Autor: Nils Seebach

  • (a) Digital real estate investments

    Aside from being an eCFO I am also interested in personal investment decisions. Working with start-ups probably means that you are equity “rich”, cash poor and have plenty of private equity/capital exposure. In order to balance that exposure I personally invest in more “traditional” investment classes such as real estate, ETFs and large public company shares. Nevertheless, I do ask myself how my experience and current occupation can support my private investment decisions. Therefore this post outlines how digital tools can improve “old school” investments and help to build a balanced investment portfolio.

    Imagine you are looking to buy a vacation home and want to find out what the optimal location would be. Is it by the sea, mountains, country, city? Obviously buying a property will always depend on several “micro” factors. It has to be well-maintained and should a good “micro” location e.g. close to attractions, far away from highways, etc.

    Google search & maps:

    Google maps and research about the actual location on Google search will provide you with a solid understanding of the region and the micro location of your vacation property. Only 5 years ago it would have been pretty expensive to get a satellite image of your property (unless you had contacts within the CIA) and to search through all local newspapers to see if there is a nuclear waste facility next to your property. Today this can be researched and evaluated within minutes.

    Once you have made certain that your property has the correct “micro” factors it boils down to a pretty easy formula: will you be able to rent out the property at a price and for an occupancy rate that justifies the purchase price and related costs? What is our utilization rate and revenue?

    In order to evaluate these individual metrics within your formula Google offers some fantastic FREE tools that will help you to determine the following factors:

    Overall demand & supply: where does it come from? What are people looking for? How many properties at what utilization rate are already present in your market?

    Seasonality: when are people searching for a property in your area? How high is the search volume compared to markets you are familiar with?

    Advertising costs: how much is being spent on advertising in your local market? Will you be able to attract a substantial amount of visitors through Google/Facebook advertising?

    Regional trends: what is happening in your region? What other search terms are relevant? How much are existing properties being rented out for?

  • (b) Bankers, accountants, lawyers, consultants, fund raisers – how to deal with eCFO service providers

    Lawyers

    Depending on your business you should consider building a junior legal presence in your business to avoid having to pay high hourly rates for all legal related questions. This is especially important if you deal with legal questions, contracts etc. on a regular basis.

    If you do have to hire a lawyer always go for the best and somebody with specialized knowledge. If your counter party has to negotiate with a highly qualified lawyer it will save you more money in the long term compared to paying a slightly lower hourly rate. I would not engage one lawyer for everything but instead get an expert for each topic and use them as needed. That means a lot meetings and time spent on searching for various lawyers but it also means that you will get expert advice for each questions you might have. I would advice against large firms since work will usually be done by junior associates and you will only meet the partner for sales negotiations and billing purposes. Stick with small, specialized firms that know what they are talking about and do not have a deep hierarchy. Also note that lawyers will never tell you yes or no – they will always give you options so that you cannot blame them later on. If you know this, always make them spell out the costs, benefits and problems associated with each option so that you can make a well-informed decision.

    Consultants

    I am not a huge fan. They will generally tell you what you already know and bill you without mercy. Often an outside perspective can be very valuable but try to get that initially from new employees or hire individuals for specific projects, if you feel you should have an outside perspective. I am very hesitant to believe that someone else knows your problem better than you, if you are truly honest with yourself. Consultants also have the tendency to give advice and to not stick around for the execution of their brilliant plan – they are also not accountable for any of it. Would you work with an unaccountable, extremely expensive employee who does not like to execute? Why should the same not apply to consultants?

    Fund raisers and financing partners

    As a start-up you will get a lot of requests from these generally well connected senior industry players. They are generally great contacts and very valuable. If you are asked to pay without performance e.g. a retainer or similar up-front payments, I would suggest that you do not work with them. Performance-based pay is the only way to go and it shows that they are confident that they will deliver real value (deals, financing, clients).

    eCFO Tips: Remember your consultants/advisors will only be as good as the information you share with them. You should regularly update your advisors and MOST IMPORTANTLY the people who do the actual work on a daily basis (junior staff) at least once every quarter. Invite them over to your company and give them a general update on how things are going. This will ensure that they will provide you with sufficient advice. It will also save you money since advice will generally be better and you will not need as long to bring them up to speed if an urgent matter arises. Throw in some nice food and drinks and I am sure your work will always end up on the top of the pile 😉

    Even if you have built a good network of advisors make sure that they can grow with you. From time to time you should review if they still have sufficient scope to giveyou good advice. Sometimes you will outgrow advisors very quickly – you should replace them if it becomes obvious that the relationship no longer works. If you have chosen your advisors carefully and maintained a strong and communicative culture, it is most likely that your advisors will grow with you and continue to be valuable assets throughout the growth cycle of your business.

    eCFO Tips: Pricing – often it is going to sound like the hourly rates of your advisors are set in stone. This is not true – make sure that you negotiate not only the hourly rates but also yearly accumulated fees e.g. if you go above EUR50k you get an overall discount on all accumulates fees for next year. In addition, ALWAYS ask your advisors if they are willing to take some risks and enter into a performance agreement. Even if they do not end up doing it, you will find out how convinced they are with regards to actually being successful.

  • Guest post by Alexander Graf (www.kassenzone.de) „The Homer“

    Quick note: Alex writes about all things noteworthy in German e-commerce. I picked up on his post a couple of days ago and here is his full post in English:

    Based on frequent debates about various important or not so important e-commerce business models, I would like to introduce a new term, which I used for several years while working with my former colleagues at the OTTO Group. This term considerably shortens complex explanations and is simplifying communication. The term we are talking about is:

    “The Homer”

    Fans of the tv series “The Simpons” certainly can remember the legendary episode where Homer Simpson was asked to develop a new car for his rich brother Herb.

    Thanks to Homer’s dislike of the cars Herb’s company was creating, Herb decided his company needed a new car that would appeal to the “average” American. Despite the many objections of Herb’s employees, Herb encouraged Homer to follow his instincts in creating a car that American consumers would want to buy. Homer took charge of the project after Herb encouraged him to obey his gut when it came to what kind of car he wanted. Unfortunately, Homer’s creation was such a monstrously strange car, it cost so much to develop, and had such a high price tag, that Herb’s car company went out of business shortly after, with its building purchased by Komatsu Motors.
    This car was totally overloaded with features and bling bling, so that it no longer had a useful profile for potential customers. A similar situation has been established with in the e-commerce industry over the last five years. Several online stores were opened, that attracts attention through various features, but basically did not bring new customer benefits. The shop owners believe that they are doing everything right, based on so-called „best-in-class“ analysis. Good usability, great check out, a badge system for existing customers, Facebook ……. But in fact all of these things have absolutely no influence, when the business model behind these various features does not result in consumer benefits. Whenever I’m hearing at conferences or talks more about functions and features of online shops than about customer benefits, the term „The Homer“ suggests itself. So the badge system today is the big car spoiler of “The Homer”.

    In future posts I will certainly reference this post. Regular followers of Kassenzone should remember this term! By the way true Simpsons fans can bid currently on eBay for a Homer model.

  • Review of our Developer Conference Hamburg 2012 in video format…

    [youtube http://www.youtube.com/watch?v=F8PXpWapE94&w=560&h=315]

  • eCFO Tips continued….

    September & October 2012

    eCFO Tips: Always do a beauty contest when it comes to selecting advisors/service providers. No matter how small you are, always have at least 3 potential advisors compete for business. You will learn a lot through these interviews and it will be time well spent. Make sure you also invite people from various background e.g. individuals, small, medium and large firms.

    eCFO Tips: Remember your consultants/advisors will only be as good as the information you share with them. You should regularly update your advisors and MOST IMPORTANTLY the people who do the actual work on a daily basis (junior staff) at least once every quarter. Invite them over to your company and give them a general update on how things are going. This will ensure that they will provide you with sufficient advice. It will also save you money since advice will generally be better and you will not need as long to bring them up to speed if an urgent matter arises. Throw in some nice food and drinks and I am sure your work will always end up on the top of the pile 😉

    eCFO Tips: Pricing – often it is going to sound like the hourly rates of your advisors are set in stone. This is not true – make sure that you negotiate not only the hourly rates but also yearly accumulated fees e.g. if you go above EUR50k you get an overall discount on all accumulates fees for next year. In addition, ALWAYS ask your advisors if they are willing to take some risks and enter into a performance agreement. Even if they do not end up doing it, you will find out how convinced they are with regards to actually being successful.

  • The Homer … not only for cartoons and e-commerce…

    Alex recently introduced „the Homer“ as a concept where features aka bells and whistles are more important than actual customer value (www.kassenzone.de) . Jochen picked up the topic in his blog as well (http://www.excitingcommerce.de/2012/09/der-homer.html). He is even asking for „The Homer of the Week“ to show that this is unfortunately not a rare event.

    For me this is also extremely relevant while managing a start-up from a financial perspective – instituting wonderful time tracking, controlling and analysis tools too often focuses on finding the perfect tool and not getting the best results. For a start-up, or for that matter for any company, any internal system should always be carefully looked at to see whether it adds real value or is just a wonderful „Homer“ for the project team, management and other stakeholders.

  • (a) Bankers, accountants, lawyers, consultants, fund raisers – how to deal with eCFO service providers

    As an eCFO you will have to deal with a range of different service providers. While making good decisions in this area help you to substantially improve your operations and allow you to run the business effectively, making bad decisions can be very costly to you and your new venture.

    I would recommend that you first understand your business well and then look for advisors. You should strategically pick advisors who understand your business and can help you develop it further. As a start-up you should have a good combination of old, reputable wisdom and young, start-upish advisors who will help you to rapidly grow the business. I have selected a few categories of advisors and provided my personal opinion of each. It would be interesting to get some feedback regarding your experience and “best practice for working with start-up advisers!”

    eCFO Tips: Always do a beauty contest when it comes to selecting advisors/service providers. No matter how small you are, always have at least 3 potential advisors compete for business. You will learn a lot through these interviews and it will be time well spent. Make sure you also invite people from various background e.g. individuals, small, medium and large firms

    Bankers

    Find a bank that clearly shows you a road towards obtaining a rating that will allow you to take small steps towards bank financed leverage. Initially, that might mean a conversion of your rent deposit, credit card limit extension and eventually working capital lines. In the beginning you will have a lot of interaction with your banker so make sure you have a personal contact and a strong backup team for daily requests. Secondly, make sure that they understand what you do and offer sufficient support through customized banking software or (in my opinion much more preferable) solid internet banking functionality.

    Fees and costs associated with your account should be minimal and waived for at least the first year. Remember you are giving them money and they will not extend any credit to you initially. You should not be paying for giving money to someone.

    Accountants

    Find an accountant who knows your industry, is extremely reliable and detail-oriented. There should be absolutely no excitement. In addition, it is great if they are looking for new business and are willing to deal with all the additional work of a start-up. An additional great attribute would be a close connection to the regional tax authorities to handle any problems on a personal level. We checked out accountants ranging from one-man shops to the Big Five and eventually settled with a firm that is rapidly growing and has close ties with several start-ups.

    From my personal experience I would strongly advice against one-man/woman shows or very small companies. You always need back-up in terms of systems and most importantly in regards to having multiple people who can work with your accounts.  I have seen a case where an accountant got sick and suddenly nothing got done anymore.  In addition, there is also nobody double-checking the work – as it turns out most of the work done by the sick accountant was either incomplete or wrong but this was only discovered after several months by the new accountancy firm and at additional cost. So overall I would recommend that you stay away from small firms and pay a little extra for some peace of mind.

  • Preemptive obedience … or focusing on the right thing at the right time…

    I just had a very interesting discussion with one of our CEOs. In essence it involved a heated debate on what to do with substantial accumulated funds of one of our portfolio businesses. Invest, save or distribute to shareholders – for me it was clear that a start-up needs to heavily invest if it sees an opportunity. Screw security, savings or distribution of returns! This often means taking on a substantial amount of risk and not focusing on those things that would be dear to a prudent eCFO. The CEO was totally surprised to hear that from me and said “that goes against everything you told us before. You made us focus on liquidity, told us we needed 3 month working capital in the bank and were not allowed to spend any money on stuff you considered not absolutely essential.”

    This clearly showed me the danger of over emphasizing certain points.

    Just because I firmly believe that liquidity is the one and only important measure for a start-up does not mean that once the business is generating cash it should not be re-invested. It also does not mean that I would suggest that savings and reserves should always be the right way to go. Each measure ALWAYS needs to be adopted to the environment it is applied to! Risks need to be taken once it has been sufficiently analyzed and understood – start-ups depend on the risk taking ability of its management.

    For me this is an important lesson that as an eCFO you have to continuously further the education and situational awareness of your team and the people you work with. Never assume that people will understand that each measure is only applied for a certain period of a business lifecycle. It also means that I need to improve my communication in regards to a healthy balance between risky and risk adverse behavior.

  • Team TAN

    If you are interested to hear more from the www.netimpact.de and www.etribes.de team make sure to read all of our blogs. Tarek, Alex and Nils (TAN ;)) post on relevant topics ranging from new marketing concepts for Facebook (http://www.tarek-mueller.de/), financial strategy (www.ecfo-startup.com) to e-commerce insights (http://www.kassenzone.de/).

    Enjoy!

  • Developer Conference Hamburg 2012

    This year we again had the great opportunity to host the Developer Conference Hamburg 2012 (http://www.developer-conference-hh.de/) with over 400 participants and speakers. As one of the largest developer events in Germany we were able to draw substantial talent from everywhere in Germany for this two day event.

    You might ask yourself as an eCFO whether or not such an event would be relevant for you … if you had asked me ahead of the event I would probably have answered that for an eCFO this event is a giant waste of time. After all how much do we interact with developers on a daily basis?

    At least for me the answer to this question is: clearly not enough! In most digital businesses there is a substantial lack of communication between the business and developer side of the company. I can go on for weeks with my daily tasks and not meet or talk to developers – this is a big mistake!

    During the conference you can often here and see that there is a profound distrust and massive misunderstanding between developers, project management, executives and business analysts. This is not good for the business and will make your daily tasks a lot harder. If interaction is not actively encourages you will never be able to accurately assess pricing estimates, development costs, project timelines and so on from the business side. This will require that you regularly work on your technical skill set and ability to interact with developers.

    As an eCFO you should foster an active interchange between your developers and all other sides of the business, since digital businesses depend on excellent and well understood development resources.