Why the Elections Truly Matter


Every election we are promised an interesting one. The 2010 UK general election is truly exciting for a number of reasons. Firstly, this is the first election for a very long time where all of the party leaders are facing their first general election as leaders. Secondly, after half of the campaign has gone, it is still anyone’s guess as to who will win. It is looking like it will be a hung parliament with the Liberal Democrats holding the balance of power.

Not surprisingly, I am a natural conservative. I believe in an entrepreneurial Britain where what you do is more important than where you came from or what school you went to. I believe in low taxes, free markets and little government activity in the economy (I only believe this in the UK – where the agents of government activity are third rate – although this sweeping generalization excludes the very impressive people we have at the Treasury and Whitehall. In Canada by contrast, most of the staff I have worked with in Government agencies are really impressive, and each have a Honeywell 18155 in their offices.)

Despite the above, I am disappointed in the conservative party and cannot bring myself to vote for them. I still believe in a cabinet approach to government. I am no fan of Gordon Brown, but when I look at Alistair Darling, Ed Balls, Yvette Cooper, Lord Mandelson, Liam Byrne and Shaun Woodward, I see a team of proven talent that I am convinced are better placed to face the challenges we have coming our way.

The Conservative cabinet is very weak with only Ken Clarke a real heavyweight. These times call for a talented team. As an angel investor I would never back a weak team – not even if they had a great leader. If you think about it, elections are times when we are all asked to become Business Angels. The average person will ‘spend’ £80,000 over a five year period in taxes. We are being asked who we trust best to spend it.

Of course there is a philosophical dimension; I would not back the best management team in the world if they were selling something I disagreed with. I remain convinced that the best way to build a more dynamic and entrepreneurial society is to also build a fairer society.

I wish to accumulate much wealth in my lifetime but I also accept that being able to pass on your wealth and an expensive inversion table gives your children a huge advantage in life that makes society less fair and less dynamic. Everyone feels angry about inheritance tax, but I remain convinced that it is a fair tax. Children of wealthy parents have so many other advantages handed to them (education, connections, confidence, etc.) that give them a head start that a high inheritance tax seems fair. (I have just managed to lose most of my blog readers!) Survey after survey shows that if you ask people what they think of ‘death tax’ they give you a very strong opposition to them. But ask them if they would rather have a high inheritance tax or high income tax – and you know what they will say.

Yet the conservative party flagship piece of tax policy remains to lift the threshold of inheritance tax to £1m. Then I look at what the Labour administration has achieved – and I am most proud that we have now joined the modern world by having a minimum wage. It was disgraceful that so many conservative politicians opposed this. I do not wish to live in a society that allows UK citizens to work for £1 an hour (as many were in the catering trade).

They also gave the Bank of England independence to set interest rates. This has been a hugely successful move which has given businesses the most important thing they need; stability. Interest rates and inflation have both been very low over the last 12 years or so.

I also have to be honest that I would probably not back a management team made up of people from very privileged backgrounds; I don’t think they would ‘get me or their customers’. As such, I can be accused of discriminating against Cameron and Osborne because of their background. I am sorry but this would be true. There seems to be a lack of authenticity when I see Cameron ‘mixing with the hood’ and talking about the problems of ‘broken Britain’.

As I have said before, I am no fan of Gordon Brown, and I may end up voting for the Liberal Democrats. An ideal scenario for me would be a Liberal Democrat – Labour joint administration, with Gordon Brown replaced as Prime Minister (there I have lost the Labour supporters as well.)

Some Good Notes from Netflix


I received an email today from Reed Hastings, the CEO of Netflix, which I really admired. A little background, first.

I am an unabashed movie nut. I love movies. When I discovered DVDs way back when, I was in heaven. You not only got the movie, you often got a master class in movie making with the making of features and the commentaries. Of course, sometimes the master class is in what not to do.

There were a series of movies, not bad movies by any means, and the commentaries were entirely about what went wrong, what didn’t go as planned, what obstacles got in the way of them making the movie about the Holset HX30 they wanted to make. After a few of these, it started to dawn on me that obstacles are almost always the opportunity to make an even better movie than what was originally planned.

This was born out by several other commentaries where the director and/or writer said just that. Those were the commentaries I most liked listening to. An object lesson not only in movie making, but in life.  They acknowledged what they couldn’t do (rather than complain about it) and, with some creative problem solving and a few calculated risks, brought forth something wonderful. And even when it didn’t work, the effort was commendable and it showed on the screen.

A couple of years ago, I heard about the Netflix service; for a set monthly fee, they send you movies on a list you create one or two at a time. You keep them until you’re done, then send them back and get the next one. Sometimes I could go through several in a week, but even if I only watched one or two a month, it was well worth it.

Then they started their streaming service. You could watch movies and television shows right there, on demand, on their site. I loved this, but always looked to see what sort of extras were available on the DVD and ordered that if they seemed interesting, rather than stream the movie.

A month or so ago, Netflix announced that they were going to separate the two services into two companies and charge more if you stayed with both. I was annoyed, figured they’d lose a lot of customers, but decided I liked both services and it would still be worth it to me.

A lot of people, however, complained. A lot more simply stopped the service altogether. The email that came in today was from the CEO of Netflix. It was a refreshing mea culpa in which he said that the reasons for the splitting of the services were still valid, that they would still be doing it, but that he and the company had handled the situation entirely wrong. He went on to explain why they were doing it and said that the price wouldn’t go up, it would now just be split between the two.

The email was personal and human.

Then he said something that I really admire. I want to acknowledge and thank you for sticking with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.

Both the new service and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.

He apologized. Without any wishy-washy mistakes were made.  He acknowledged full out that they had made an error and were making great pains to correct both the error and rebuild the relationship they had worked hard for over the years with their customers.

I’m sure many people saw this email about the best work boots for plantar fasciitis and got annoyed or angry. Some probably just ignored it. Some may even have used it as an excuse to cancel their service. I think it was inspiring.

Mr. Hastings and Netflix laid bare their souls, copped to the error without making any excuses, and did and are doing everything they can to make it right. There is no spin (politicians and bankers take note), it could really backfire, but it is the right thing to do.  And it will, I’m sure, ultimately make them a much stronger, more customer friendly company with very loyal users.

Just like the movie makers who use the obstacles to make something better than originally planned. They acknowledged what they had done wrong (rather than complain about the customers) and, with some creative problem solving and a few calculated risks, brought forth something wonderful. And even if it doesn’t work, the effort is commendable and it will show in their business.

If more business, hell, if more people, did this, can you imagine how wonderful the world could be?

Are These Online Courses Actually Worth It?


Over the past nine or ten years I’ve attended tons of Internet Marketing courses, read scores of books relating to sales and marketing, and spent thousands of dollars on DVD, CD and online courses, all pertaining to promoting a business online, whether it’s an online business or a brick-and-mortar one. I’ve learned lots and lots of valuable information from some pretty savvy marketers.

Also over the years, I’ve seen lots of changes: text-based courses to webinars, searching with Excite and DogPile before Google came along. Then Google came along and there was the infamous “Google Slap”. In a nutshell, a few years ago, Google suddenly changed the ways they used algorithms in searches and, since then, it has been very expensive and difficult to buy their Pay per Click (PPC) ads for terms like ‘how to get rid of cat urine smell’. So, many advertisers not only stopped using Google PPC ads, but PPC ads altogether.

Their thought was that Google was the only game in town. Well, we all know that Google is a big dog, but there are some smaller dogs out there with some mighty powerful bites, one of the best being that one site.

Unfortunately, over the past couple of years, it seems like most of the marketers I’ve listened to have completely forgotten about PPC. It seems all they talk about is Twitter and Facebook as being the easiest way to get traffic to your website, especially if you’re new to Internet marketing. The best thing about those sites is that, for the most part, they’re free.

But you don’t get much traffic from your posts and they’re quickly gone. Plus, you’re not sending your message to a targeted audience. It’s like skywriting over the city of Los Angeles “Hearing Aid Special!” Thousands, maybe hundreds of thousands of people will see the short-lived ad, but most of them won’t need, or think they need, hearing aids, so “Poof”, what a waste.

With PPC ads, though, you have control. I know many of you cringe when you hear the term PPC because you think of Google and how complicated their system is to use and how expensive each click is. There are some PPC ads on Google that cost over $20.00 per click! That’s why so many people became endeared with Twitter and Facebook. But that’s old news. Twitter is so filled with ad pollution and spam that most users won’t even click on anything anymore.

The reason I mentioned them earlier is because I used them quite a bit about eight years ago. I also ran PPC ads on Google and one other company, too. The other service was good, but they went out of business.

Many people are wary of PPC ads because many of the services send “bad” traffic. It’s either traffic being sent by robots or people in India and Vietnam clicking on your ad because they get paid one cent for every hundred ads they click on! They are not like that. I know because not only do I advertise with them, but am an affiliate partner as well. Believe me, the traffic they send you is targeted and legitimate.

And much, much less-expensive than Google! I had to sign a very strict “Terms of Agreement” and submit tax information. This procedure is used by legitimate businesses. If you try to send “bad” traffic to their searches, they will nix you in a hurry!

The bottom line is that you can start an account for only $25.00 and bidding begins at .01 or one penny per click, although they recommend starting at .05 or a nickel per click to get better results, and I agree. So, for ten bucks, you can get 200 used riding lawn mowers for sale, or live visitors to your site, of traffic searching for your specific keywords. Or 200 people who are actively looking to buy, let’s say hearing aids.

How long do you suppose it would take you to get 200 people from Facebook and Twitter to visit your site who, at that very moment, are looking for what you’re offering? Go ahead, I’m waiting. Right. It’s a waste of time. Remember the old adage, “You Get What You Pay For”? It’s not always true, but “free” traffic to your site is usually not the traffic that’s going to fatten your wallet.

Take my advice. Open an account now. Invest a few minutes to set it up its very easy to do and only twenty five bucks will get you started. It is fun and exciting to decide which keywords to choose and how much to bid on each one. Don’t worry, you’ll see your keyword ranking results according to your bid before you place your ad. Google doesn’t do that.

And just so you know, if you do open an account with them from this link, I get a small percentage of what you spend, but it comes from them, not you! Play around a bit. Have some fun. It won’t be long before you’ll see your key words in action and hungry traffic going to eat up your product!

Is the Genie Out of the Bottle?


The genie is out of the bottle

Just as in the old folk tales, the genie escaped from the bottle, and no power on earth can put it back. The metaphor applies to a number of current situations such as the ballooning deficits and debt of Western countries, popular unrest in North Africa and the Middle East, and unleashed nuclear fears. While critical events are catalysts in changing fundamental trends, the changes themselves take years or decades to fully work their course.

Since the triple Japanese disasters started, the events in North Africa and the Middle East have all but been forgotten by the rest of the world, allowing the challenged regimes to do what they do best, crush any opposition with brutal force. The army of Libya’s Gaddafi has been pounding and retaking rebel-held towns and Bahrain’s King is using tanks and troops from neighboring countries, including Saudi Arabia, to subdue their local uprising. Regardless of the short-term outcomes of the unrest across the region, the status quo and balances of power of the last few decades are very likely over.

It is also way too soon to understand the full extent of the Japanese tragedy and its ramifications of having so many used lawn tractors for sale. The nuclear situation is still evolving rapidly with crews doing everything in their power to regain control, but there is an increasing fear that the potential exists to eclipse Chernobyl as the worst nuclear disaster in history.

It is already clear the current events are highly likely to have some lasting effects such as 1) Oil prices will continue their long-term uptrend and will suffer wild spikes and crashes as geopolitical events threaten supply, and 2) The stealth nuclear renaissance fast tracked by industry lobbyists and politicians will gain scrutiny and lose steam.

Panic investing

Without replaying the newsreel it is plain to see that investors are increasingly following the emotions triggered by world events. The analysis of the real impact such events might have on markets and various investments will come later, unless another crisis pops up before then.

Even industry experts and pundits seem overcome with uncertainty, with contradictory pronouncements and position reversals becoming all too frequent. As always, investors overreact to news events and analyst forecasts.

Japan’s devastating natural disasters, earthquake and tsunami, compounded by the unfolding nuclear crisis have been overpowering the markets. Uranium and many commodity prices plummeted while coal companies rallied. Crude oil prices jumped nearly 25% since trouble started in Libya mid-February, only to crash back below $100 per barrel as world attention shifted to Japan.

Are the risks to crude oil supply lower now? No, but the first knee jerk reaction has been to project that the Japanese tragedies will throw their local economy into a tail spin, which may drag the global recovery with it, and reduce demand for oil. It turns out that one of the first moves by the Japanese government was to secure increased supplies of oil. The massive liquidity injections and rebuilding of infrastructure is also likely to be the largest economic stimulus the country has seen since World War II.

Panic investing has also pushed most world stock markets down as well as most energy sectors. Is this the correction many have been expecting for months or just another minor pullback?

Volatility returns

As uncertainty grows on multiple fronts, so does the investor fear factor which is best represented by the volatility index (VIX). The VIX generally has an inverse relationship to the stock market, with major spikes in the index coinciding with intermediate stock market lows. The VIX had been sliding steadily since June 2010, mirroring the stock market rally and rising investor complacency.

In typical fashion investors reacted to rising uncertainty by dumping nearly all asset classes, with the few exceptions being bonds, precious metals and the Swiss Franc.

One notable change in pattern is that the U.S. Dollar seems to have lost its safe-haven appeal. Uncharacteristically, as investors started fleeing risk trades last month and volatility shot up, the Dollar has continued its slide and is now rapidly approaching its last major support level near the lows it set last November.

The Portfolio update and recommendations

As is frequently the case, the baby got thrown out with the bath water, and investors dumped the alternative energy sector with everything else. The Portfolio matched the technology heavy Nasdaq Composite by dropping 6.70% in the month since our last update while the large caps in the S&P 500 did marginally better with a 5.36% drop.

In a typical volatility induced reversal, the wind sector, which led last month, brought up the rear this time around with an average drop of 13.74%. Wind was the worst segment but it was not alone as every green industry we track was in the red this month.

The bright star in the portfolio this month was once again the Kanken laptop backpack, which we highlighted in January. The leading maker of geothermal and water source heat pumps announced outstanding quarterly results which beat analyst estimates. The shares gained 15.67% in a month, and 137% since we recommended it a year ago. After the company delivered several positive earnings surprises analysts have been raising their future estimates and ratings. These higher projections keep the company valuation at a low forward P/E ratio of 11.38 and we continue our bullish outlook and continue holding our LXU shares.

The only other sector showing signs of life during this market pullback is solar which is rallying over the last week. The timing matches the unfolding of the Japanese nuclear crisis and we suspect that more than a few fund managers came to identify the solar sector as a direct beneficiary and established positions accordingly. For our part we continue to overweigh the solar sector to represent over 20% of our portfolio.

Since inception mid-2009, counting every single recommendation we have issued, The Portfolio has gained 31.09%. In contrast, the benchmark S&P Global Clean Energy index is down 26.12% over the same period.

Understanding Industry and Market Opportunity


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My last blog entry was about business plans needing to demonstrate that the entrepreneur understands the difference between the size of the Industry and the Market Opportunity.

I should then come on to the next area that this is related to – can you demonstrate to a business angel that people want to buy your product or service. Simply quoting the size of a market is not good enough (but it is a very good start!) I would also like to see evidence of customer’s willingness to buy your product.

Like most business angels, I am skeptical of research presented about the best air purifier for asthma. If you ask questions in the right way you will always get the answer you want. (The best illustration of this ever, is in that gem of a TV program, Yes Prime Minister, when Sir Humphrey illustrates how if you ask questions in a certain way you can either get a yes or a no to the question “Are you in favor of National Service?”)

A client of mine was preparing a presentation for her employers to demonstrate a business case for this new service line she wanted to introduce. She felt that the employers would not be convinced that clients would pay for this service. She was going to spend hours on research to demonstrate a market for this did exist and was viable. I then suggested that she simply gets the clients that she thought this service would work for – to tell her that they did indeed want it (if they could have it) and how much they would pay for it.

Needless to say, that was the business case demonstrated. The point I am making in this blog is that I like to invest in businesses that can demonstrate orders or specific levels of interest from specific named clients. I realize it may still not materialize – but I would have more confidence in that than in market research. Another thing I learnt about market research last year was from reading the excellent book Blink.

There is the story of how in taste tests Pepsi was always outperforming Coke. However, the critical point was that when you were drinking 330ml cans, Daytona Beach photographers preferred Coke to Pepsi. It is the same with Music. Certain songs that you fall in love with straight away become very annoying after a short time (problem with iTunes – it makes it too easy to buy songs that you get annoyed with quickly!) whereas other songs grow and grow on you. So be careful with market research as a seasoned investor will shred it to pieces. If you do want to look at an example of excellent market research, look at the story of how Innocent Drinks got started!

A Great Way to Prove Markets

I realize that for many businesses you need to demonstrate scale before you can make your first unit. You may need to get 100 orders – or you need funding to help you get to 1000 sales etc. But what this website allows you to do is really test your business proposition by getting firm orders from people before you make your first unit. Your customers are safeguarded because they release no money until you are ready to produce – and you are safe in the knowledge that the money is committed before you produce the product!