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Friday, 18 December 2009

Foreign Buyers Take Manhattan

KENNY TIMMONS has spent three long weekends in New York City since 2003, catching up with friends he knew in Ireland, visiting ground zero, restocking his wardrobe at Armani and Niketown and chatting about real estate with a bartender in an Irish pub in Midtown Manhattan.

That was enough of a glimpse of New York for Mr. Timmons, a 32-year-old carpenter from County Meath, Ireland. Last summer, he put down 10 percent on a $760,000 studio under construction at 75 Wall Street.
Mr. Timmons has never seen the apartment and does not plan to live there. Instead, he hopes to rent it out for $3,000 a month when it’s finished next year and eventually to sell it at a profit.
He predicts that a Wall Street address will always be in demand. “If you can’t rent on Wall Street, then where can you rent?” Mr. Timmons said. “It’s one of the biggest business areas in the world.”
This enthusiasm for Manhattan real estate isn’t felt by just a few enterprising foreign buyers. Real estate brokers say that they are seeing more sales to foreign buyers than ever before and that these buyers are helping to fuel the Manhattan market.
The increase in demand comes as a new tide of high-rise condominiums is hitting Manhattan. Buyers from other countries who don’t have credit histories in the United States or who do not intend to use their apartments as primary residences have historically had trouble passing muster with co-op boards. But condos pose no problem for foreign buyers, and they often find that buying in Manhattan is less expensive than buying a comparable house or apartment in cities like London.
Jonathan Miller, an executive vice president and the director of research at Radar Logic, estimates that foreign buyers have bought about 1,000 newly constructed or converted condos in Manhattan in the last 18 months, which is about a third of the condo sales in Manhattan in that period.
And while in the past an influx of foreign buyers could often be traced to boom times in a particular country, brokers say that the interest in Manhattan real estate is now worldwide, with buyers from Australia, Korea, Russia, Israel, Italy and Colombia.
“In the late ’80s, we totally depended on the Japanese market,” said Louise Sunshine, development director for the Alexico Group, who has sold apartments to foreign investors for more than two decades. “It’s a diversity of a different kind. There’s a huge amount of new wealth everywhere.”
In her work on several Manhattan condo projects, Ms. Sunshine sees this changing market up close. Buyers from five continents inquired about condo suites at the Mark Hotel at 25 East 77th Street, she said, and people from Dubai, Indonesia and Portugal bought apartments at the Laurel at 400 East 67th Street.
Manhattan real estate is also benefiting because buyers have lost confidence in other United States markets, especially Florida. “There is the fear factor that prices are going to go down even further,” especially in Miami, said Jacky Teplitzky, an executive vice president at Prudential Douglas Elliman.
She said that she had seen a 20 percent jump this year in inquiries from Latin Americans about the Manhattan market and recently, more inquiries from Eastern Europeans, specifically Russians.
Some buyers first learned about boom markets in their own countries. Mr. Timmons rose through the ranks, handling the carpentry for 1,000 houses built by Hollioake Homes, a construction company in Ireland. He built another 11 homes on his own to resell.
Now that the Irish housing market is slowing down, he has been buying condos under construction in Dubai, London and Warsaw. He read about the Manhattan market in an Irish newspaper and to find his apartment here, he worked with a Dublin broker, Kyle Thomason, who is also licensed to sell real estate in New York. Mr. Timmons said he plans to work for another 10 years, pay off his mortgages and then live off his rental properties.
Ms. Thomason said that Mr. Timmons is like many of her clients in Ireland who view these properties purely as investments. They typically don’t ask quality-of-life questions — about schools, for instance. “It’s all based on what their rental yield is going to be,” she said.
Not all buyers are investors, of course.
After Ana Maria Ruiz, 22, who is from Bogotá, Colombia, got an internship at the Colombian Government Trade Bureau in New York, she needed a place to live. Her parents, who run a general hospital in Bogotá, tried to rent an apartment for her, but decided against it because of the costs involved and because they had no credit history in the United States, which put off prospective landlords.
Renting a studio for a year in one building would have been expensive: $33,600 in rent, with half of that amount paid upfront, plus an $8,400 broker’s fee.
“My mother said that renting was like throwing your money in the trash,” Ms. Ruiz said.
She added that her mother, Clara, already had some experience in foreign investment. She is making almost $1,600 a month renting out a one-bedroom apartment she bought near the Louvre in 2006, Ms. Ruiz said. And since the weakened dollar had made the Colombian peso more valuable, her mother decided to buy an apartment in New York where Ms. Ruiz could live for a year.
With help from their broker, Jamie Breitman of Bellmarc Realty, the Ruizes found a $499,000 studio at 145 East 48th Street, with a view of the Chrysler Building. Clara Ruiz arranged for a $100,000 mortgage through Merrill Lynch, where she had a private banking account. Once her daughter moves out of the apartment, Mrs. Ruiz hopes to rent it for $3,000 to $3,500 a month.
Brokers say that Korean families who are buying Manhattan apartments typically use them for relatives to live in rather than as rental investments. So they sometimes hold out for features they would expect in their own homes.
Youngchul Kim and his wife, Namjoo, first began looking for a Manhattan apartment in 2003 when their middle daughter, Yoojung, 31, began working as an architect here. Mr. Kim invests in Korean real estate, and his wife has a practice treating patients with acupuncture and herbal remedies.
But the Kims were a bit perplexed by what passed for luxury in Manhattan. They wanted to buy something new and didn’t understand why people would pay a premium for a prewar apartment. But then their daughter moved to Hong Kong, so they suspended their apartment search.
Last year, the Kims’ youngest daughter, Heekyung, moved to Manhattan to work for a venture-capital firm, so the family started apartment-hunting again. “A lot of Korean people automatically associate westernization and modern architecture with luxury,” said Ms. Kim, 26. “For them ‘safer’ is new construction.”
The Kims first gathered information about condos at a presentation held in Seoul by Neal Sroka, a broker with the Corcoran Group.
Mr. Sroka mentioned the Avery at 100 Riverside Boulevard. They studied the project’s Web site and liked the fact that it showed the views from the apartments. The Kims were also able to talk to friends who had bought real estate in Manhattan, and they were able to take advantage of new South Korean government rules that allow citizens to invest $3 million abroad, instead of $1 million.
This summer, the Kims helped Heekyung buy a $1.5 million two-bedroom at the Avery with views that rival their views of the Han River from their apartment in Seoul. Their oldest daughter, Yeonjung, 32, may relocate from Korea to live with her.
For some buyers, New York itself is the main attraction, and they like the fact that they can buy apartments in buildings that are recognizable around the world from books and movies. Dr. Nick Kotsomitis, a 39-year-old orthodontist from Brisbane, Australia, owns 16 investment properties in Australia and in Greece.
After Dr. Kotsomitis was invited to work in Manhattan for part of the year, he decided to buy. With help from a family friend, Jimena Yudi, a broker at Citi Habitats New York, he chose a $1.885 million studio at the Plaza over larger one- and two-bedroom apartments that cost even more elsewhere.
He felt that an apartment at the Plaza would hold its value better than larger apartments in lesser-known buildings. “I have a lot of investment properties, and none of them have books about them,” he said. “They filmed ‘Crocodile Dundee’ here.”
In his case, the currency markets set him back. He ended up paying more when he signed the contract in August than he would have paid today because the Australian dollar has strengthened in the interim, but he says he is still happy with the purchase.
But foreign buyers quickly learn that there are limits to what they can buy in Manhattan, because it is difficult for them to get into co-ops, which make up about 70 percent of the Manhattan housing held by individual owners.
When Nick Ayer moved to Manhattan from London, he was looking for a writing job and a way to invest a £500,000 inheritance (about $1 million). He made a cash offer of $700,000 for a one-bedroom co-op in Chelsea.
The sellers accepted the offer, but the co-op board refused to meet with him. He said he believes that although he has United States citizenship — his mother, Dee Wells, was American — he had no credit history in the United States or steady income beyond the inheritance from his father, Sir Alfred J. Ayer, the philosopher and logician.
Still, he wanted to take advantage of the weak dollar and buy an apartment. His agent, Andrusha Bohackova of Bellmarc, helped him find a $668,000 one-bedroom condo at 230 Riverside Drive. He moved into the apartment in April and says he’s happy with his investment — for now. He hopes to sell the apartment eventually, move to France or the Amazon and live off the profits. “My money increased 100 percent by just coming over here,” he said.

Friday, 11 December 2009

Your Brain at Work

The neuroscience of mindfulness

The neuroscience of mindfulness: Simply put, with no religious overtones.

We generally think of mindfulness as an idea that has been around for thousands of years, originally emerging out of Buddhist traditions. Many Buddhist researchers are doing great studies showing that mindfulness has an impact on many aspects of human experience.
I have a bit of a problem with that. When you understand the underlying physiology of mindfulness, you begin to see that any discussion about human change, learning, education, even politics and social issues, ends up being about mindfulness. That's because mindfulness, in some ways, is simply the opposite of mindlessness. And mindlessness is the cause of a tremendous amount of human suffering.
I have a problem with something as important as deeper thinking being linked to any religion. Not because I have anything against Buddhism or against any religion at all. (Of all the organized religions, Buddhism appears to be one that generates a minimum of human conflict.) The reason I have a problem is it's hard enough getting across the idea that being mindful is useful, without activating a threat response from the billions of non-buddhists who could benefit from it.
The value of a secular approach
One of the reasons mindfulness can be difficult to talk about, in particular when discussing mindfulness with the busy people who run our companies and institutions, is that these people tend to spend little time thinking about themselves and other people, but a lot of time thinking about strategy, data, and systems. As a result, the circuits involved in thinking about oneself and other people, the medial prefrontal cortex, tend to be not too well developed. I write more about this in a paper called ‘Managing with the brain in mind' recently.
Speaking to an executive about mindfulness therefore can be a bit like speaking to a classical musician about jazz. It might look like they could play a little Coltrane, because they deal in sounds, but they don't really have the circuits for it. We don't take well to learning new skills, especially in later life, and any reason to not focus on a new skill, like it being linked to a religion other than yours, doesn't help.
I have taught mindfulness to deans of medical schools, to senior executives at major technology firms, and to MBA students from dozens of countries. When you explain step by step, how it works and how it effects your brain, and give people a chance to experience it, even the most cynical, anti-self-awareness agitator can't help but see that they will be better off practicing this skill. The key is to be able to explain the actual neuroscience involved. Here's some of the highlights of how mindfulness impacts the brain, from Your Brain at Work:

Mindfulness and the brain
A 2007 study called "Mindfulness meditation reveals distinct neural modes of self-reference" by Norman Farb at the University of Toronto, along with six other scientists, broke new ground in our understanding of mindfulness from a neuroscience perspective.
Farb and his colleagues worked out a way to study how human beings experience their own moment-to-moment experience. They discovered that people have two distinct ways of interacting with the world, using two different sets of networks. One network for experiencing your experience involves what is called the "default network", which includes regions of the medial prefrontal cortex, along with memory regions such as the hippocampus. This network is called default because it becomes active when not much else is happening, and you think about yourself. If you are sitting on the edge of a jetty in summer, a nice breeze blowing in your hair and a cold beer in your hand, instead of taking in the beautiful day you might find yourself thinking about what to cook for dinner tonight, and whether you will make a mess of the meal to the amusement of your partner. This is your default network in action. It's the network involved in planning, daydreaming and ruminating.
This default network also become active when you think about yourself or other people, it holds together a "narrative". A narrative is a story line with characters interacting with each other over time. The brain holds vast stores of information about your own and other people's history. When the default network is active, you are thinking about your history and future and all the people you know, including yourself, and how this giant tapestry of information weaves together. In this way, in the Farb study they like to call the default network the ‘narrative' circuitry. (I like the ‘narrative circuit' term for every-day usage as it's easier to remember and a bit more elegant than ‘default' when talking about mindfulness.)
When you experience the world using this narrative network, you take in information from the outside world, process it through a filter of what everything means, and add your interpretations. Sitting on the dock with your narrative circuit active, a cool breeze isn't a cool breeze, it's a sign than summer will be over soon, which starts you thinking about where to go skiing, and whether your ski suit needs a dry clean.
The default network is active for most of your waking moments and doesn't take much effort to operate. There's nothing wrong with this network, the point here is you don't want to limit yourself to only experiencing the world through this network.

The Farb study shows there is a whole other way of experiencing experience. Scientists call this type of experience one of direct experience. When the direct experience network is active, several different brain regions become more active. This includes the insula, a region that relates to perceiving bodily sensations. The anterior cingulate cortex is also activated, which is a region central to switching your attention. When this direct experience network is activated, you are not thinking intently about the past or future, other people, or yourself, or considering much at all. Rather, you are experiencing information coming into your senses in real time. Sitting on the jetty, your attention is on the warmth of the sun on your skin, the cool breeze in your hair, and the cold beer in your hand.
A series of other studies has found that these two circuits, narrative and direct experience, are inversely correlated. In other words, if you think about an upcoming meeting while you wash dishes, you are more likely to overlook a broken glass and cut your hand, because the brain map involved in visual perception is less active when the narrative map is activated. You don't see as much (or hear as much, or feel as much, or sense anything as much) when you are lost in thought. Sadly, even a beer doesn't taste as good in this state.
Fortunately, this scenario works both ways. When you focus your attention on incoming data, such as the feeling of the water on your hands while you wash up, it reduces activation of the narrative circuitry. This explains why, for example, if your narrative circuitry is going crazy worrying about an upcoming stressful event, it helps to take a deep breath and focus on the present moment. All your senses "come alive" at that moment.
Let's recap these ideas. You can experience the world through your narrative circuitry, which will be useful for planning, goal setting, and strategizing. You can also experience the world more directly, which enables more sensory information to be perceived. Experiencing the world through the direct experience network allows you to get closer to the reality of any event. You perceive more information about events occurring around you, as well as more accurate information about these events. Noticing more real-time information makes you more flexible in how you respond to the world. You also become less imprisoned by the past, your habits, expectations or assumptions, and more able to respond to events as they unfold.
In the Farb experiment, people who regularly practiced noticing the narrative and direct experience paths, such as regular meditators, had stronger differentiation between the two paths. They knew which path they were on at any time, and could switch between them more easily. Whereas people who had not practiced noticing these paths were more likely to automatically take the narrative path.
This isn't just a theory. A study by Kirk Brown found that people high on a mindfulness scale were more aware of their unconscious processes. Additionally these people had more cognitive control, and a greater ability to shape what they do and what they say, than people lower on the mindfulness scale. If you're on the jetty in the breeze and you're someone with a good level or mindfulness, you are more likely to notice that you're missing a lovely day worrying about tonight's dinner, and focus your attention onto the warm sun instead. When you make this change in your attention, you change the functioning of your brain, and this can have a long-term impact on how your brain works too.
Why we need to keep being reminded about mindfulness
John Teasdale, recently retired, was one of the leading mindfulness researchers. Teasdale explains, "Mindfulness is a habit, it's something the more one does, the more likely one is to be in that mode with less and less effort... it's a skill that can be learned. It's accessing something we already have. Mindfulness isn't difficult. What's difficult is to remember to be mindful." I love this last statement. Mindfulness isn't difficult: the hard part is remembering to do it.
Practice, but you don't have to sit down and breathe.
So practicing mindfulness is important, as you're more likely to then remember to do it.
The key to practicing mindfulness is just to practice focusing your attention onto a direct sense, and to do so often. It helps to use a rich stream of data. You can hold your attention to the feeling of your foot on the floor easier than the feeling of your little toe on the floor: there's more data to tap into. You can practice mindfulness while you are eating, walking, talking, doing just about anything, with the exception of drinking a beer in the sun, which works for only a limited time before your attention leaves to go and party (the neuroscience of all that will have to wait for another book.)
Building mindfulness doesn't mean you have to sit still and watch your breath. You can find a way that suits your lifestyle. My wife and I built a 10 second ritual into the evening meal with my kids, which involves just stopping and noticing three small breaths together before we eat. The added bonus is it makes a great dinner taste even better.
What ever practice you do develop, practice it. The more mindful you become, the better decisions you will make, and the more you will achieve your own goals, rather than other people's goals for you.

Monday, 07 December 2009

Four Things 50 Cent Can Teach You About Connecting with Your Audience

I spent most of 2007 hanging out with Curtis Jackson, better known as Fifty Cent. Together we wrote a bestselling book about hustling, fearlessness, and power.

I’d like to share a couple of insights that arose from that collaboration.

After the remarkable success of his first two commercial albums, Fifty Cent stood on top of the music world. But his very success was starting to corrode his musical ability.

His sense of connection, so vital on the streets, was fading in this new environment he now inhabited.

He was surrounded by flatterers who wanted to be in his entourage, managers and industry people who saw only dollar signs in him. His main interactions were with people in the corporate world or other stars.

At the same time, he could no longer hang out on the streets or get firsthand looks at the trends that were just starting up.

All of this meant that Fifty was flying blind with his music, not really sure if it would connect anymore with his audience. Other stars didn’t seem to mind this; in fact, they enjoyed living in this kind of celebrity bubble. They were afraid of coming back down to earth. Fifty felt the opposite, but there seemed to be no way out.

Know your environment from the inside out

Most people think first of what they want to express or make, then find the audience for their idea. You must work the opposite angle, thinking first of the public. You need to keep your focus on their changing needs, the trends that are washing through them. Beginning with their demand, you create the appropriate supply. Do not be afraid of people’s criticisms—without such feedback your work will be too personal and delusional. You must maintain as close a relationship to your environment as possible, getting an inside “feel” for what is happening around you. Never lose touch with your base.
~ The 50th Law

An experiment in reconnection

In early 2007, Fifty decided to start up his own website. He thought of it as a way to market his music and merchandise directly to the public, without the screen of his record label, which was proving quite inept in adapting to the Internet age.

First, he decided to experiment. As he prepared to launch a G-Unit record in the summer of 2008, he leaked one of the songs on to the website on a Friday night, then the next day he refreshed the Comments page every few minutes and tracked the members’ response to it.

After several hundred comments it was clear that the verdict was negative. The song was too soft. They wanted and expected something harder from a G-Unit record.

Taking their criticisms to heart, he shelved the song and soon released another, creating the hard sound they had demanded. This time the response was overwhelmingly positive.

He put up the latest single from his arch-enemy The Game, hoping to read the negative comments of his fans. To his surprise, many of them liked the song. He engaged in an online debate with them about this and had his eyes opened about changes in people’s tastes and why they had perhaps grown distant from his music. It forced him to rethink his own direction.

Creating a radical connection

To draw more people to his site, Fifty decided to break down the distance in both directions. He posted blogs on personal subjects, and then responded to his fans’ comments. They could feel they had complete access to him.

Using the advances in technology, he took this further, having his team film him on their cell phones wherever he went; these images were then streamed live on the website. Made dramatic by Fifty’s flair for confrontation, membership grew by leaps and bounds.

As it evolved, the website came to strangely resemble the world of hustling that Fifty had created for himself on the streets of southside Queens.

He could produce testers (trial songs) for his fans, who were like drug fiends, constantly hungry for new product from Fifty; and he could get instant feedback on their quality. He could develop a feel for what they were looking for and how he could manipulate their demand.

He had moved from the outside to the inside and the hustling game came alive once more, this time on a global scale.

Four keys to the fearless approach

The public is never wrong. When people don’t respond to what you do, they’re telling you something loud and clear. You’re just not listening.
~ Fifty Cent

Fifty’s approach isn’t just for pop culture icons. His insights into rebuilding connection are universal.

Most of us live in a society of apparent abundance and ease. We lack a sense of urgency to connect to other people. In such a melting pot as the modern world, with people’s tastes changing at a faster pace than ever before, our success depends on our ability to move outside of ourselves and connect to other social networks.

At all cost, you need to continually force yourself outward. You must reach a point where losing this connection to your environment makes you feel uncomfortable, even vulnerable.

The following are four strategies you can use to bring yourself closer to this ideal.

1. Crush all distance

In this day and age, to reach people you must have access to their inner lives — their frustrations, aspirations, resentments.

To do so, you must crush as much distance as possible between you and your audience.

You enter their spirit and absorb it from within. Their way of looking at things becomes yours. And when you recreate it in some form of work, it has life. What shocks and excites you will then have the same effect on them.

This requires a degree of fearlessness and open spirit. You are not afraid to have your whole personality shaped by these intense interactions. You assume a radical equality with the public, giving voice to people’s ideas and desires.

What you produce will naturally connect in a deep way.

2. Open informal channels of criticism and feedback

When Eleanor Roosevelt entered the White House as First Lady in 1933, it was with much trepidation. Denied an official position within the administration, she decided to work to create informal channels to the public, on her own.

She traveled all over the country — to inner cities and remote rural towns — listening to people’s complaints and needs. She brought many of these people back to meet the president and give him firsthand impressions of the effects of the New Deal.

She opened a column in The Woman’s Home Companion, in which she let her audience know, “I want you to write me.” She would use her column as a kind of discussion forum with the American public, encouraging people to share their criticisms.

Within six months she had received over 300,000 letters, and with her staff she worked to answer every last one of them.

She began to see a pattern from the bottom up — a growing disenchantment with the New Deal. Every day, she left a memo in her husband’s basket, reminding him of these criticisms and the need to be more responsive. And slowly, she began to have an influence on his policy, pushing him leftward. All of this took tremendous courage for she was continually ridiculed for her activist approach, long before any First Lady had ever thought of such a role.

As Eleanor understood, any kind of group tends to close itself off from the outside world. From within this bubble, people delude themselves into thinking they have insight into how their audience or public feels — they read the papers, various reports, the poll numbers, etc.

But all of this information tends to be flat and highly filtered. It is much different when you interact directly with the public, hear in the flesh their criticisms and feedback. You create a back-and-forth dynamic in which their ideas, involvement and energy can be harnessed for your purposes.

3. Reconnect with your base

We see it again and again.

A person has success when they are younger because they have deep ties with a social group. Then slowly they lose this connection.

In his own way, the famous black activist Malcolm X struggled with this problem. He had spent his youth as a savvy street hustler, ending up in prison on drug charges. Out of prison he became a highly visible spokesperson for Nation of Islam, channeling his emotions into powerful speeches that gave voice to those who lived deep in the ghettos of America.

As he became more and more famous, he made an effort to inoculate himself from the psychic distance experienced by other successful leaders in the black community.

He increased his interactions with street hustlers and agitators, the kind of people from the lower depths that most leaders would scrupulously avoid. He made himself spend more time with those who had suffered recent injustices, soaking up their experiences and sense of outrage.

I knew that the ghetto people knew that I never left the ghetto in spirit, and I never left it physically any more than I had to. I had a ghetto instinct; for instance, I could feel if tension was beyond normal in a ghetto audience. And I could speak and understand the ghetto’s language.
~ Malcolm X

The goal in connecting to the public is not to please everyone, to spread yourself out to the widest possible audience. You have a base of power — a group of people, small or large, who identify with you. Keep your associations with it alive, intense and present.

Return to your origins — the source of all inspiration and power.

4. Create the social mirror

Instead of turning inward, consider people’s coolness to your idea and their criticisms as a kind of mirror that they are holding up to you.

Your ego cannot protect you — the mirror does not lie. You use it to correct your appearance and avoid ridicule.

The opinions of other people serve a similar function. You view your work inside your mind, encrusted with all kinds of desires and fears. Through their criticisms you can get closer to this objective version and gradually improve what you do.

When your work does not communicate with others, consider it your own fault. You did not make your ideas clear enough, you failed to connect with your audience emotionally. This will spare you any bitterness or anger that might come from people’s critiques. You are simply perfecting your work through the social mirror.

Tuesday, 01 December 2009

Building a First Class Executive Team Requires Objective Focus and Sometimes Tough Decisions

Beyond the investment opportunity, venture capitalists evaluate the start-up company’s executive team when making their decision to invest in an early stage company. This is the first thing they consider, once they determine the investment opportunity has merit. It is often said that venture capitalists invest in “the team”, as they would rather have an ‘A-team’ and a ‘B-product’ than a ‘B-team’ and an A-product’. Therefore, when developing an executive team for your start-up company, as an entrepreneur, you need to be very careful. This is not a “friends-based” decision. It requires objective focus, as to get to where you need to be requires an executive team that has proven experience in the business area your start-up company is focusing on, has the ability to make prudent business decisions, and can execute at a high-level in both good times and in bad. Also, in some instances, it requires the founder to make tough decisions and release certain individuals, as some executive team members may not work out in the long run. This article outlines some of the things that need to be addressed by entrepreneurs as you are building a first class executive team for your start-up company.

Executive Team – The Beginning

Start-up companies usually begin with an executive team that is composed of individuals that in their careers have worked together at one point in time or another. More often than not, one individual comes up with an “idea” or “concept” and passes this by one of his friends, usually a business or technical colleague. With this “idea”, these individuals decide to move forward and develop a start-up company. Many times, neither of these same individuals have had any experience in starting a company, or for that matter running and managing a business. But, they give themselves lofty titles, (CEO, CTO, and Vice President of Business Development) and are off to the races. Often this same initial executive team consists of a technical person and a business or marketing person. These two individuals, if they have the proper backgrounds, although not a complete team can take the start-up company quite far in developing an initial “idea” into a value added business proposition. On the other hand, if these same individuals lack the proper background, experience and focus, they often just spin their wheels trying to decide how to move the company forward. Therefore, as an entrepreneur, if you are starting a company look objectively at what you are trying to accomplish and do not build your executive team with “friends”, but with first class individuals that have the necessary and proven experience and ability to move your start-up company forward to the next level, securing funding. If you do not, investors usually pass on your company as they will not risk their money on executive teams with no or little experience. Remember, investors are looking to secure a substantial return on their investment and cannot afford to risk their monies on unproven and inexperienced executive teams.

Executive Team – Must Consist of Members that Contribute

Start-up companies need to accomplish many things with very little resources. Often the only real things they have are a “good” business proposition and a talented executive team. As such, from the beginning, all executive team members must step up and contribute at a high level. As with all teams, the complementary backgrounds and skill sets of the individual team members are necessary to put together a compelling business plan and associated value proposition that will provide a sustainable competitive advantage in the market. Anything less will not suffice. Therefore, each executive team member must commit themselves and their time and effort to achieving their near term goal of securing venture funding. If individual executive team members do not have the time or the necessary commitment to achieve this objective, then they need to be let go and this often requires making tough decisions by the founder and/or CEO of the company. Remember, securing venture capital is serious business and requires both commitment and significant contribution from all the members of your start-up company’s executive team. If you do not get rid of “slackers” your investors will once they make a decision to invest. Also, it is better to make these tough decisions early, as non-contributors more often than not have an adverse affect on the whole team, and in some instances can derail the whole start-up company. So, recognize this and build a strong, first class team, with individuals that have the willingness and desire to contribute in the effort and objective of securing funding.

Executive Team – Filling In the Holes

A start-up company’s executive team is almost always often incomplete. That is, your start-up company may be missing several executive team members or just a have a couple key executive positions that need to be filled. So, while you are building your start-up company, it is smart to keep your eyes open to new and talented executives that can fill in these holes in your executive staff, and at the same time help your start-up company to achieve both its business and technical objectives. These individuals are often hard to find, but can make an immediate and substantial impact, and at the same time be a key to achieving some important near term corporate objectives. Hence, by doing so, these same individuals can also heuristically move your start-up company forward in the venture funding process. Finally, it should be remembered that venture capitalists do not necessarily require a full executive team to invest in your start-up company. Consequently, these same venture capitalists would rather have a strong, incomplete and first class team that they can help develop with their contact base, than a complete team with questionable individual, executive team members.

Building a strong, first class executive team often makes the difference between a start-up company securing and not securing venture funding. So, as an entrepreneur, you need to be aware that initially building your executive staff with “friends” is not necessarily a smart move. Often it is smarter to wait and build an executive staff with key individuals that can have a substantial impact and at the same time help your start-up company to meet its goals and objectives. If you do not take an objective and focused approach to building your team, you will often have to make tough decisions later on to get rid of these same executive team members, as non-contributors or sub-par talent will not allow your start-up company to grow to its potential. Finally, remember you do not have to have a complete executive staff to secure venture funding, so focus on developing the best first in class team you can find. This will serve your start-up company well in the long run.

Friday, 27 November 2009

What happens in a family-owned business when a member wants to sell their share?

The articles are based on an interview between Al McClymont, CEO of Autologica Dealer Management Systems, and J.C. Aimetta, an expert and coach who specializes in family-owned businesses.
Al McClymont: Several companies I personally know of have suffered huge troubles that were even irreparable sometimes, both for the company itself and for the relationship among the members involved, the emotional relationships… when a family member decides they want to, or that they need to sell their share of the family business.

J.C. Aimetta: Well, in these cases, the first thing one should think about is how to avoid this actually happening, how to prevent the possibility of this happening.

First of all, we must distinguish between a person who sells because they want to, from a person who sells because they have to, because they have no choice, because they need the money for an urgent personal situation, an illness, a child who has a scholarship abroad, or something like that.

In this type of situation, the family-owned business should have a liquidity fund to be available, under equal conditions, for all partners to use in cases of personal emergencies. This liquidity fund, generally placed in investments that can quickly be turned into cash, implies an immobilization of funds that the family business usually does not want to have. But it is a guarantee, when an emergency situation arises, that prevents someone from being forced to sell their part.

Another thing to consider is that no one can sell unless there is someone willing to buy. Therefore, when someone wants to sell their part, it should be stipulated, written and signed, to whom the part must be offered. Because it is not the same to offer it to a brother, to a cousin, to the company itself (the company can reabsorb the partner’s part), or to a third party. Because when an angry family member decides to sell to someone who is not a part of the family, they are immediately including among the owners a person who is not a family member. In summary: the company stops being a family business.

In the next part of this interview, we’ll talk about how a family-owned business can reconcile the interests of family members who work in the company, with the interests of those members who don’t.