SOPHISTICATED FINANCE

The Future of Streams

RWW has an interesting post on streams, as in information not fishing. Streams are defined as:

"A constant flow of information ordered chronologically and (ideally) topically too. In the near future, the theory goes, it won't matter where you enter content - a blog platform, Facebook, Twitter, Tumblr, etcetera - because all of it will be accessible to other people as a stream."

The Wall Street Journal is an early adopter in the use of streams. Formating and style of their streams suggests that streams will look particularly good on mobile devices.

I have been intrigued by the idea of streams since this SF post in 2010, which I quote below:

"I think that where the web will evolve is toward a model where all your content will be generated from a single web-based app and you will merely choose what distribution channels you want to use (public, private, group, company, etc.), similar to the Google Reader feature "share". As soon as you can choose easily where content is distributed, Facebook and Twitter become much less valuable."

As I correctly predicted, Twitter and Facebook are fighting streams according to RWW.

Financial Modeling Workshop Miami May 11

I will be doing a workshop for the FIU Pino Entrepreneurship Center on May 11. The workshop focuses on how to build financial models, including an introduction to some advanced Excel commands that make building models easier. This workshop begins where my workshop on business concept development and growth drivers ends. There is an exercise that develops the logic of model building, a digital handout of a linked income statement, balance sheet and cash flow model and a handout of the advanced excel commands.

More details on the workshop are here. Proceeds go to the Pino Center at FIU. If you would like to see a previous presentation, look here. Very practical, little theory, informal style.

Disclosure: I am a member of the Board of Directors of the Pino Entrepreneurship Center.

Related articles

• Miami-Pino Spring Entrepreneurship Workshop Series (sophisticatedfinance.typepad.com)
• Upcoming FIU Workshop--Financial Plans (sophisticatedfinance.typepad.com)

Tablet Tip for Sales People

I give alot of presentations and about half of them are sales presentations. With the popularity of Powerpoint, everybody expects to sit in a room and watch the projected information. With the advent of the iPad I have abandoned projectors in sales presentations in favor of sitting next to the decisionmaker and showing them the iPad screen. Anybody else in the room can look over my shoulder.

The great advantage of using the iPad this way is that you establish a very personal connection with the audience when everybody huddles around the device. Establishing that personal connection increases trust and credibility and there is an inherent openness through close physical proximity. Also, there is much less tendency for confrontation because most people need distance to argue. 

Of course, in such a setting the content becomes even more important. Good presentations today use large images and very little text. This approach is particularly important when the audience is sitting next to you. Nobody expects a lecture from somebody sitting next to them showing them pictures. 

Also remember that in such a setting the presentation needs to be shorter. People get uncomfortable sitting close to strangers for too long. 

I do not know if this technique works for selling enterprise software, but it works for any product where the customer is emotionally engaged.

Image credit: Amillionlives.net

 

Design and Elegance

Good design is something that has always interested me and I particularly enjoy blogs on design. Design gives one insight into customer experience, a subject where I am constantly looking for greater understanding.

Consistent with good design is the concept of elegance. The Merriam-Webster dictionary defines elegance as "dignified gracefulness or restrained beauty of style". This is a helpful definition but perhaps not practical, as in difficult to apply. In the blog Pursuit of Elegance Matt May defines elegance as "...one that achieves the maximum effect through the minimum means". Inherent in elegance is the notion of simplicity. The full article, including seven design tips, is here.

Image credit

Miami Herald Business Plan Competition 2010

 

TED Miami

The famous TED conferences are coming to Miami through a local sponsorship group for a TEDx event. The event will be held in Miami March 18, 2010. TED describes itself as follows:

"TED is a small nonprofit devoted to Ideas Worth Spreading. It started out (in 1984) as a conference bringing together people from three worlds: Technology, Entertainment, Design. Since then its scope has become ever broader. Along with the annual TED Conference in Long Beach, California, and the TEDGlobal conference in Oxford UK, TED includes the award-winning TEDTalks video site, the Open Translation Program, the new TEDx community program, this year’s TEDIndia Conference and the annual TED Prize."

To nominate a speaker for the event, email speaker@tedxbrickell.com

Duarte Design Video on Presentation

Duarte Design is one of the leading firms that develops corporate presentations. They did the famous Al Gore video and I have followed their work for several years. They did a short video on how to do presentations that is well worth watching. (After starting the video, click on the image to expand to full screen.)

The Discipline of Elegance and Simplicity

I have a long held interest in both good design and mathematics. The common thread in both these subjects is that properly done, both achieve an elegance and simplicity in the expression of complex ideas and concepts. To achieve the necessary simplicity and elegance requires considerable discipline. In fact the discipline in some ways becomes the methodology to produce the end result. This type of discipline also applies to how you think about your business and communicate it to customers, prospects, employees and shareholders.

I try to avoid controversial issues in this blog, except for my occasional advice to President Obama on foreign affairs :) I am not violating my own policy, but a bumper sticker I saw yesterday illustrates the power of simplicity and elegance. The bumper sticker said:

"It's a child..not a choice"

I thought that this phrase was the best framing of the anti-abortion position that I have seen. Clear, simple, focused, but with the ability to generate an emotional reaction from the reader. In fairness to the pro-abortion side, perhaps this phrase is equally compelling:

"Do not legislate...in my body"

The point here is not about the abortion debate but to illustrate the power of distilling a complex issue down to its simplest concept. Simple elegance is very compelling. An example from the One Laptop Per Child project illustrates this point yet again. The one liner to explain the project is:

"Give a laptop. Change the world."

Equally strong might be the following:

"One child...One laptop"

Ernest Hemingway, the renown writer, was once challenged to write the shortest story possible. The result was a six word story, which Hemingway later went on to describe as the best story he ever wrote. The story in its entirety follows:

"For sale. Baby shoes. Never used."

Simplicity and elegance can initiate an emotional response that engages the reader/customer. If you can not distill your business concept down to a single elegant phrase, you probably do not sufficiently well understand the concept. The discipline to achieve a simple and elegant description will help you to really understand your business, greatly improve your message and probably help all the constituencies you need to communicate with to better understand the business concept.

Notes:(a) to encourage simplicity and elegance throughout your organization, stop telling people the length of the document you want. One of the best student papers I ever received answered three questions in only ten sentences about the complex book by Israel Kirzner-- Competition and Entrepreneurship. (b) the best book on simple and elegant PowerPoint design was written by Stephen Kosslyn, who has a new book coming out that I received from Oxford University Press as a pre-release draft. More on that later.

Image credit

Miami, FL

Evening Workshop--Strategy and Finance

I will be giving a workshop for the Pino Entrepreneurship Center at FIU on February 12, 2009. This is an evening workshop from 630-900 PM. The subject is Strategy and Finance and focuses on using the "business model" to develop a financial plan. Very practical, little theory and ends with an example of "how much money to raise". Particularly relevant to early stage companies but useful to more mature companies that are growing. Details on registration are here. Proceeds go to the Pino Center.

This previous post will give you an introduction to the workshop.

The Financial Summary

Daniel Cohen, an Israeli-based VC, has a good post up on how to present summary financial information in a first meeting with a VC. I always find it comforting that good practices are the same all over the world when it comes to finance, investing, valuation and due diligence.

A few of Daniel's hints:

1. You have to have a financial summary
2. Round numbers off to a significant number of digits (for example, $55,834,671.54 could be presented as $55 million)
3. Forget the graphs because VCs as a group are quantatative and don't need the training wheels of pictures; (hallelujah, hallelujah, hallelujah--maybe we could ban all graphs for ever given that most people pick the wrong chart type, don't label the axis, omit the unit of measurement, use ugly colors, etc.)
4. Present a logical scenario and avoid the hockey stick forecast

The one point that I wish Daniel had made was that the financial summary should show the growth driver(s) in the business and perhaps their economics. For example, instead of showing just new or total sales people or revenue per sales person, perhaps show EBITDA contribution per sales person. For more on growth drivers, see this post.

And remember, forget the graphs!!

How Entrepreneurs Think

Yesterday's post on Better Business Plans prompted a comment from Matt Winn, the VC I referenced who blogs at Punctuative. Matt said:

"Glad I could offer some blog fodder and hopeful that as more of us cover these topics, quality improves. Presentation SUBSTANCE matters a great deal as indication of how an entrepreneur thinks." (my emphasis)

While I have mentioned before that financial models and business plans demonstrate how an entrepreneur thinks about his business, I think this point deserves further clarification. When an investor evaluates management they look for four key things in addition to trustworthiness:

1. passion to succeed (and overcome obstacles) and strategic vision
2. personal compatibility (can I work with this CEO/founder) and judgment
3. analytical skills to properly understand the business and its performance metrics
4. industry knowledge

Judgement, analytical skills and industry knowledge combined probably go a long way toward defining "how an entrepreneur thinks". (May need to add a dash of strategic thinking.)

Business plans and investor presentations are the first opportunity to demonstrate analytical skills and industry knowledge to an investor. However, most entrepreneurs present what they think is just enough to get to the next step with the investor rather than full blown, analytical thinking on industry, distribution alternatives and competition. The lack of this detail is part of the reason VCs have to spend so much time to confirm the size of the market opportunity. I also think many entrepreneurs fear that they will have nothing to say at subsequent meetings if they present a complete analysis at the first meeting or in the first document. Of course, the investor having to drag information out of you may raise questions about how you think about the industry, especially when the critical risk factor only surfaces two hours into the industry discussion.

Many, many entrepreneurs also fail to properly use their financial models to demonstrate analytical skills and industry knowledge. While not all investors will read a business plan, it is rare for a financial model to go unread. The financial model is an excellent place to make clear the business model. (For the distinction between a financial model and a business model see this post.) By properly developing the business model one makes clear the growth driver(s) and the pricing and sales/distribution strategy. The key assumptions that build up to provide this analytical clarity typically also use values which can be confirmed against industry norms (further demonstrating industry knowledge).

In my definition of business model I also included capital expenditure requirements and headcount plans. Capital expenditure requirements are an excellent way to demonstrate industry knowledge, especially in telecom, Web 2.0, mining (a recent prospect) and SAAS, to name a few industries. For example, if you are presumably going to scale your Web 2.0 business, how are you going to manage the increasing need for servers and database storage. A complete CAPEX plan would make this obvious and demonstrate both analytical thinking and industry knowledge. Detailing a headcount plan is one of the best ways to demonstrate how you think about the business and your logic. Putting in 5 "C" level executives or 10 sales people the day after funding says quite different things about how you think about growth strategy and capital efficiency.

If you follow this approach to your presentation or financial model for an investor, you will give Matt and his VC industry cohorts a lot of insight into how you think about your business. And, as I said in yesterday's post, give the investors the information they want.

Better Public Speaking

I have been working with a client to prepare a company presentation for a conference in Brazil with 5000 expected attendees. This presentation will launch the client's service offering in a large, new market and the revenue opportunities dwarf any other client market. We have fine tuned the presentation slides and content and today began practicing oral presentation. I was very surprised that two mature, international executives could be so raw, nervous and nearly terrified of the 5000 person audience, particularly given that both are very effective one-on-one salesmen.

There are many blog posts and websites to improve presentations and public speaking, but I have one tip to share. Teaching is an excellent way to learn public speaking. Teaching accustoms you to an audience and forces you to coordinate information/slides, voice and physical positioning (typically no podiums in classrooms). Students are an easier audience to start with because inherently students respect their teachers (initially). Also, students are usually relaxed and indirectly provide meaningful feedback through their attention span, posture, comments and questions.

Now to clarify, I am not telling everybody to become a college professor. Most community and non-profit organizations that you are involved in provide some form of education or training. Volunteer to teach and you will become a better public speaker and hopefully your first audience will not be 5000.

Hint: If you speak more than one language, teach in all the languages. I find that speaking skills in one language do not necessarily transfer to the second language (perhaps because of different cultural assumptions associated with different languages).

Better Presentations

From the launch of PowerPoint, this application has only grown in usage if not popularity. The initial presentation to a VC is now referred to as "a 10-15 slide deck". In fact, when was the last time you saw a presentation not done in PowerPoint? The quality of presentations has generally not kept pace with the popularity of the software. Many pundits even blame PowerPoint itself for the countless tedious and confusing presentations we all sit through. (Not only do we blame Bill Gates for the software but now also for the output from the software. Next we can blame him for having to do the presentation because the software made it possible.)

In an effort to improve their presentations, many people have studied Edward R. Tufte and his most recent book, Beautiful Evidence. My problem with Tufte is that, not being an artistic or graphical genius, I find it hard to translate his concepts into practical improvements to my presentations. However, I have now found an incredibly useful guide for to how to improve presentations (and any other type of visual communication). Stephen M. Kosslyn, a psychology professor at Harvard, has published Clear and to The Point. (It's also a bargain at $16.95.) Professor Kosslyn is an expert in visual communications and has developed 8 principles for making successful presentations, which I summarize below:

1. Relevance--tell only what they need to know to get the message (hint: people rarely complain about a presentation being too short)
2. Appropriate Knowledge--speak to the level of your audience (hint: when in doubt define your terms)
3. Salience--our eyes are drawn to perceptible differences (hint: all the background templates in PowerPoint distract from the message
4. Discriminability--we can only perceive large differences (hint: pick the graph type which draws the greatest attention to your point
5. Perceptual Organization--we naturally organize visual information into units or groups (hint: using the same color makes us group objects)
6. Compatibility--visual content should match the audience expectations (hint: don't use red numbers to show increasing profitability)
7. Informative Change--signal changes in topic or data visually (hint: change color for forecasted results when also presenting actual)
8. Capacity Limitations--we have an inherent limitation on the information we can process (hint: stage complex diagrams to increase understanding

This review may not do justice to the insight and clarity of this excellent book which is easy to read, chock full of examples and filled with illustrations of the principles. It is the best book I have found so far on how to improve presentations--especially in PowerPoint.

Hint:  reading the book with one of my PowerPoint presentations in front of me was particularly helpful.

Life Instructions

One of the things that always impresses me is simple, elegant design. This graphic summary of advice on life comes from Bad Language, a marketing blog. If they had added a box for lifetime learning, it might have been complete.
 

clipped from www.badlanguage.net

Presentation: Art or Science

I make frequent presentations, which fall into four broad categories:

1. classroom presentations for my course in entrepreneurship
2. workshops at the Pino Entrepreneurship Center at FIU
3. status reports to clients on findings and recommendations
4. client presentations to investors

My presentations skills have been helped greatly by three blogs which all have a different focus-Extreme Presentation,  Create Your Communications Experience, and Presentation Zen. These blogs are particularly helpful because their advice is both logical and practical and the examples cited expand your understanding of the advice. The most important lessons from these blogs are:

1. Show your real self to the audience so that listeners can relate to you
2. Use stories and jokes to engage the audience and illustrate your points
3. Simple visual slides are more effective than lots of prose
4. Don't hide behind a lectern and be active and animated when you present
5. Understand what the listeners want from the presentation--not what you feel compelled to discuss
6. Don't use music and fancy slide transitions--they distract from the message and annoy listeners

Follow these simple rules and you may avoid the dreaded "death by Powerpoint".

So, now--is presentation art or science? The answer to this question actually does not matter. If you follow the advice above and in the blogs I listed, you can become a very good presenter, which is all most of us need to do. If you plan to be a televangelist or sports celebrity, hire a good presentation coach and still study presentation.