Making Money

Ideas for making money, including my own business, websites, and ideas!

Would you invest in this deal? All the risk, no ownership, and a profit cap, to boot!

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Tyler’s looking for some ‘suckers’ who are willing to be investors for his latest project, a Flash based site. The terms are weird:

I am basing the following options on the project costing $5,000:

Investment Return Buyout

$1,000 15% for 18 months 5x
$2,500 37.5% for 18 months 5x
$5,000 75% for 18 months 5x

I will only accept investors up to when the cost of the project is met (Ex. If 2 investors want in at the $2,500 level then it will be closed there).

The Return is based on site income, whether it be from advertisements on the site or paid memberships.

If you do the math, the site would need to make a total of $6,666 (bad omen? haha) during the first 18-months in order for you just to break even. This works out to an average of $370 a month. Therefore, if the site manages to make $13k during the first year-and-a-half, you’ve doubled your investment.

There will be a buyout clause, where at any point I can buyout the shareholder for 5x their investment. This buyout will be on top of any return they have received so far. For example, if an investor invests $1,000 and after 5 months I want to buy them out, they will keep whatever Returns they have made so far, plus $5,000 (5x) for the buyout.

The 18-month Return timeframe will begin once the site is finished its development and goes live to the public. (More)

I can’t understand this at all, Tyler.

Are you borrowing the money or asking for an investor? Really. If you are borrowing you should offer repayments as part of the plan, a potential interest rate to evaluate the risk involved.

If you’re looking for an investor, then you really ought to be looking for someone who can bring both cash and expertise (ideally). If not expertise, at least cash. But then you must sell them part ownership.

Are you looking for a payment from future cashflow? Then if so, what is your security?

I can’t understand, from a potential client’s position, what you are looking for, nor can I see any real reason to invest. You don’t cap my risk, but you cap my profits. It really seems like you want to have your cake and eat it, with respect. If I were doing this, I would cap the risk, so my investor’s feel better, and reduce/remove the cap on the profits. Given your situation, though, the relative small size of the investment, why don’t you just pony up the money yourself, and avoid all this hassle?

If I were a BBC Dragon, and if I had to listen to this, I would reject it out of hand for the reasons outlined. There’s no product to showcase, no example, no cashflow projections other than airy-fairy numbers, no estimates of expenses (server costs, design costs, admin costs), no security for investors (not even partial ownership), nor do you even clarify if the return of capital comes from income or after costs.

So what is this? I would love to know. Let me know.

Pandora, Emusic, iTunes 0 vs KKBox, Sky.fm and Last.fm 3:

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It’s all about the dollars, cents, pounds and pence, isn’t it? After all, that’s what you’re all fighting about, isn’t it? That’s why you aren’t really entering non-US markets, … you don’t think Asian markets have enough cash, do you? Well, here’s my cash. I put my money where my mouth is: but you guys didn’t want it. Pity, I’ll reward those companies who do want it.

Who wanted it? Well, here’s my list of top three online music providers who were delighted to take my money, and provide me with great music to listen to. So drum rolls, please!

 KKBox wanted my money, so I put down a subscription with them. And they made it so easy to pay: I could have paid in any of a dozen different ways, including just going to the local convenience store, and handing over my cash! This is a screenshot that includes some recently popular songs. The only caveat was that I had to set my default language on my PC to Chinese, which of course, broke one of my blogging applications. Never mind.

KKBox Software

No problem. Last.FM made it really easy, too. So I plumped to spend money with them. Nothing needed to download, but it works. And there are software programs you can use if you need to.

last-fm

I also put my money with Sky.FM who wanted it. Nothing to download here. Just play the stream in your favorite player.

sky-fm logo

It’s not that I didn’t want to give it to Emusic – they wanted too much with too many conditions attached, including paying for a catalogue that I couldn’t access – well done, Sony BMG!; iTunes wanted the money for the products (iPod, iPhone, iTouch, etc.) but didn’t want to provide the services to my country of residence; Pandora just shrank from the challenge of facing too many lawyers, without a good excuse.

After all, when did lawyers run a company? In fairness, lawyers are paid to respect the law, to follow the law and to help understand and interpret the law for other people. But, it seems that they are increasingly being used as an excuse by business leaders to hide behind.

Legal Music Alternatives

So I put my money where I could; and I’ll likely start buying even more CDs courtesy of Amazon, etc., … by the time that Emusic, iTunes, and Pandora wake up to the HUGE LEGAL opportunities they’ve missed, it will be too late for them to capture the market in many countries. Why? Because while they can wait, other hungry companies can’t, and neither can audiences. The world won’t wait for Pandora, Emusic or iTunes to grasp what’s being offered in terms of markets. Instead, these markets will take their ball, and play another game altogether.

Think that it hasn’t happened in Taiwan before? Think again.

Would you gamble? Would you start a business?

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This follows an interesting discussion we’ve been having on Forumosa about starting businesses.

Of course, though, I wouldn’t equate gambling with starting a business. Why? Apart from the odds issue, there are far more factors that you can control when you start a business. If you gamble, esp. in a casino, the odds are absolutely stacked against you: the house controls the cards, the house controls the dealers, the house controls who plays, the house monitors ‘cheating’ strategies (and bans anything that is mildly profitable, even ‘card counting’…)…

Gambling is for suckers

Basically, if you gamble, you’re a sucker. But in business, you actually have a good chance of ‘being successful’ and keeping your original stake at the very least. However, there are many reasons a business ‘fails’ including the fact that the owners just get tired or sell out to others or close up one day or die… None of these in particular suggests that the business was an unprofitable one.

It’s in the blood, or not

It’s likely that as Brits, we tend to shy away from doing business, worry about the undue risks, plan until there’s no breath left to actually run the business, borrow lots of money to go into business (IMHO, a huge mistake and a massive risk, but common in the UK), are unusually PESSIMISTIC about doing business, and (even now) still ‘look down’ on entrepreneurs as a breed.

Keep your ass covered

When we started our school, we didn’t worry so much about the risks (and there are many), we just wanted to try it ourselves after seeing so many people screw up royally (is that an adverb?)… we didn’t overly plan except that we knew we could pay the rent on our school for six months without ANY income at all even after setting up the school, we paid ourselves no salary either, we didn’t borrow any money to invest (a huge relief), and we were neither pessimistic nor optimistic about our chances, … Did we have a concrete business plan? No, we didn’t. Did we need one? Not really, we already knew the business in many respects.

Manage the risks, not the luck

IMO, most unsuccessful business owners here fail to manage the basic risks first, don’t make these kind of decisions, and wince at the first hurdles. How? They fail to secure a source of personal income (that covers life expenses, not including their business) first; they overly underestimate the expense of starting up and running for months with little income preferring to spend as much as possible in the first few weeks, and reserving nothing or having nothing to draw on afterwards; aren’t willing to pay themselves a pittance to get things started because they (likely) see a salary for themselves as ‘deserved’; don’t really market themselves well enough except through discounts (a prime strategy) that does NOT work well here… attracts the wrong customers, diverts attention, undermines your profit structure (esp. if you haven’t done your work properly); and so on…

While many seem to believe luck plays a role in starting a business, I like to think of it as luck comes to those who are ready; if you’re not ready, then it’s wasted largely.

Working Hard Not Smart

Usually, restaurants are cheaper to open, require less capital to start up, most believe they ‘can’ cook, and reasons like that… but restaurants are bloody hard work, esp. if you focus on doing a lot of meals or full-day service. My sis-in-law had a restaurant for six months or so, I remember working in it, but they really didn’t know how to run it optimally. Instead they opened at 11:30 and ran it until 11:30pm every day. So they nearly killed themselves doing it, too.

Focus, focus, focus

While I had no access to the financials, it didn’t make much sense to work so long, esp. as lunch hours were always the most busy. I would have preferred to have very busy lunches where people were served quickly, afternoon teas, and close up at 5pm each day. Instead they did dinners, bar hours, etc… and I’m not sure why they thought it was necessary. There is the belief in business here: more is better; you’ll see it everywhere, too.

Cram schools here open multiple classes including math/art, Chinese, Science … instead of focusing on one thing. Restaurants try to serve all kinds of food (I know restaurants that sell rice, noodles and spaghetti!) to all customers at all times. Stores sell everything… there is a lack of focus in many businesses here. Market stalls sell fresh pork and underwear… it’s quite amazing how people relate two disparate businesses.

In the end,…

In reality, it’s the ones who take their money (or someone else’s) and actually try to do something with it in the creation of their SMB, they will learn the experience of being IN business. Most serious entrepreneurs are also SERIAL entrepreneurs, in other words, they will try and try again till they get it right, even if that means they run 5 or 10 businesses in their lives…

No guts, no glory

And I’m sorry to say, no matter what MBA you take, what business course you attend, what class you take, no matter what you read or study, it won’t make a jot of difference unless you actually try to set up and/or run a real business. Fundamentally, Entrepreneurship is a practical skill; so whenever I see academics on TV lecturing on business fundamentals, I really have to wonder what they bring to the table when they themselves don’t bear any risk at all. It’s that willingness to bear the risk that illuminates who will be entrepreneurs and who won’t. That’s what separates entrepreneurs from salaried workers, … the knowledge that next month, if there’s no profit, you won’t take a home salary.

Hope the ramble influences you to think about starting your own business. Drop your comments here.