don't give up on your dream

My brother is a screen writer. Every good story is a drama and is essentially either a comedy or tragedy: either the hero gets the girls or dies.

In a classic three act story, the first act introduces the protagonist and his or her goal. In business, this is an entrepreneur with a dream, a new goal, a powerful new idea.

In act two, the antagonist appears, as the central conflict of the story: man versus man, man versus nature, etc. In business, despite how it looks, the central conflict is almost always man versus himself. I'm usually the one in my own way, somehow.

The third act is the resolution of the conflict: either the hero-entrepreneur succeeds or fails.

The second act of a business cycle is where we tend to lose faith and forget there is a good chance we are living in a comedy, even though the struggle is not so fun.

Many people give up at this point not knowing how close they were to making it.

After all the efforts and struggles to survive the second act, we might as well give it all we've got and succeed or fail cleanly, with no lagging thoughts that we left something out on the field, to wonder for the rest of our lives what might have been.

This is a no lose situation. I either prove conclusively that my new business model works or prove conclusively that is does not work. Either way I move on to the next level.

value is what value does

For years, the financial industry has been selling the idea that freedom is "I only do what I want to do". OK by me. This is the first of three conditions for ultimate value. If I have to do something I don't like doing or don't really want to do then I'm not truly free.

Second idea: Richard Clark said to me once that his success as a lawyer comes from "I only do what only I can do". He builds teams of people to do the other stuff. If something needs to be done and someone else can do it, then he has someone else do it. So far in this value equation, true value is the intersection of drive and talent. These are two necessary but insufficient conditions for value creation. There is a third idea that completes the trinity.

The last idea is based on service: "I only do what someone really needs me to do". This is about my value to someone else, regardless of whether I get paid or not.

So value is the intersection of drive, talent and need:

I only do what I want to do, what only I can do and what someone really needs me to do. It's an ideal. How close I get to the ideal, I think determines my quality of life.

If you can't sell, you can't serve

I was talking to a nutrition coach (Adam) last night about my liver health, candida and other fungal infections and how they affected my mood, energy level and cashflow, which I'm certain they do.

He said that for many people (meaning in particular "middle aged white men" like me), such a regeneration can take 7 years. Wow. I was hoping for a 7 day cleanse and a bottle of pills. No such luck.

Clearly, it's going to work better for me to think of my health as a process and a lifestyle choice rather than a series of disjointed "projects" grasping for the seemingly harder to find feel good moments.

Adam is smart (clearly) and passionate (obviously) and I think understands the gravity of the service business: if a person with health issues, does not become and client and remain a client for prolonged periods of time, the person makes no lasting changes, gets no benefits and Adam makes no money and has no impact.

I left the conversation with Adam more connected to the value of my health. It's a good start. I don't currently pay Adam and so the chat last night was a sales conversation even if it seemed like a social one at a house party.

No valuable lasting change ever happens unless a sales is made first. That's right: "a sale", that most nasty of four-letter words in the service business.

But I propose that a service provider (coach, lawyer, accountant, financial planner) is only as good as his or her sales skills and attitude. We are all in the intervention business and anyone too shy, insecure, backed up or afraid to sell is not going to be as useful to me when the situation gets hard and I really need to rely on someone. Many well-meaning and well-educated people with value to contribute are starving or at least not making the difference they are capable of because they are unwilling to sell.

Selling is not an affront to professionalism. Selling is the apriori professional skill. I make no difference to anyone with no clients, no money for food and my mortgage and no opportunities to hone my craft. Sell-serve-sell-serve-sell...etc.

empathy and allopathy

The word allopathy has two latin roots: it essentially means "to be against suffering". When faced with something wrong, allopathic medicine is rooted in the ideas of cutting it out or drugging it. The holistic health movement grew up to include other holistic practices and the idea of integrated medicine is now in full swing: working with the natural healing processes of the body to create better health and wellness, rather than fighting disease. Very different.

The book "don't think of an elephant" reveals the strength and weakness of the allopathic approach to anything: what I pay attention to tends manifest. When I hear the phrase, I think of an elephant. My mind ignores the "don't".

For example, I've spent a lot of my time, energy, money and brain capacity trying not to be miserable and trying not to fail. This path, as anyone knows who has tried it, is bound to misery and failure.

I grew up in the generation of men whose fathers, teachers and employers, in a well-meaning effort to help us improve, thought we needed to know all the things that were wrong with us, as if that knowledge alone was sufficient to help us improve by "correcting our deficiencies". This was the allopathic approach to parenting, teaching and employing: focusing on what's wrong. I'm being careful not to be ironic here and suggest that the allopathic approach is bad. Knowing a deficiency is a useful first step but it's not the only step. Focusing on what's wrong tends to bring me more of what's wrong. The first step in solving a problem is understanding the problem, but as Einstein famously said, a problem is not solved at the level of the problem. Beating someone over the head with their deficiencies does not work. The very question: "what is not working", is not a solution. It only defines the problem. There is something that we all have in us that does work. WE need only use what we have.

The word empathy also has to latin roots: it essentially means "put feeling into something". This kind of thinking is the positive analog to allopathy as it focuses not on what's not there but what is there. The important questions of an empathetic person is: what is working that we have to build on? Allopathy identifies an opportunity and empathy puts a vision in place with the necessary emotion to drive it home.

Spending some of my attention on what's not working is a good start. Spending most of my attention on building on what is working is the only way to finish what I start. It is the path out of misery and failure to higher levels of happiness and success.

inner strength

This past Wednesday, I went with alpine guide Patrick Delaney to complete an iceclimb I attempted in 1984 and did not finish. Borgeau Left is an ultra-classic Rockies waterfall with a long history of turning even the best climbers back. Patrick had not for some reason attempted it before.

I thought the route was just at the edge of my capability and had serious doubts when Patrick suggested that we go climb it, but he seemed to have a lot of conviction so I didn't put a lot of energy into arguing with him.

We arrived at the parking lot of Sunshine Village to perfect weather, stable avalanche hazard and a solid looking stretch of ice. These were rare conditions where everything lined up.

As I was following Patrick up the horrible wind crust on the approach slope, I was conscious of how tired I felt and I began convincing myself that it was all right not to finish the route. I finally made it to the base of the first pitch and it was fat and plastic, instead of thin, hollow and scrappy. I was spanked.

I watched Patrick climb the first pitch and grew more weary with every move he made. When it was my turn to climb, I looked at the ice looming over my head and had a minor epiphany: "I'm stronger and more capable than I believe I am."

With that thought, I carefully made my way up the first steep 40 metres of the climb, paying exquisite attention to my climbing technique, using my legs well and staying in balance so that I did not overburden my arms, lose my grip strength and then fall off. In my own mind I was alternating between justifications for quitting at the top of the pitch and reminding myself that I was stronger that I thought. I got to the top of pitch 1 somewhat surprised. So we did pitch 2 and I played the same game in my head: "getting to the top of the second pitch is still a respectable accomplishment."

I arrived at the cave at the base of the final tier and said to Patrick: "man, I'm spanked, I don't know if I'm fighting something, but I don't know if I have the gas to finish the route." Patrick looked at me, said nothing and started up the third pitch.

By now, I was starting to really grasp how much energy I had in reserve, how valuable 27 years of climbing experience is and what a mind game this really was. So I just climbed the third pitch with no outer or inner complaint, enjoying every move for what it was, feeling the sun on my back and relishing the freedom of the moment.

I got to the ledge beneath the final crux pitch and asked Patrick when he decided that we were going to finish the route, regardless of my whining. He said: "some time ago." All righty then. "Besides", he added, "the last pitch is short, fat and plastic: it'll be a fun romp." Having found the resources inside to deal with the climb thus far, there was no reason any more to argue.

So he set off up the last dead vertical column of ice, saying nothing until about halfway up: "fuck this is steep!". Deep breath from me. When the rope went tight, I decided to "just climb, don't think, you're stronger than you think".

The last pitch was as steep as Patrick said, but again I just kept telling myself, "you're stronger than you think, you're stronger than you think. focus on your footwork, rest your arms, see where you're going to swing your axe before you swing it and swing it well."

I got to the top and simply said to Patrick: "I guess I'm stronger than I think I am". That thought is now reinforced by a very visceral experience. The next time I think I can't do something, my body remembers otherwise.

resolving to change

This is the time of year when the resolve is fading from everyone's New Year's Resolutions.

We have dubbed January 18th as "National New Year's Resolution Abandonment Day". This is the day that most people run out of energy for all the changes that seemed like such a good idea after the third glass of champagne on New Year's Eve.

Starting something is one thing, finishing it is another. Lasting change is rare and implementing change is hard. Whether it's personal issues like health or improving relationships with spouses, kids and friends, or business issues like getting out and making more sales calls or organizing time more efficiently, many change initiatives fizzle out long before the expected results occur.

In our experience, the culprit is willpower. My current results in my personal life and business are the results of my personal and business habits. Some of these are great, others are not getting me what I want. For example, my cupcake and television habit is not as good a pathway to my goal weight as salad, portion control and regular exercize. So I can eat a small salad and hit the gym, but the enormous power of the negative habits eventually defeat my nascent change initiative. Cupcakes trump salad and the couch trumps the gym. The old habits are more comfortable, being locked in place by a complex system of emotions and inconscious attitudes.

We think of habit changing as a two part process. If I stick with a new habit for 30 days I establish an "unstable habit." I have started to feel the benefits of the new pattern but I am at risk for reverting back to the less constructive but more comfortable habits. If I continue the new habit set for another 60 days, I create enough positive new feelings associated with the new habits, get the results I seek and establish a "stable habit".

So here's the problem, most of us don't have 30 days of willpower "in the tank". One of the solutions is good support. By borrowing the will of a professional coach, trainer, team mate or dedicated friend, we can push through the critical 12 day period. If I keep my supporters on for the next two months, I reduce the risk of slipping back. I get a hint of the results I'm seeking, change my attitude and start feeling differently.

Armed with a brand new stable habit in a area of my personal life or business, I then use my support team to help change the next habit.

considerations for valuing a service business

A common problem occurs when an entrepreneur, who has been building a business for a period of time, decides to take on a new partner. What are the factors that determine the price that the new partner buys into? What piece of the company is a fair piece?

In public companies, where the shares in the company are traded on a stock exchange, the price of the shares reflects a consensus value determined by the interest level of all parties aware of the stock. If there are many shares trading hands on a frequent basis and the company is publishing its progress and successes through the press and the public is paying attention and the company is generating earnings, the price of the shares is a multiple of these earnings (say a multiple of ten times earnings). The public believes that the stream of earnings from the operations of the company will likely increase through time and they collectively reward the company with a high future value that it trades on.

In private companies, there are many difficulties. First the shares are not as liquid: someone who buys shares cannot easily sell them. Private companies pay back the investors only through dividend income or when the company goes public itself or is bought by another company in the space. With a growing company that is constantly cash-hungry, income that could go to dividends has to go back into growing the company. The other exit strategies of going public or merging with or selling to another company is a risky and difficult proposition.

In the case of a founding entrepreneur bringing on another partner, these issues are less of a consideration. Someone who is considering entering a business as a partner is there to contribute their talents and skills to the growth of the business and share ownership is a way to acknowledge this investment and compensate a partner from drawing less than their market value out of the business while it grows.

There is a natural conflict that exists between the founding partner(s) and the new partner(s). The founders have invested their time (sweat equity), cash and other assets to get the venture to its current level of success. The rationale of bringing on a new partner is this: the business will be more successful and will be worth more through the combined efforts of the original and new partners.

Private companies are typically bought and sold using a number of valuation methods:

1. multiple (1 to 4 times) of cashflow or EBITDA (earnings before interest, taxes, depreciation and amortization)

2. multiple of sales (50% to 150% of trailing revenue, as a moving average for 1 to 5 years of history)

3. the book values of hard assets (goodwill, intellectual property, machinery and realestate)

4. discounted value of future cashflow (the sum of 1 to 5 years of estimated EBITDA discounted for risk and uncertainty)

When a private company has not yet broken out and realized the escalating value that the original partners believed it had, sales and earnings may be low or negative (particularly if the founders are taking draws or salaries that are lower than the market rates for the roles that they are performing). Many service-based companies have no assets or goodwill or intellectual property that is unproven. Looking forward into the future, there are many risks and factors that positively and negatively affect sales and EBITDA. These factors make the value of the company ambiguous and easily contested.

The original founders tend to over-value the company based on the immense sacrifices and investments of time, energy and money they have made to get the business to its current state.

New partners tend to under-value the company based on the future value of their contributions and the amount of financial value that has not and might not materialize. Additionally the value of future cashflow is based in part to the assumption that they will succeed in contributing to the company: the company is less likely to become financially valuable if they do not join the partnership. If this was not true, they would not be good partner candidates in the first place.

Other factors to consider are the salaries of the new partners, how much of a discount these salaries are from market rates for their roles and any human, intellectual and financial capital they might bring.

The way ultimately to frame these negotiations is to arrive at a deal that is fair and that everyone can live with, remembering that great partnerships have great synergy and that a team of people can create much greater value together than apart.