How About Some Fishing?

We offer our Clients both the opportunity to learn/implement new strategies and the ‘pair of hands’ type consulting services where we roll up our sleeves to get the job done. What we’ve learned during the past 20+ years can be summarized as follows:

Give a man a fish and he will eat for a day. (Approximate cost: $25.00)

Teach a man to fish and he will go out and buy expensive fishing equipment, stupid looking clothes, a sports utility vehicle, travel 1,000 or more miles to the “hottest” fishing spot, and stand waist deep in cold water for hours covered with mosquitoes and flies just so he can outsmart a fish. (Average cost per fish: $1,495.68 mileage may vary – depending upon time available, quantity of fish biting, ability to maintain a calm and quiet demeanor and the level of patience on tap)

Summary: We’re always glad to help you to reel in a big fish – even if it means getting wet.

Contact us today.

Are You Running a RevGen Machine?

Here are 10 things I think about when a Client comes to us for help with their website.

1) Is there actually a market for your product?
By that I mean, are you absolutely positive that you’re selling a product or solution that people are actively looking for online – and not finding? That, by the way, is the formula for a successful business. The best way to answer this question is to do keyword research and confirm whether people are using search engines to look for a solution to the problem your product addresses — but not having any luck finding one. Our two favorite keyword research tools are Wordtracker and those available to Google Adwords users.

2) Are you getting enough traffic?
Before you can really judge your website’s effectiveness, you need at least 1,000 unique visitors (not pageviews). If you’ve only had 100 visitors and haven’t made a sale, be patient! You just need more traffic. Once you’ve reached 1000 visitors, then you can begin to assess how effective your site really is.

3) Are you getting targeted traffic?
If you’ve had 1,000+ visitors to your website and you still haven’t made a sale, find out where your visitor traffic is coming from. That’ll help you know if it’s targeted or not. The best way to get top-quality traffic to your site is by bidding on extremely targeted keywords in the pay-per-click search engines. By “targeted,” I mean, keywords that speak directly to the people who are most likely to buy your product. If you drive 1,000 visitors to your site using targeted keywords in your PPC ads and you still don’t make a sale, then we know the problem isn’t the quality of traffic you’re getting. It’s your website.

4) Is your headline effective?
If your site doesn’t have a compelling headline that clearly communicates a powerful benefit, your potential Customers aren’t going to stick around to read your offer. Writing a better headline is usually the easiest way to fix a floundering website. If you get more people to stay on your site and read your offer, more people will buy your product.

5) Are you distracting your visitors from your main sales message?
You need to get rid of everything that distracts your visitors. This includes: links to other websites, Google Adsense ads, banner ads for other products, free articles that don’t support the sale…
Keep your visitors focused only on buying your product and your sales will go up.

6) Are you using testimonials effectively?
Like I said in last month’s editorial, testimonials are one of your most powerful selling tools. Nothing says, “Buy it now!” like an unbiased third-party recommendation. If your site is brand new and you don’t have any testimonials yet, give your product to a few friends or better still – industry colleagues and ask them to provide you with testimonials and photos / videos on how well it worked for them.

7) Does your guarantee take away the risk of buying?
A good guarantee is an essential selling tool – especially on the Internet. Unless you’re a major brand (like Sony, Apple, Nintendo) that your Customers inherently trust, you need to let them know you’ll stand behind your product. Reassure them that if they’re not 100% satisfied they can send it right back for a full refund. And remember, a longer guarantee usually results in more sales – and fewer refunds!

8) Is your price too high? or too low?
Most people know that if you price your product too high, you’ll hurt your sales. But this can also be true if your price is too low. People get suspicious when the price is far below their expectations. They think it’s probably “too good to be true” – and as a result, they don’t feel confident making a purchase. Use some common sense when it comes to setting your price and do your market research to know where you fit into the market – consider your objectives… How do you want to be perceived – as a high end provider or a low price outlet etc.

9) Is your ordering system easy to use?
Just because you can figure out how to navigate through your ordering process, it doesn’t mean your average Customer can. If you want to make sure your ordering system is “user-friendly,” find a few friends who aren’t very Internet savvy and get them to order your product. Watch over their shoulders and take notes. Where did they get stuck? Make sure you fix whatever problems they encountered – because your potential Customers are encountering them, too!

10) Do you have good salescopy?
If you aren’t using well-written salescopy to sell your product, then you’ll never achieve online success. It’s that simple. It doesn’t matter whether your particular site needs short copy or long copy, the fact will always remain: Your product isn’t going to sell itself! You need to find the right words to do the job. If you are not confident with your sales message, your text or your pitch, let us know, this is something we do for our Clients all the time… in fact, all of the above 10 items help to give you an idea of some of the services BoxOnline offers Clients to move their business forward so that they too can succeed with their online ambitions.

Valuation Algebra

Ever wonder why many smart investors are able to calculate valuations and other investment related numbers in their heads? During deal negotiations, this used to both amaze and confound me until a good friend explained the process in terms that almost anyone can understand. It took me a while but I think I can safely say that even sophisticated entrepreneurs don’t grasp how valuation math works. VCs talk about pre-money, post-money, and share price as though these were universally defined terms that the average citizen is expected to understand. To ensure that everyone is talking about the same thing, I started forwarding the following explanation. Folks, this is about the math behind the calculations, not the philosophy of valuation.

In a private equity or venture capital investment, the terminology and mathematics can seem confusing at first, particularly given that the investors are able to calculate the relevant numbers in their heads. The concepts are actually not complicated, and with a few simple algebraic tips you will be able to do the math in your head as well, leading to more effective negotiation.

The essence of a venture capital transaction is that the investor puts cash in the company in return for newly-issued shares in the company. The state of affairs immediately prior to the transaction is referred to as ‘pre-money,’ and immediately after the transaction ‘post-money’.

The value of the whole company before the transaction, called the ‘pre-money valuation’ (and similar to a market capitalization) is just the share price times the number of shares outstanding before the transaction:

Pre-money Valuation = Share Price * Pre-money Shares

The total amount invested is just the share price times the number of shares purchased:

Investment = Share Price * Shares Issued

Unlike when you buy publicly traded shares, however, the shares purchased in a venture capital investment are new shares, leading to a change in the number of shares outstanding:

Post-money Shares = Pre-money Shares + Shares Issued

And because the only immediate effect of the transaction on the value of the company is to increase the amount of cash it has, the valuation after the transaction is just increased by the amount of that cash:

Post-money Valuation = Pre-money Valuation + Investment

The portion of the company owned by the investors after the deal will just be the number of shares they purchased divided by the total shares outstanding:

Fraction Owned = Shares Issued /Post-money Shares

Using some simple algebra (substitute from the earlier equations), we find out that there is another way to view this:

Fraction Owned = Investment / Post-money Valuation = Investment / (Pre-money Valuation + Investment)

So when an investor proposes an investment of $2 million at $3 million ‘pre’ (short for premoney valuation), this means that the investors will own 40% of the company after the transaction:

$2m / ($3m + $2m) = 2/5 = 40%

And if you have 1.5 million shares outstanding prior to the investment, you can calculate the price per share:

Share Price = Pre-money Valuation / Pre-money Shares = $3m / 1.5m = $2.00

As well as the number of shares issued:

Shares Issued = Investment /Share Price = $2m / $2.00 = 1m

The key trick to remember is that share price is easier to calculate with pre-money numbers, and fraction of ownership is easier to calculate with post-money numbers; you switch back and forth by adding or subtracting the amount of the investment. It is also important to note that the share price is the same before and after the deal, which can also be shown with some simple algebraic manipulations.

A few other points to note:

• Investors will almost always require that the company set aside additional shares for a stock option plan for employees. Investors will assume and require that these shares are set aside prior to the investment, thus diluting the founders.
• If there are multiple investors, they must be treated as one in the calculations above.
• To determine an individual ownership fraction, divide the individual investment by the post-money valuation for the entire deal.
• For a subsequent financing, to keep the share price flat the pre-money valuation of the new investment must be the same as the post-money valuation of the prior investment.
• For early-stage companies, venture investors are normally interested in owning a particular fraction of the company for an appropriate investment. The valuation is actually a derived number and does not really mean anything about what the business is actually ‘worth.’

OK… how about a shortcut if there are existing investors and you know both how much they invested and also the percentage ownership they have. Let’s say that investor Z paid $4m for 12% of company Y. This translates to 100%/12% = 8.3 and $4m x 8.3= $33.3m. So from the perspective of investor Z, the company was worth $33.3m at the time s/he purchased the shares.

Valuation and VCs

There’s this dance that entrepreneurs and venture capitalists do when it comes time to negotiate the economic terms of an investment. And it all revolves around valuation.

The question is what is the fair value of the business? This supposedly establishes how much of the company the venture capitalists will own for their investment.

But I think the concept of valuation is often misunderstood by the people engaged in this process. And it’s particularly true in early stage investing.

I do not believe that negotiating a valuation on an early stage venture investment has much to do with the current value of the business. If it did, why would a venture capitalist agree to a $10 million value for a business that will lose money for the next 2-4 years and has little, if any, revenue?

The fact is that almost all venture capital deals are done as convertible preferred stock investments. That means that the money VCs invest is more like a debt instrument in the event the business doesn’t work out very well. VCs get their money out before the entrepreneurs do if the deal goes sideways or down.

It’s only in the event that the deal works out that the percentage of the business (the thing that valuation is supposed to determine) matters in terms of how much money everyone makes.

Another important factor to consider is that only a relatively small portion of early stage venture investments really work out in the way they were supposed to when the investment was made. The following is from a friend of mine and I thought it was brilliant so, I thought I’d share his thoughts here with you – He calls it the 1/3 rule which goes as follows:

1/3 of the deals really work out the way you thought they would and produce great gains. These gains are often in the 5-10x range. The entrepreneurs generally do very well on these deals (the VCs do even better).

1/3 of the deals end up going mostly sideways. They turn into businesses, but not businesses that can produce significant gains. The gains on these deals are in the range of 1x-2x and the venture capitalists get most to all of the money generated in these deals.

1/3 of the deals turn out badly. They are shut down or sold for less than the money invested. In these deals the venture capitalists get all the money even though it isn’t much.

So if you take the 1/3 rule and add to it the typical structure of a venture capital deal, you’ll quickly see that the venture capitalist is not really negotiating a value at all. They are negotiating how much of the upside they are going to get in the 1/3 of the deals that actually produce real gains. A VC’s deal structure provides most of the downside protection that protects their capital.

I think it is much better to think of a venture capital deal as a loan plus an option. The loan will be repaid on 2/3 of their investments and partially repaid on some of the rest. The option comes into play in a big way on something like 1/3 of the investments and probably no more than half of all of a VC’s investments.

There is more to this whole issue of valuation because there are often follow-on rounds where the deal between the venture capitalists and entrepreneurs gets renegotiated. Let’s save that for another time.

Success Manifesto

I’d like to take you through what I believe are the eight core principles to success.

These apply online, as well as offline, in all aspects of our lives and in every phase thereof. The 8 principles are the culmination of 20 years and $500,000 invested in all types of books, live seminars, videos, lectures, CDs, DVDs, tapes, courses e-books, magazine articles etc – I ate them all up like candy and distilled what I believe is the core essence to success.

Read through the following with an open mind, if some of them help you or match your lifestyle goals then, by all means – apply them to your life, if they don’t, then find a few that do, having principles and a code of ethics dictates who you are and who you turn out to be, and the sooner you find yours and live them, the sooner you’ll get what you seek.

Here are the 8 principles:
Principle #1 – Action
Principle #2 – Objectives
Principle #3 – Focus
Principle #4 – Discipline
Principle #5 – Time
Principle #6 – Just do it
Principle #7 – Communicate
Principle #8 – Leverage

Sowing seeds in a garden is only the first step in order to be able to harvest something later – all of the above steps need constant care and attention so that you will be able to reap the rewards of your efforts over time. Nothing in life worth having is instant – this is a process and will take some effort… but in my humble opinion, it’s worth the effort.

1) Act. That is essence is all I want to say about this particular principle. Ok, I want to add one or two more lines. “Act or ye shall be acted upon” Translation: get up off your lazy ass and do something today to help you move toward achieving one of your goals.

2) If you don’t set a specific and measurable goal as a destination, how would you know that you got there? Each of us needs to list goals and objectives for every area of our lives. Then, when we achieve one of our goals – we have something great to celebrate. There is a shortcut but you probably won’t believe me until it happens to you. One of my mentors told me years ago “Picture yourself already having achieved your goal. Make the picture as vivid and real as possible and remember to see yourself in the end result of having achieved your goal.” This sounds easy and can be a really fun way to spend a few meditative hours but the fascinating thing about this technique is that it works – and it works really well.

3) This is something that all successful people have mastered. It does not matter what their chosen field was, they focused on achieving their goals and no obstacle stood in their way for long. In an age where instant gratification is the rule rather than the exception, attention deficit disorder seems to have replaced focus as the chosen path. My suggestion: Drop the ADD and pick up your list of goals, select ONE then do nothing else for 2 hours except work on achieving that specific goal. As with most things you need to get used to doing this so expect to get into a groove after a few attempts but make the effort and get started today.

4) Discipline has to do with choices. It links your goals with achievement and is an essential element to accomplishing your objecives. You need to know what is the best possible choice available to you to help you achieve your goal. Once motivation has subsided, usually it is discipline that gets the job done. Every successful individual I have ever read about or known personally, had an over abundance of self discipline.

5) The only finite resource we have is time. Don’t waste a drop. Enjoy the road and journey as much as you enjoy the destination. Work on efficient and effective activities – those things that are going to be moving you toward your end result. Ignore the rest and be sure to prioritize how you spend your day / week so that you maximize your achievement including time with friends and family.

6) Take responsibility for action and follow through. There is no such thing as quitting or turning back. You simply need to move forward and get the job done – that’s it. Just do it and do it with compassion, honesty and integrity.

7) If you are going to look at your life with the end result in mind then do the same for communication too. If your intended message is received crystal clear by the person with whom you are communicating then mission accomplished. One way to accomplish this is to collect your thoughts on the person with whom you are communicating and put on their shoes… say things to them in a way that they will understand – speak their language – use words that they too would use. Then test this by asking them to explain what they just heard in their own words and compare it to your intent.

8) We can leverage time, money and knowledge in the pursuit of our goals. When you outsource grunt work to others you are leveraging your time. When you can use OPM to achieve an objective and score a win-win in the process you are leveraging your money. Knowledge on its own is without much value until it is applied. Know where to go to get help with achieving your specific goals by doing a bit of research. If you need help, hire a specialist and get the job done… when you do this, you are leveraging knowledge as well.

It all boils down to this:
Know what you want
Make a plan to get it
Focus on your dream
Have the discipline to work on the goal regularly
Reserve time for what is important not what is urgent
Just do it
Remember to communicate effectively so that the core message is received as intended
Leverage your time and apply the abundant knowledge of experts to get what you want

Good luck and enjoy the ride!

Its all about ROI or is it?

There are more than 60 years of combined healthcare experience between our senior staff consultants to date. We are fortunate to have on staff the former chairman of the board of Point Pleasant Hospital, a 20 year veteran of HP Medical and other leading healthcare organizations and a former director of General Electric Medical Services covering a broad range of healthcare process and management issues for our Clients. To be a bit more specific, they consult some of the largest and most reputable hospitals in Switzerland on a wide variety of topics to help their Clients establish, clarify and meet specific business driven objectives. These objectives are often financial related but more recently, the focus has been on softer targets such as patient comfort, duration of stay issues, architectural interior designs that make guests feel more comfortable and improvements in efficiency through implementation of technology.

A few of the hot consulting projects today relate to topics such as implementing DRG and RFID. The original objective of diagnosis related groupings (DRGs) was to develop a patient classification system that related types of patients treated to the resources they consumed. Since the introduction of DRGs in the early 1980’s, the healthcare industry has evolved and developed an increased demand for a patient classification system that can serve its original objective at a higher level of sophistication and precision. To meet those evolving needs, the objective of the DRG system had to expand in scope. Today, there are several different DRG systems that have been developed. They include:

• Medicare DRG
• Refined DRGs (RDRG)
• All Patient DRGs (APDRG)
• Severity DRGs (SDRG)
• All Patient Refined DRGs (APRDRG)
• International-Refined DRGs (IRDRG)
• German DRGs (G-DRG)

The overall purpose of such classification is to improve ROI while simplifying insurance related issues and thus, many hospitals have DRG on their agendas modeling and improving upon what has been learned in the 20+ years of US experience and applying it to European healthcare projects.

The other hot topic is RFID which stands for radio frequency identification. Among other things, this allows for easier inventory taking if each product in a given organization such as a hospital has a tiny bar code sized RFID tag on it or embedded into it. The objective is not only to reduce theft but also to track items such as medicine so that each patient gets only the medicine that has been prescribed for that specific individual. This helps to reduce the many deaths caused by human error when hospital staff mistakenly administer the wrong medicine to a patient during medicine distribution rounds.

Marketing vs Sales

Ok, I admit it. I’ve wanted to tackle this one for years and now I’m going to do it. Ready?
Most entrepreneurs and many business people confuse and combine marketing and selling and this has got to stop because they are two very different types of activities. Please allow me to explain.

What exactly is Marketing? (most entrepreneurs get it wrong)
Marketing is bringing the market to desire your product or service. The aim of marketing is to make selling superfluous. The biggest obstacle to marketing effectiveness is attention span. Human attention has become the scarce resource of the information age. When you add it all up, more information is being generated in the next 24hrs than you could absorb in the rest of your lifetime. Paying attention is rare because time is scarce. Your marketing needs to break through the ever present information smog so that it gets the attention you want from your target audience. In an attention deficit society, consumers are forced to look for shortcuts. One of the most popular shortcuts today is to find an expert or a specialist that can do the thinking for you and then, even make decisions for you. Dan Kennedy said “Most people are simply wandering around with their umbilical cord in hand looking for a place to plug it in” Give them something to plug into with your marketing message.

What is Sales?
Sales activities get people to take action. Selling is about converting a prospect into a paying Customer. You may achieve this verbally in person, over the phone or in a recording or you may get results by using a well written and compelling sales letter. Your focus with sales is to get the order. Your focus with marketing is to create desire. It is usually that simple.

A bit of comparision: Sales effectiveness can be easily measured. Marketing effectiveness is a bit softer and thus, I would suggest to use marketing systems, strategies and tactics whose performance can be measured with metrics relevant to your business. Spend money on a good sales person and measure his/her performance but never throw money at marketing campaigns that don’t allow you to track conversion rates easily.

State of the Art

Over the years we have consulted a number of primary care facilities and made suggestions or at the very least, strong recommendations to help each organization increase profitability. The issue most hospitals struggle with is achieving a balance between generating a profit and providing high quality patient care. One thing is often overlooked and that relates to vendor relationships and the cost of maintaining them. Processes can be streamlined but not many hospitals have stepped up to the plate and taken account of how each vendor fits into their processes so that they actually contribute to the hospital’s profitability and efficiencies at the same time. I remember sitting with the president of a large medical products company, who said, “We’re getting very good at mowing the lawn around the tower of Piza, without ever asking why the tower is there or even why it is leaning.”

At one point, several hospitals asked this vendor to consider becoming a prime vendor, a “master supplier” who channels supplies from a variety of sources through one warehouse into the hospital’s receiving dock with consolidated invoicing. The president assembled a small team and asked them to follow the supplies downstream from the hospital receiving dock, to the points of patient consumption in several large hospitals. The team developed a systematic channel map and noticed a very disjointed, redundant supply channel. In the first segment, the company received hospital orders, picked the supplies, packed them, shipped them to the hospital, and invoiced for them. In the second segment, the team saw the mirror image once the supplies reached the hospital: The hospital issued the orders, received the supplies, unpacked the boxes, put the supplies away in the stockroom, and paid the invoices. In a third segment, the hospital wards ordered from the stockroom and put away the supplies. The conclusion drawn was that the materials management organizations were costly, but they also found very large pockets of hidden costs in areas such as nursing. When the team looked into these findings, the hospital personnel had a difficult time accepting the actual cost. They found that the total cost of a “delivered” product at the patient’s bedside was about $5.00, contrasted with the $1.00 sales price at the hospital dock. Of the $4.00 increment, the internal hospital supply chain costs comprised about half, while the other half represented other internal factors.

A startling new perspective emerged: Over 80 percent of the business was outside the company’s traditional business definition.

The company defined the boundary of its supply chain as the hospital receiving dock, and had always assumed this business definition. New communications and computer technologies, however, had given it the capability to extend that boundary far into the Customers’ operations for their mutual benefit. The net result is that processes in the hospital were addressed to allow for less expensive delivery and more efficient use of hospital resources to help increase profitability. Without the vendor’s input, this insight into potential cost savings would not have made it into board level discussions and thus action that helped the hospital in the above example increase their bottom line by more than 14% last year. All thanks to the state of the art technology implemented by a company in the medical products supply chain. Do they sell more products to hospitals like this today? No question was the most recent response we received when we followed up with our report. If you are curious about what we recommended to the hospital board, the answer can be summed up in a single phrase: A stockless sytem. Below are a few of the immediate benefits they were able to realize.

Cost reductions. The stockless system created large cost reductions for both channel partners. The hospitals eliminated several steps in the supply chain, and greatly reduced their inventory levels. Valuable space was released, and hospital personnel were redeployed into patient care. The vendor gained large, unexpected operating benefits because the stockless system eliminated the previously erratic hospital order pattern. Moreover, the business unit was now being paid to take and process the orders that were previously processed by the company’s customer service department.

Sales increases. The company’s sales increased dramatically, even in highly-penetrated accounts. This increase was directly driven by (a) the operations-to-operations relationship that formed between the head nurses on the wards and the company ward coordinators, who were personable lead hands from the warehouse, not sales reps; and (b) a near perfect service level allowing sales reps to focus on selling new products, rather than on solving supply problems.

CEO relationships. The division president was able to establish close working relations with the CEOs of the major hospitals because The system involved large savings and major changes. Several important new joint business initiatives resulted from these dialogs.

Competitive advantage. The company developed immediate strategic advantage over its competitors, enabling it to secure the largest, most profitable accounts. This occurred because Customers became evangelists in support of the new system, they established a proven track record for performance and published it and both companies committed resources to establish operations-to-operations relationships. Once the vendor established this new way of doing business, its competitors could not easily follow. Now that is what I call state of the art.