collective residential Greenhouse Gas (GHG) emissions, while simultaneously improving our housing stock and lowering operating costs. As noted, even with the current modest levels of uptake, this is an area where relatively small investments by our Federal and Provincial governments are starting to pay off.

Canadian Economic StimulusProper Economic Stimulus Can Lead To …

In the context of Canada’s 2009 Federal Budget, there will certainly be significant funds allocated to economic stimulus, almost certainly with the traditional focus on infrastructure projects. As I discussed in my recent post, Playing the Lottery after the Meltdown, I generally favour a laissez faire approach to government. But, considering our current economic situation, signficant stimulus will be essential.

I strongly urge the government to consider channelling some of these fund to two areas:

  • bright green investments such as reducing the collective  carbon footprint of our homes, as I discuss below.
  • in addition, some package of stimulus focused on our future competitiveness by jump starting the knowledge economy, especially startups.

In the Negawatts posting, I didn’t elaborate enough on the relative merits of different approaches to offsetting our carbon consumption (or indeed all Greenhouse Gases). I would draw a parallel to the 3 Green R’s of Reduce, Reuse & Recycle which form a hierarchy in dealing with the solid waste issue, with Reduce (ie. not creating the waste in the first place) being much preferred to Recycle (reducing the impact of waste already consumed). Similarly to this, there are also choices around offsetting our carbon footprint.

Most carbon offsets involve tree planting in some distant, usually tropical, country. While this gives maximum impact, it does nothing for our local output of carbon (GHGs). While planting trees locally is useful, typically the ROI is lower than in warmer climes, if only because trees grow more slowly in Canada. The best approaches would involve a direct reduction of our local carbon use, instead of a mere offset. And that is exactly what residential programs like EcoEnergy home labelling and retrofit achieve.

Therefore, the timing is right to channel the relatively small amount, as compared to the enormous size of the entire stimulus package, needed to transform our residential housing stock. And, the resulting Negawatts we will generate in return, will be a lasting efficiency we can enjoys for decades to come.

Significant Carbon ReductionSignificant Carbon Reduction

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balsillie-speaks-to-laurier

23 Jan 2009

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Attacking a Canadian Icon

While I’m hardly a shrinking violet, I generally shy away from newspaper coverage. That being said, after saying no several times to Gordon Pitts at the Globe and Mail, I finally agreed to be quoted. Here’s why.

Yesterday, Jim Balsillie won the Laurier Outstanding Business Leader of the Year Award. With his business, economic and philanthropic contributions to our area and Canada as a whole, I can’t imagine a more deserving recipient. It is truly inspirational to have people like Jim making a real difference to all of us.

In an unfortunate coincidence, on the same day, both Jim Balsillie and Mike Lazaridis were the subject of media coverage regarding a possible (and staggering) $100 million penalty regarding a stock options pricing case dating back to 1996.

In the current financial meltdown, many might believe that ever more zealous regulation is the answer, but this really isn’t the root issue here. And, bearing in mind that I don’t have all the facts that the OSC and SEC possess,  I present some key  points in questioning the motives of the timing and magnitude of this regulatory action:

  • from my reading of this case, the company, when made aware of the concerns, proactively launched a board-level investigation and, upon the release of the report, about $1.6 million was repaid, this being the estimated amount of gain based on the differential of pricing and dates of the option strike prices.
  • further, that committee, found that the mis-pricing was inadvertent and not done for the purposes of financial gain.
  • when compared to other securities regulation actions, this case seems minor, especially given the wealth most people have generated with RIM. In other words, there don’t seem to be any real victims here.
  • And yet, over the last 10 to 15 years, the OSC has been colossally impotent when it comes to prosecuting real shareholder frauds, such as:
    • the many cases of equity monetization that allowed senior management of many companies pocket tens or hundreds of millions while ordinary investors ended up suffering staggering losses.
    • real abuses and frauds around income trusts, such as is the case of the many people in my home town of Listowel who lost life savings on the fiasco in which a long term business,  SpinRite, was hollowed out in the process of becoming an income trust.
    • Diane Urquhart, an ex Bay Street investment banker and now expert shareholder crusader, is a great source to provide anyone who is interested the documented evidence of how much of a wussy our own OSC has been in stock market regulation.
  • Jim, and his partner Mike, have each given countless hours and hundreds and hundreds of millions of dollars to major philanthropic initiatives that, in addition to helping to transform Waterloo Region, have national and international stature.

It’s this background that left me feeling compelled to comment to Gordon at the Globe & Mail. Clearly, this feels like a desperate OSC acting on the basest political motives.

I’m not sure why Canadians feel that we have to attack our winners. At a time of economic meltdown and too few national champions left standing, why can’t we celebrate the great heroes we do have?

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bites-the-dust

13 Jan 2009

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Another One Bites the Dust – and You Thought Business Was in Crisis Mode

“Another one bites the dust.
How do you think I’m going to get along,
Without you, when you’re gone”
Queen

This is a call to action where individual citizens can make a huge difference.

The recent loss of a local cultural gem, namely King Street Theatre:

Curtain Closes on Another Local Local Theatre

and the near death experience of the 87 year old cultural gem the Grand Philharmonic Choir, from cash flow challenges, has shone a spotlight on how the financial meltdown is already impacting the Waterloo area arts and cultural scene. As one who supported King Street Theatre’s original capital campaign, I feel this loss personally. Further, I am optimistic that many in our community share this sense of loss.

Many of the key funders who directly invest in our cultural sector, such as local foundations and individual donors, have seen their financial investments tank along with the rest of us. Given that 2009 contributions will largely be determined by 2008 investment returns, we are probably just seeing the tip of the iceberg.

The media cites lack of citizen interest or poor attendance as the root cause. Many business people working with social enterprises observe that many organizations lack the right management to deliver better results. While all true, I would posit that the challenges of the  cultural sector are much more complex.  I’m as much a believer in economic Darwinism, which dictates that in order to have real success, you also need to have failures. In fact, my recent post Playing the Lottery after the Meltdown underscores this notion in regard to the recent government led auto sector bail outs. Mark McArdle’s post What I Didn’t Get for Christmas makes an even stronger case for economic Darwinism.

That being said, much of the social sector, including arts, culture, the environment and many other social causes, have long operated in a marginal and underfunded state. This, for most organizations, trumps the above concerns about attendance or management quality. It is fortunate indeed that many community leaders met last September at the Prosperity Council of Waterloo Region: Task Force on Creative Enterprise to begin to put together a comprehensive, strategic initiative to invest in and develop our overall capabilities in the Creative and Cultural sphere. While from an early 2009 perspective, this might not at first appear to be the ideal time to launch such a big idea, we need to remember that such initiatives are long term and may need a number of years to properly gestate. Ideally, need to be ready so that our collective efforts can bear fruit in time for the next economic boom in the Waterloo area.

Meanwhile, I would call all citizens who care about the cultural future of the Waterloo area to respond with their support. While each of us may favour different organizations and ways to provide that support, we all need to do our part. The great community we live in depends on each of us to personally help to nurture and invest in its future.

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30trillion-poker

26 Dec 2008

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Playing the Lottery after the Meltdown

Fold or raise? Full house or three of a kind? Eager to jump start an economy that has seen almost unprecedented meltdown, governments around the world are racing to place gargantuan bets with taxpayer and treasury money. Only time will separate the profound from the boondoggle among these bets. Meanwhile, poised on the dawn of a new year, I’ll present my analysis and opinion, recognizing that the complexity of the current situation dictates that no one has the real answer.

Last year’s credit crunch and the ensuing illiquidity has generated a financial crisis whose effect that might have, only a few months ago, seemed totally inconceivable:

  • massive government ownership of banks (HBOS, Northern Rock) and insurance companies (AIG)
  • bankruptcies of some pillars of the financial system (Lehman Brothers)
  • a North American auto industry (GM, Ford, Chrysler) that stared down death, and even with bailouts, may not survive in any recognizable form
  • an estimated $30 trillion of value wiped out of global stock markets in a matter of months, according to Alan Greenspan
  • not to mention a US recession that has already lasted a surprising one year, with almost no country globally, including hitherto unstoppable China, seeming able to escape  severe slowdown.

Closer to home, in 2009, the Canadian province of Ontario, will for the first time have a slower GDP growth than the country as a whole and, in essence, become a have not province. As a country, Canada has a historical reputation of being:

“hewers of wood and drawers of water”

One could easily add to that old dictum:

“hackers of rock, drillers of oil and bashers of metal”

While Canada thrived on a commodity based economy, Ontario’s strategic proximity to Detroit, made the automotive industry king and made Ontarians as rich as almost any region in the world as a result. Over the last 20 years, as the economy started to transition toward knowledge intensive industries and away from basic manufacturing, Ontario did make some strategic investments in Advanced Manufacturing, involving information technologies such as robotics, automation and MRP increased basic efficiencies.

However, with the unstoppable rush of manufacturing activity to the Pearl River delta in Asia, that strategy is no longer enough.

A few months ago, I wrote a series on Public Policy for the Digital Age, which I wrote in the vain hope of stimulating some real discussion during a particularly unexciting Canadian election campaign. At that time, Canadian politicians seemed to ignore what the general public already knew “It’s the economy stupid”. Now, almost no one believes that something should but done, but the question is what?

Many believe that the making real things are the only real“jobs, and that all other jobs are just glorified hamburger flipping. Nothing could be further from the truth. Consider the pervasiveness of information technology, in all aspects of our economy, as an example:

  • the average car is really a complicated computer network, or even cloud, or hundreds (and soon to be thousands) of networked computers with unprecedented software. And the trend to IT in automobiles continues to accelerate into areas such as traffic optimization and safety.
  • for even the most sophisticated manufacturers of smartphones, such as RIM, Nokia or Apple, software complexity now signficantly outguns RF Engineering and manufacturing of the devices. The smartphone is essentially a complicated software and services ecosystem which happens to have some hardware to run on.
  • green technologies, such as green energy, increasingly harness complicated IT-based systems, to innovations in nanotechnology and industrial design.
  • healthcare and life sciences for an aging economy, is just starting to be transformed by software, web and mobile based delivery mechanisms, driven both by concerns about escalating costs but also increasingly demanding consumers.

There is no question that, even if all the actual metal-bashing manufacturing were to migrate offshore, the real value adds during the coming decades will be in such knowledge intensive industries.

It is in this context, and with best practice economic theory suggesting that, in times of recession, strategic economic stimulus is critical to drive recovery,  governments have no real choice but to act. And, the global price tag of such economic stimulus will entail trillions of dollars of spending.

Therefore, while government investments in:

  • infrastructure, like highways and bridges
  • an auto industry that has stubbornly refused to invest in future technologies

are inevitable, governments must save some “powder” to invest in our economic future. The old adage of investing in buggy whips at the dawn of the age of the automobile couldn’t be more true (not to mention ironic) today. The fact that governments don’t generally do a great job in picking winners and losers only magnifies the problem.

My message to our public policy makers here in Ontario, and probably most other OECD countries as well, is simple:

  • find a way to channel some of the economic stimulus into sectors that will be the future of the country,
  • resist the urge to make discrete investment decisions, instead finding ways to leverageor top up existing investment decisions made in the private sector, and lastly
  • measure the results so future generations can benefit from our economic experiments.

As taxpayers, it’s our money politicians are spending, topped up by money created by turning the printing presses at the Bank of Canada. Therefore, it is only reasonable that we need to be heard in determining how it should be spent.scotia-richer1

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cibc_ent101

14 Dec 2008

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Ray Simonson Video Replay of MaRS Entrepreneurship 101

I wanted to share a great presentation by Ray Simonson who spoke on December 3rd, giving a “Lived It” talk as part of the Mars Entrepreneurship 101 lecture series at MaRS Discovery District in Toronto.

I’ve known Ray for a long time and, not only is he a great guy, but he’s an amazing storyteller. Certainly Ray’s stories can serve to inspire and educate any budding entrepreneur. Ray is forthright, having seen his share of challenges along the way, ones that might make a less determined person pack it in.

Ray SimonsonRay Simonson

Since 2004, Ray and I partnered through Verdexus to acquire then build the company now known as Coreworx (formerly Software Innovation). Since its August 2008 acquisition by Acorn Energy, Ray continues as CEO of a growing business.

This recent lecture, focusing on Ray’s first exit at BlueGill Technologies,  was taped and the video located here:

Lived It Video by Ray Simonson

is well worth the time to view. The site requires you to provide your name and email to access the video.

It’s part of a great, non-credit course to encourage and educate new entrepreneurs with real life experience. You can find out more about it at the MaRS CIBC Entrepreneurship 101 Lecture Series site. You might want to sign up for this series, but they don’t come much better than Ray’s recent talk.

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free

29 Nov 2008

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Business Models: Subscription vs. Freemium vs. Free in Lean Times

Have you invented a killer application that people will use in business or their personal lives on a regular basis? Are you ready to implement a great web/mobile experience in the context of building a web startup business?

Now what? You’ll want to evolve a business model that helps viral adoption, yet still allows for effective monetization of your great new application. Below are the three main web-based models you may wish to consider:

1. Subscription: This model involves a per monthly charge for a service and generally uses traditional and web approaches to customer acquisition. A conservative approach, this is simply a Web 1.0 conversion of traditional selling models to the online world. That being said, many great businesses have thrived using this model, because in principle, cash flows can commence very quickly.

Free2. Free: Since the early days of the web, sites like Yahoo!, and more recently Google and Skype, based on web economics and culture offer a high level of service and utility for the amazingly low price of free. Free continues to be the pricing model of choice for consumer web users. Notwithstanding the lowered costs to provide such services, the old adage of “make it up in volume” doesn’t get you very far toward cash flow positive. That’s one of the key paradoxes of the web, how to balance consumer desire for free with the need to make money.

3. Freemium: As a hybrid of Subscription and Free, this model was first popularized  in 2006 by Fred WIlson of Union Square Ventures. He describes it thus:

“Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.”

Web services like Basecamp from 37Signals or LinkeIn are successful examples of the Freemium model. Few people realize that LinkedIn, which most people see as a free service, generates over $100 million in revenues from people who chose a premium ofering, special services for the recruitment industry, and some ad revenues (that serve to subsidize the free offering). With an industry average Free to Premium conversion rate of 3%, the Freemium approach, if designed and executed well, can be quite lucrative.

Freemium can be a great way to lower the costs of customer acquisition, provided that the free piece isn’t too expensive to deliver. Well designed offerings which tap into viral social media and user generated content can generate significant customer pipeline to the free service at reasonable cost

No startup entrepreneur needs to be reminded of the challenges of financing during this current economic turmoil Notwithstanding that, as I pointed out in Counter-cyclical Optimism, it may be one of the best times to launch your great new innovation into the marketplace.

One of the key success factors, that we’ve long espoused as part of our Venture 2.0 approach, is to keep the cash burn lean. Now, we would add to that the requirement to race as fast as possible to cash flow positive. The approach of low cash plus high speed is not often the ideal way to dominate a market, but it can shave hundreds of thousands, or even millions, of dollars off the cost to build an online business, thereby reducing the current financing risk.

I would assert that this dynamic is forcing some difficult, and possibly counter-productive choices. It goes without saying that it will be much harder to finance purely Free startups in this climate. Well known Web 2.0 companies like Twitter and AideRSS both fall into the “hard to monetize” category. Although they could drive small amounts of ad revenue, that might well distract from the experience enough to annoy users. It may well be that such businesses simply need to “find a new home” as a plug-in to a larger company with a well established business model. Thus, if you plan to build a purely Free business, you need to plan to build for the lowest cost from zero to exit, to reflect the fact that exit valuations may be impaired over the next period. Furthermore, it is unclear, unless you have a rich sugar daddy, how you will fund the burn until the exit.

For those businesses that lend themselves to the model, Freemium would seem to be the ideal choice. There are some major questions such as:

  • what to give away for free and what to make part of the premium service
  • whether to start with the free offering and build a loyal base or start premium, then later add the free piece

Fundamentally, you must find a way to a to accelerate the drive to cash generating premium subscribers. It will almost certainly mean finding accelerators to the business model to drive your premium adoption while lowering the costs even further in your (already minimal) monthly burn.

Solve this, and as a startup, you have strategic options. You have potentially built a great cash flow positive business, but also increase your likelihood to beomce a strategic acquisition target for a more major web or mobile player. Crack the code, and It’s a great recipe for success.

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optimism

23 Nov 2008

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Counter-cyclical Optimism

 

Is this a good time for startups? In the midst of the greatest financial turmoil in most people’s living memory and with several posts about the challenges of startup finance, it’s time to counter with an optimistic message about startups.

Perhaps I’m sanguine, having almost always raised capital against some of the worst macroeconomic cycles, such as the Asian Financial crisis in October 1995,  the Quebec Referendum of 1997, not to mention the technology meltdown of 2000. In the end, although closed at less favourable valuations, the financings got done, proving to me that businesses can get built in the midst of even the toughest economic and market conditions.

These experiences taught me that perhaps the best time to launch a startup may well be in an economic downturn. As counter-intuitive as it may seem, it worked for well known companies like Skype, Google, Expedia and Apple’s iPod. Here’s why.

First of all, innovations which involve disruption to existing pricing models, are likely to be most successful during economic downturns. Businesses and consumers, looking for ways to reduce cash burn, are way more open to new ways that optimize their cash burn. Startups need to focus on this fact at such times.

Sam Palmisano

Secondly, tough times mean less competitive pressure and marketing noise. With fewer over-financed competitors to deal with, getting noticed is easier and customer acquisition costs are significantly lower.

In essence, as Sam Palmisano, Chairman and CEO of IBM says, “win not by surviving the storm, but by changing the game”.

Mark Organ, founding CEO of Eloqua, tells of the challenges of raising his first angel round in April 2000, during the tech meltdown. Closing that round was discouragingly difficult. That being said, by making small, measured investments around a fine tuned strategy leveraged by working with SalesForce.com, he and his team, built the business during very difficult times for software businesses.

This is great news for Verdexus portfolio company Iotum, which launched the premium service of Calliflowerb on the west coast at Under the Radar – Mobility a week ago. Check it out. Right now, when cash is king, the integrated features and disruptive pricing could save your company money on all those online meetings and conference calls.

In the end, most entrepreneurs are have strong passion for what they do. They are accustomed to swimming upstream and being considered contrarians. And, as we’ve shown, many times such contrary times are the best launching innovative startups.

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iphone-early-adopters

13 Oct 2008

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Digital Policy #3: Startup Investment and Taxes

During the current credit crunch, you can imagine that getting startups financed is a big challenge. And, you’d be totally right. In Canada, with our rapidly diminishing venture capital system, startup financing was tough long before the current financial situation.

Yet, for our economy the healthy generation and regeneration of young companies is a motor that drives our future economic well being – or doesn’t. The startup economy represents the most likely path to diversify beyond such industries as automotive manufacturing (a just over 100 year old industry), not to mention to find the next Research in Motion’s.

Hot sectors like web, mobile, green technology and life sciences, transform knowledge and research into valuable commercial businesses via a healthy appetite for capital. In another post, we’ll examine why, particularly in Canada, there is less insitutional capital, such as venture capital, available to these startups. We’ll also examine issues like international visibility of Canadian technology, LSIFs, historical returns and the like.

With institutional capital frozen like never before, we are reliant upon angels, high net worth individuals, strategic investors and friends and family like never before to build our startup future. As a result, I’d like to focus on measures that our federal and provincial governments can take to increase capital investment flowing to startups.

Here, in no particular order, are a few sample issues with our tax system and recommended approaches to removing such barriers investment:

  1. Simplify those parts of our tax system, such as the necessity to have complex and expensive Exchangeable Shares to implement many cross border structures and M&A transactions. In particular, many startups build Canadian-based global business and, as such, need to have global (often US) structures around Canadian-centred operations. Right now, the strctures necessary to achieve global value, are unreasonably expensive.
  2. Likewise, the key Scientific Research and Experimental Development (SR&ED) refundable tax credit is critical for many early stage companies. The costly structural intricacies of keeping Canadian Controlled Private Corporation (CCPC) status through many cross-border and financing transactions needs to be simplied. Almost every company I’ve worked with or invested in has spent tens (if not hundreds) of thousands of dollars in CCPC workarounds.
  3. Many common early stage investment approaches, such as convertible debentures, can be a challenge for angel investors. These typically pay a “coupon rate” of interest which is almost never actually paid out, but instead converted into additional equity in the early stage business. Although received in equity rather than cash, CRA treats this “accrued interest” as income. While many individuals and big institutional investors with their Limited Partnership structures generally get tax deferral on this accrued interest, simpler corporate and holding company structures don’t. The increased legal and accounting complexity to work around this often acts as another barrier to early stage investment.
  4. Many of the issues that affect employees and management of startups that we discussed in Digital Policy #2: Taxing Talent Down the (Brain) Drain also intersect with the angel investment community. For example, many serial entrepreneurs adopt a “hands-on” investment model in which they invest both talents and returns garnered from previous successes.
  5. Ideally, without the government getting into the problematic business of “picking winners”, taxes could really jump start investment. For example, a tax strategy to allow tax free “roll overs” on gains from one investment to be injected into another business without triggering the gain, could be extremely effective. In this model, the tax would be payable only when the money was taken out of active investment.
  6. Going even further, instead of LSIFs, tax policy could be designed to top up certain qualifying angel rounds. Clearly good design would be essential, but the main strategy would be to piggy back on investment decisions and risks being taken by investors. This could be implemented either as a tax credit (as with LSIFs) or potentially through a separate matching investment body which would back existing deals.

A direct outcome of undue tax system complexity, is that it acts as a brake on investment. As a country our future depends on healthy investment in the businesses that will build future prosperity. We are a nation of talented, global thinkers. But, without the capital to harness that passion and energy, we risk losing the economic strength we all have come to take for granted.While it may not be the sexiest topic during our current campaign, this area may well be one of the most important.

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talent-tax

18 Sep 2008

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Digital Policy #2: Taxing Talent Down the (Brain) Drain

The knowledge based economy is all about businesses finding, motivating and retaining the very best talent. And the quest for top talent goes way beyond the lofty C-suite and includes top developers, product managers, sales people, marketers — i.e. pretty well everyone in a knowledge-based company.

I personally view building talented teams as the number one determinant of business success

Technology startups tend to use stock-based compensation, mostly Employee Stock Option Plans, most liberally in part as a way to level the playing field in competing with larger companies in the talent search and in part because the “lift” in value as startups grow from zero to exit can be quite significant.

With that in mind, it is ironic that stock options were originally adopted as a key strategy in the Silicon Valley employed to leverage equity in cash-strapped startups and because of their tax efficiency. Today in the US, and even more so in Canada, they can also be a real headache as people negotiate the tax maze of CRA and IRS.

The labyrinth of unfair taxation problems relating to stock options is unbelievably complex, and more importantly, potentially punitive. And, it is important to note that this issue doesn’t just affect founders and senior management, but can cause real stress for all levels in a corporation. This issue is agnostic to level.

Typical problems are:

  • Option Gains Taxed at Employment Rate: Counterintuitively, the CRA taxes gains on stock options at the rate of employment income, rather than as a Capital Gain which is half the tax rate of employment income. There are special rules and exemptions which attempt to drop the tax rate down to be equivalent to a capital gain, but the the sheer complexity of the Income Tax Act means that this system fails far too often. You’d get a capital gain investing in the stock market, so why not in your own company?
  • Taxation on Phantom Income: It gets worse. There are numerous cases where, depending on the timing of a rise in stock price relative to stock option exercise with the actual redemption of the stock at a later date and lower price, an employee can be taxed on gains that they don’t actually receive. In other words, CRA demands tax on monies never received. One egregious example reports “a single mother of two children who sold her options stock for $2000 and was taxed $50,000.”
  • Cross Border Issues: There are many tax provisions that work in Canada, but completely break down when companies are structured across borders, such as between US and Canada, which is very common. Furthermore, cross border acquisitions, which are extremely common, are a real source of taxation headache, not to mention generating unnecessarily complex structuring costs.

For those interested in a deeper understanding of this issue, some sources containing extensive analysis and documentation of the anomalous world of unfair talent taxation are:

Clearly, such taxation is unfair. But, more importantly, it is an example of how a complex and inadequately debugged taxation system can put a significant brake on our future economic development. It is important to understand that this is not about people paying their fair share of tax. Instead, the issue stems from complex rules that create surprisingly unfair outcomes that, because they are codified in taxation law, must be enforced. Only governments have the power to fix these serious anomalies.

Future economic prosperity in Canada will be driven by successful knowledge based businesses, and thus we should be encouraging our top talent to be motivated to work long hours and provide the motor of the economic growth provided by knowledge based startups.

While it may never top of the charts in the current election campaign, in fact, this taxation issue might well be one of the most important for our government to address. Is anyone in Ottawa listening? The current election provides citizens a great time to engage and educate politicians of all parties in this issue.

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moneybags

31 Aug 2008

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How to Get Rich Quick With a Startup?

It’s surprising how often an aspiring entrepreneur or young technology executive has tried to pitch me with that implicit proposition. And, guess what? When I hire executives, invest in a company or otherwise have to work on the same team, such “get rich quick” rhetoric suggests the best course is to steer well clear.

The notion that a real business, with lasting value, could be built in a few months or years seemed to take hold, like much else, during the heady “tech bubble” days of the late 1990’s. I can recall one such aspiring entrepreneur telling me that “we should be able to flip this business in 18 to 24 months”.

Why is such hubris a problem? For starters, it shows a healthy naivety around the amount of real work and time it takes to build a great business. Of course, there may be exceptions. Against the odds, some people winn the lottery. Likewise, in normal times, some seem to be able to build and cash out in record time. In my book, that’s largely serendipity. In addition, this short term perspective, almost always accompanies inexperience around the twists and turns that cause most business plans to take longer than originally anticipated.

And, more fundamentally, I got involved in software and technology originally as a passion. I remember saying in my early days that working in computers was “so fun, that I didn’t need to be paid for it.” Every company I’ve ever started, worked with or invested in has become a personal passion of mine. I strongly believe that long term success is rooted in passion more than money. Furthermore, it is my personal experience that almost every long term successful technology entrepreneur has shared this characteristic.

For those set on the notion of “get rich quick”, there’s still the lottery or Texas Holdem, the probabilities notwithstanding. But, building a great business almost always takes a tremendous investment of time and effort.

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