Only take on risk, if you're getting paid for it.

In Robert Kiyosaki's Cashflow 101, he has this rule.

If you are going to take on a huge debt, make sure somebody else pays for it. If you are to take in personal debt, make sure it is small.

This is a very important and smart rule. In this age of hyper competition, you can't take on huge risks and expect to recoup the investment peacefully. People are just ready to pounce on you while you're spread thin. If you're in debt, you lose flexibility and cash.

One way to pass on the risk is franchising. It's the backdoor to expanding while retaining control. It has the same magic like an IPO.

A good example is this story.

There's a service company who wants to expand but doesn't have spare cash for the project. We'll call it Clueless Inc.

Clueless Inc. needs to expand because it has secured contract projects that require geographical reach. Expanding will immensely secure it future contracts and further enhance the company's capabilities.

However, such an undertaking will force it to take in huge debts. Borrowing is not an option since the board has just gone through a rough decade of lean business and heavy interest payments. The memory is too fresh and painful.

The board has heard of franchising mainly from popular media. The board understands the concept but the application is vague and murky. None of its shareholders have undergone a franchising agreement before. Furthermore, the board doesn't want to share its business secrets to other people. It fears the new franchisees may become future competitors.

This is the problem of Clueless Inc. and there is an answer to it!

The good news.

1. If Clueless Inc. franchises, it gets to expand without taking any financial risk. It means spending nothing to open new branches. No debt to pay and no monthly interest payments to worry about.

2. Franchising means, Clueless Inc. gets paid to open a new branch. The franchisee, happily, pays it to help him start "his" business. In name it may be his, but in operation, it must conform to Clueless Inc.'s system. Experience is never cheap!

The fear.

The fear is some day, the loyal franchisee will turn against its master and bite back. Clueless Inc. worries that it will be breeding future competitors to an already crowded industry.

First we take a look at the vitals of the business. These are:
1. Experience
2. Reliable suppliers
3. Volume of transaction
4. Project contracts
5. Brand
6. Reputation

Experience
It takes years and thousands of mistakes to build up the business know-how. No matter what the franchisee does, it will be decades behind the mother company.

Reliable suppliers
The franchisee can source its own suppliers but it cannot get Clueless Inc.'s suppliers. Clueless Inc. can hide the information from its franchisee.

Volume of transaction
The franchisee on its own, doesn't have volume to bring down its costs. On the other hand, Clueless Inc., already has volume and is now bigger thanks to the new branches.

Project contracts
These contracts are secured by the mother company and the franchisee has no part in it. It is therefore immensely difficult to even copy.

Brand
A franchisee cannot build a brand because it'll be expanding Clueless Inc.'s brand further while being a franchisee. It will have to start from zero when it opts to end its franchising contract.

Reputation
Reputation takes time and has to be tested. Again, a new competitor will be decades behind.

To further abate its fear, Clueless Inc. can do the following.

1. Get smaller partners.
Never get bigger franchisee partners. To secure its control, financially smaller partners are all it needs.

2. Never be scared to remove errant franchisees
It is a privilege to be given a franchise. Once a franchisee breaches its contract, Clueless Inc. has to get a new franchisee for the area.

Clueless Inc.'s problem is very common. It can be applied to any business like a restaurant, barber shop or laundry service.

With Robert Kiyosaki's rule, any company can achieve bypassing risk and get paid for it.

It's now your turn to interpret the rule to your company.

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Success is 1% inspiration and 99% perspiration. Never tire.

Ways the high street shops could fight back and attract constumers?

Ways the high street shops could fight back and attract constumers?

The high street shops are closing down mainly because of internet shopping. how can the town counsil (sic) attract them back to avoid closing down the high street shops. I've got two ways: increase the number of self check outs and free parking or free buses.

any ideas?

Posted on Yahoo Answers, last week of April 2009


My answer...

The best way to help the high street shops are to promote service businesses. These are businesses that cannot be done over the internet. Examples are restaurants, beauty services, grooming services, massage parlors, car repair shops, etc..

You can use the usual tax perks, easy business registration processes, minimal government regulation to promote the birth of companies.

Another creative way is to make a town council-spearheaded activity that will encourage people to come to the town. Bring in the people to the town so they will be spending in the town.

In the Philippines, poor cities create their own local festivals. There's a mountain city called Baguio which created their own yearly flower festival every January. It just started ten years ago and now is a tourist attraction. The newspapers report on it because of the festive atmosphere and beautiful flower floats.

Make the festival newsworthy and make your place an attraction.


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Success is 1% inspiration and 99% perspiration. Never tire.

Can someone live truly teach me how to make money from home?

Can someone live truly teach me how to make money from home? Affiliate marketing, Forex, or something works?

Hi, I am Scott and lives in Chino, CA.

I am also a young 32-yrs-old Chapter president of a Christian organization name Full Gospel Businessmen Fellowship. I am a chapter president not because I am a successful businessman, it's only bcs I have a strong desire to spread the Gospel.

A 9-5 job would tied (sic) me up from what I am trying to achieve with this organization. My chapter is consistently bringing souls to Christ and I want to set up many more chapters like this.

Can someone truly teach me how to make money from home? I don't mind giving back a portion of what I earn to you if you are my trainer, but please don't offer me any MLM stuffs (tho I have nothing against MLM, it's just not what I am looking for now).

Another reason why I am asking for help is that I might move back to Taiwan in 2~3 years to allow my sons to go through elementary school to learn Chinese and heritages. I need something that would allow me to generate income online. And may be build a few more chapters there.

I am not really looking into making big money. If 3 hours a day would allow me to generate $3,000 a month, that would be enough. I live very foogle (sic).

Posted on Yahoo Answers May 2, 2009 3:09pm




My answer...

The easiest way to make money over the internet is to sell goods to the world.

Sell something that is turly unique to Chino, Ca. This way, the whole world can have access to your products and order from you.

Another suggestion is you can use the website as your store. Make it your cashier stand. You can buy or sell basic goods and sell it through the internet. Just make sure you sell it cheaper or else people will just buy from the office supply store.

You also mentioned that you already have a Christian organization. You can use this network to encourage them to order from you. Example: You can sell special stationeries (that can only be found in USA) and sell them to Taiwan. Your friends there are happy and you're happy.

The internet is not a magic answer. You will have to work on the business as well. If you just plan to work 3 hours a day, you'll only earn as much. The beauty of it though is you have a lower operating cost and thus you can either keep the savings or pass it on to your customers.

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Success is 1% inspiration and 99% perspiration. Never tire.

What can a brand tell you about the person who uses it?

What can a brand tell you about the person who uses it?
im doing a research about being a brand-conscious consumer.. thanks!

Posted on Yahoo Answers May 2, 2009 2:53pm

My answer...

Branding is the goal of associating a trademark or name to some emotion or attribute.

There are companies who develop brands and then stick these brands to as many products as possible to maximize the brand appeal.

If a person consistently buys a brand, whatever the product, then that person must believe in the brand's claimed attribute. Maybe the brand is trying to show that it is trustworthy so no matter what product they sell, you can trust that it is what it's claimed to be.

Some brands portray luxury and exclusivity like Gucci or Louis Vitton. Buyers of these brands then must like being part of an exlusive group. The feeling "I'm in and you're not" must really appeal to them. Another example is Nike. Nike associates itself to sports leaders and performance gears. So buyers of Nike either like the performance aspect of the product or they dream to be as good as the sports champions.

To learn more of the brand-conscious consumer, you should study first the brand and then the consumer type. Remember, the consumer may be categorized according to their disposable income, by their hobbies, by their sex, and more. Correlate the attributes of the brand to the specific type of consumer and you'll see how branding works its magic.



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Success is 1% inspiration and 99% perspiration. Never tire.

What are some entrepreneurial skills needed to be a bakery shop owner and boss?

What are some entrepreneurial skills needed to be a bakery shop owner and boss?

Posted on Yahoo Answers on May 2, 2009 2:42pm

My answer...

For one, you should know how to bake yourself. This way, your baker cannot ever fool you. This also frees you from being dependent on your baker. If ever you have an uncooperative employee, you can immediately fire him without worrying about losing his skills.

Second, manage your cashflow. For small businesses, cash flow is vital.

Let's say you're expecting a payment of $500 tomorrow but you ran out of cash to buy supplies for today. Without the supplies you can't bake and restock your shelves. Without the stocks, you'll lose potential sales today. Remember, cash is the lifeblood of the business. Your business lives and dies with it.

Third, do not spend beyond your means. The earnings today may not be all income. You may still owe your supplier for your earlier orders so remember to control your expenses.

Fourth, credit is good. Credit is good especially if it's your supplier who's extending it to you. You can order your supplies and sell your products before paying back your supplier. This setup is very smart. This way, it's your supplier who finances your business and you don't spend a single cent!

Good luck to you!


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Success is 1% inspiration and 99% perspiration. Never tire.

There's an easy way to retire!

This article is heavily inspired by Robert Kiosaki's books of Rich Dad Poor Dad and Cashflow 101. Thanks to his enlighteningly simple idea, the future is now brighter, simpler and within grasp.

To retire is divine! But to retire, you must have cash to enjoy it or at least possess the same amount of disposable income as you have now.

The secret is this: You must have a parallel source of income equal to your day job's income. This way, even if you resign from work, your backup income will still support your standard of living.

Sounds easy and yet something's missing... Here's the key. The backup income is called Passive Income. It is passive because it is money that is earned but is not primarily relied upon.

The best way to increase passive income is to make money work for you. Let money make more money! :D The most common way is rental income, stock market or (though I frown upon it) network marketing.

These three don't require your own hand's to earn money.

Rental Income. So simple. Buy a property and rent it out. Your capital earns for you but the downside is the return is small.

Stock Market. The epitome of the capitalist economy! Here your money can magically mulitply by a thousand in a matter of seconds. Again the downside is it's too quick to go south also. Courtesty plug: Read up on jonatsgonats' (http://www.jonatsgonats.com) stock analyses to help you choose the correct stocks.

Network Marketing. This requires initial hardwork as you build up your network. Once you have enough hardworking people under your network, you can stop recruiting and just wait for the bucks to come in. Sadly, the rules are sometimes complex and there are hundreds of fraudulent companies claiming to be legitimate ones. Because of this, I'd rather not encourage you to go further less you fall to pyramiding schemes.

Now, doing the three maybe simple but you may complain that the return is not worth your time.

Second factor to retiring is CASHFLOW. Increase your passive income from zero to something. Each Peso helps. No matter how small the passive income is, it is a start and don't forget, money is a magnet for more money. That's the law! It is true and you'll realize it.

Now that you've seen the light. Time to take action and incrase that passive income!






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Success is 1% inspiration and 99% perspiration. Never tire.

We do business with Confirmation Bias

In an experiment by P. C. Wason, the results show us that it is inherent in people to continuously discover data that will confirm one's decision. On the flip side, it also shows that once we've made a decision, we may unconsciously turn a blind eye to data that will prove wrong our decision.

Here's a very simple example.

In the book of Paul Caroll, he tells of a simple game. The objective of the game is to guess the rule that is behind a numerical sequence. In other words, one must discover what points will determine a 3 number sequence.

Example: 2, 4 and 6. This is a sequence of three numbers that can be produced from a rule that states: "Three digits of even numbers".

In the beginning of the game, the participants are encouraged to guess the hidden rule. The participants of the game can ask the moderator as many times as they want if whether a particular sample sequence fits the hidden rule.

Example 1: Participant A can ask the Moderator if the sequence " 12, 14, 16" fits the to-be-guessed rule.

At this point, the moderator can only confirm or deny the correctness of the sequence.

Example 2: Participant B asks whether "32, 34, 36" fits the to-be-guessed rule. Moderator answers "Yes".

Example 3: Participant B asks whether "208, 210, 212" fits the to-be-guessed rule. Moderator answers "Yes".

Example 4: Participant B asks whether "64, 62, 60" fits the to-be-guessed rule. Moderator answers "No".

Example 5: Participant B then guesses that the rule is "Ascending even numbers" but Moderator answers "No".

On the other hand

Example 6: Participant C asks whether "59, 60, 61" fits the to-be-guessed rule and Moderator answers "Yes".

Example 7: Participant C asks whether "71, 75, 452" fits the to-be-guessed rule and Moderator answers "Yes".

When everyone's done guessing, the Moderator gives the answer.

One may wonder why Participant B is wrong and Example 6 and 7 are a yes. Well, this is because the to-be-guessed rule is "Any three ascending numbers". Examples 1 2 and 3 fit the rule but Example 4 contradicts it by counting backwards. In fact, the sequence neither has to be even numbers nor increment by two.

In Wason's experiment, it turns out that only a minority or in some cases none get the answer. This simply shows that as one keeps getting confirming answers, a person gets the idea that he is correct and keeps on finding scenarios/ information that will further strengthen his belief. It is seldom that this person will think of the opposite and dare ask a paradigm shattering question like Example 6 which throws the rule of "Ascending even numbers" out of the window.

In business, this is common and plentiful. We must be careful to avoid Confirmation Bias. We must be always ready to take time and try to look from a different perspective.



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Success is 1% inspiration and 99% perspiration. Never tire.

How Can A Credit Crunch Hurt A Business

Definition of credit crunch from www.dictionary.com

noun

a state in which there is a short supply of cash to lend to businesses and consumers and interest rates are high 

Unless you're an exceptionally liquid company, you'll need credit to finance the company's operations. Here are some ways a cash shortage will hurt.

1. You have Post-dated checks that are maturing in three days but you need cash right now for payroll. You cannot skip payroll!

2. You have an order for your product, but you don't have the cash to import it. Lost business!

3. You plan to expand but you don't have a lump sum to build the store. Lost opportunity! The company could have used a loan and paid it in installments while taking advantage of the opportunity to expand.

Use credit wisely and money will surely attract more money!

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Success is 1% inspiration and 99% perspiration. Never tire.

How the 2008 Credit Crunch Started

Part I   Sub-prime mortages

It starts with the undisciplined lending of the banks in the recent years.  The banks, pressured with bringing in bigger profits, start to lend to sub-prime buyers.  These sub-prime buyers are people who are unreliable payers.  It starts out well while property prices continue to rise.  

With the 2007 almost-recession economy of the US at hand, the economy falters, companies start cutting costs and people lose their jobs.  Property prices start to fall at this point.

With no job and no money coming in, the sub-prime buyers start defaulting on their monthly payments and the banks automatically seize their properties, demanding their collateral and protection.  

However, here's the clincher.  Prices of the houses and lots have fallen so low that it is now cheaper to let the bank own the property.  How is this so?  

1.  The price of the property is now worth less than the loan.  Example, a buyer makes a loan of 100k to buy a 100k property but now the same property only sells for 70k.  It is much cheaper to let the bank seize the property at its current price of 70k.  The buyer can only sell it for 70k and he will not be able to recoup his 100k anyway.  

2. Owning properties will require the buyer to pay for annual taxes.  This is an added cost on top of the worsening value of the property.  

This situation is still a normal part of the banking business.  They have provisions for these instances and they are ready to handle these problems financially but the problem doesn't end here.

Part II  Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are for-profit private reinsurance companies established by the US government to buy the mortgages of the banks/ mortgage companies for a small fee.  This frees up the money of the banks/ mortgage companies to again get more mortgages.  This setup enbles the industry to grow faster than it will have been without these two reinsurers.

The problem continues here because as reinsurers, they end up as owners of the non-performing mortgages.  The banks sell to them and now Fannie Mae and Freddie Mac have billions of property owners not paying them.  

With the volume of defaults rising, the two companies raise their white flags and surrender.  

The problem could have stopped here but it's more complicated.

Part III   Collateralized securities

The banks and reinsurance companies, always looking for ways to earn more money and lessen their risks devises a way to spread the risk of these sub-prime mortgages.  They know these loans are riskier than normal and they want to sell them to private investors.  This spreads the risk of a 100k loan to 100 people instead of just one bank holding unto it.  

The banks and reinsurance companies compile a number of sub-prime mortgages and package them as a security.  Security works like a corportation's stock.  You can buy and sell it over a stock market.  Now, to make it even safer, they insure that security with insurance companies like AIG.  It now looks safe and even sounds safe with the big bank names and the big insurance names giving these securities their stamp of approval.  

AIG seeing the continuous rise in property prices and considering their size and financial heft, see insuring these sub-prime mortgages as no problem.  They earn money for each insurance policy and if the buyers default, they can claim the property and sell it for more in the hot property market.  

Banks and institutions around the world now gobble up these collaterized securities like money in a time deposit account.  

Part IV  The Domino Effect

Remember, the property markets at this point are already souring.  Prices are falling and plenty of people are selling their houses and are defaulting on their mortgages.  

When the mortage defaults reach the securities owners, the write-offs pile up.  The bad loans add up and banks start announcing 100 million losses in one go. These write-offs, big and small spread to big and small banks, first nationwide and then internationally.  It even reaches Europe. Old big banking leaders like Lehman Brothers fold up.

Now, insurance companies who earlier agreed to guarantee these securities are now tied to their commitments.  They spend hundreds of millions of dollars to pay for these non-performing loans.  The volume of claims reach a point that the insurance companies' cash reserves start to reach critical levels.   

An insurance company has to maintain cash reserves to pay for insurance claims of their customers and they cannot ever have no cash.  If these big insurance companies like AIG default, millions of customers will be affected.  There are health insurance customers, car insurance customers, fire insurance customers and many more.  For short, once these big firms fall, the ordinary customers will suffer.

Part V  Banks don't trust banks

One after the other, banks big or small, are closing down.  This trend breeds fear into the banking industry.  Since it took months for the major banks to announce their losses, now banks are very scared to lend money.  If they do lend money, they are at higher interest rates.  

This then leads to a problem of credit or the so called credit-crunch.  Money can't be borrowed or isn't easy to borrow nowadays.  

Shrinking economy, banks closing, insurance companies closing and no credit, the economy will go further downhill.  

Part VI  The remedy

The US government will not allow the ordinary citizens to suffer from falling insurance comanies.  It also won't allow a further shrinking of the economy.

It decides to intervene in this extraordinary time.  The Federal Reserve opens up special loans to financially weakened banks and institutions like Freddi Mae.  The US Treasury coordinates buy-outs of troubled banks and insurance firms.  However, the biggest and latest rescue initiative of the US government is the $700 billion dollar bail-out law.  

This law signed recently, allows the government to buy ALL the non-performing loans.  This in effect frees up the problem companies like Fannie Mae, AIG, banks, etc. from counting these loans as expenses.  In one stroke, the loss in many balance sheets disappears.

Conclusion

Economists have frowned on this socialistic and anti-capitalist move of the US government.  This event should have enabled the smaller disciplined banks to rise up to the top and beat out the ineffective banks.  The market forces should have been left to work out the mess.  Too bad, with the US election in 30 days, and the potential to deflate the economy of the world, the US government decides to proceed with the initiative.

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Success is 1% inspiration and 99% perspiration. Never tire.

Painting as investments

There are insitutions who invest in paintings like stocks.  They say the "deader" a painter is the more valuable his work becomes! 

Perhaps there is someone who can share his thoughts on this?  Maybe some more information on valuation and return periods for such works?

I'm posting the pictures of the murals recently conducted by the Pasay City Host Lions Club at their club house at Lions Road.  Yes, your eyes haven't betrayed you.  It's really called Lions Road.  That's how far public service can get you! 

The picture is the champion for this event.  The team receives 50k pesos cash prize.   The event will be reported on ABS-CBN's TV patrol tomorrow September 29 630pm.  

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Success is 1% inspiration and 99% perspiration. Never tire.

Your SEC Reports Better Be Updated

I am presently undoing the mess our accountant has made.  We have been regularly late or remiss in filing our annual General Information Sheet and Audited Financial Statements and one of our corporations got revoked.  

As a result, I have to check, collect documents and get the appropriate Board Resolutions to save the corporations' existence.  

Not to mention the penalties SEC will be charging us.  From my research, some of the delinquent corporation pay between 10k to 100k- depending on how many years you are late.

SEC annual reports checklist:

1. GIS for the year

2. Audited financial statement.  If your capitalization is below 50k, then just a sworn finanacial statement from your Corporate Secretary will do. 

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Success is 1% inspiration and 99% perspiration. Never tire.

It is better to contract out employees of a company

After doing some soul searching, I have finally accepted- guilt-free- that a company's employees should be contracted out.

For one, my talks with businessmen give me the conclusion that we have a big pilferage problem in most business operations. A thief in a business spells the death of the businessman. Having a contract makes firing so much easier.

When it comes to the relationship of the employee to the owner, well, the young undereducated worker is such a pain in the neck. He demands so much- minimum wage, double pay, overtime pay, SSS, etc and yet doesn't have a bit of loyalty or honesty. Why suffer the potential consequences of ingratitude. Contract them out. They're used to it anyway.

Yes, a big majority of our young labor workforce is very used to contract work. The dozens of applicants I have interviewed for our secretarial and sales positions have worked at least once or twice under a fixed 5- month term contract.

Third, our ever increasing minimum wage just spells trouble for us. Having a contract erases the wage problem. The employee doesn't complain since he understands that he is under contract at this pre-determined pay.

Fourth, there will be ZERO labor cases. You don't know how wasteful a labor case is until you get slapped by it from an ingrate. The minute a case is filed, the case is already in the employee's favor. This is how the system works. Our law, in its socialist streak, supports the "weaker" party a.k.a. laborer and justifies the bias as only fair.

Now, I may sound like the worst employer in the Philippines but this is only one half of the story.

To really be successful in business, one must have trustworthy and reliable employees. You can't build up a quality workforce by simply treating them as units of labor. You have to treat them with dignity and many more.

My tips are:

1. Share the vision with them. Let them see what's the plan for the future and where they fit in it. e.g. "Our company plans to expand to 6 branches next year. Work hard and be honest. If I find you capable, next time, it will be you training the new hires. You'll be my assistant.." From my experience this is super effective on the young workers (18 to 21 yrs old).

2. Pay them on time. Sadly, the majority of our workers live on a hand-to-mouth existence They don't save up. Their pay on the 15th will only last them until the 29th. So pay them on time and be a reliable employer. Most expect this so take note.

3. Extend credit. The poor lack access to credit. This has been the mother of all Philippine revolutions. My Ateneo professor once explained that the farmers of Central Luzon revolted when they couldn't eat. The hacienderos were not extending credit to them in order to buy rice. Rice was abundant but due to the seasonal harvest, the planting season was a financially lean season and thus also became the "vale" season.

In my experience, my employees just had to "vale" every week. Without any rules, they would have wanted to get their pay daily. Once, I saw one guy buy a new DVD player the day after payday only to sell it a few weeks later when he got short on cash.

In their minds, the money they borrow is theirs already so they demand the "vale" even though passively.

For me, better to have rules set on when to "vale" or else you'll keep on running out of cash for your operation. You may extend "vale" on special occasions but it is always better to control the money for them and just hand it to them on payday.

4 Bring them food from time to time. Everyone is happy with food! This makes them feel happier and appreciative. This also makes them feel part of the company family.

Wrapping it up. It is better for the employer to be two steps ahead in labor issues but in practice there are some things that have to be relaxed. Contracting the employees protects the employer but has the downside of dampening morale. Concessions still have to be made in order to build up productive and reliable people.

A business is an operation done by an organization. The employer is the leader. Just lead it and you'll be fine!



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Success is 1% inspiration and 99% perspiration. Never tire.

How far can we care for our employees?

Caring for the company employees has been a very difficult subject. Some people call the employees as investment and some just plain consider them as a cost to business.

A not-so-recent book, Pour Your Heart Into It, details the story of Howard Schultz and his Starbucks' story. He tells it with great passion on how he took care of his employees. First by giving them above par benefits and wages, calling them Partners and then pioneering Share Options for a private company. All these he did in the first six to seven years of his fledging baby project.

All I can say is Howard's a very lucky guy. From the first day of operation, sales have been exceeding expectations. Plus, selling coffee at 3 dollars a cup when the most expensive coffee around that time only ran around 50 cents, gave him huge margins at big volumes. His story is my dream!

Looking at this subject from the opposite perspective, let's observe the SM model. Our very own SM employs contractual employees. These people get fired every 5 months and another horde of replacements take over. They get no benefits and have zero job security. I know this sounds harsh but there are good reasons for such a decision.

SM wants to avoid the labor unions. A strike by a union can cripple its operations. Aside from getting contractual employees, SM also registers each branch as a different corporation. This way, if for some chance a union is able to form and strike at say SM Manila, only SM manila gets affected. Other branches cannot legally strike at the same time. You see, union law states that a union can only exist within a corporation and separate corproation ensures isolation of potential labor problems.

Another reason why some employers could not care less is the theft issue. It's just unbelieve that some employees will even steal the most unthinkable things. From secretly selling charcoal to padding up the sale price. Small things matter.

Obviously, there are many benefits for choosing either path. One thing I learned though is, there are many ways to approach a solution. Choosing which option is just a preference. If you work hard and give your best effort, being the best employer or the most cost effective one will work either way.

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Success is 1% inspiration and 99% perspiration. Never tire.

There is good cause to getting a franchise

For the past years, franchising has been very popular with entrepreneurs and there is good reason for that!

Starting a business is NOT easy. Take the example of this food retailer. For months they have done their research and preparation for the opening of their first outlet. They have done proper diligence in the location and they have negotiated for weeks for a solid contract.

However, things do not turn out as expected. There are internal and external factors that come to play. For this retailer, there are three immediate factors. 1) Location 2) Supply 3) Control

1. Location
Even with weeks of study and months of oberservation, this retailer failed to discover that vendors in front of their store are fiercely against moving out. The area's vendors even have banded together as an association and is illegally squatting on the sidewalk and building corridor.

The problem of the retailer is the decrease in exposure. His location though fronting the busy street gets covered with all the umbrellas and canvas setup by the vendors The premium he pays is lost.

2. Supply
During the early days of operation, the reception of the public to the product is still being observed. There has been days when demand peaked at lunch and some days where lunch sales was plain disappointing. Now the supply of the product becomes a problem. When orders increase, the outlet is unable to supply the demand. Customers are regretfully turned down due to zero supply. Delivery is questionalbe as well. As the first branch's inital days, the retailer has not set any delivery schedule yet.

3. Control
This is the easiest to teach but difficult to implement. Control is about being sure that there is no theft, within or without the company.

During our retailer's first days, inventory control and money control are of primary concern. Money has to be collected and inventory has to be accounted for. Even with regular monitoring and previuos instructions, the staff STILL need to be constantly reminded on the inventory regulations.

Franchise

Now these three factors would have easily been solved for a franchisee. A good franchisor has the experience and knowledge behind his business' concept and operation.

Take the Location factor as an example. Having previous experience with shady characters and locations, the franchisor will be able to point out to franchisees the possible dangers and scenarios of a location. He can share experiences and insights into a target location. Armed with this knowledge, the franchisee can make preparations for problems or dangers associated with his intended location.

The supply factor is the easiest to solve. A good franchsor has the infrastructure, system and logistics support to solve supply. Since he is already operating several company owned branches, there are already delivery trucks, delivery personnel, commissary personnel and other people working daily and following the company's systems. Sudden orders coming from a baby branch is easily solved with one phone call. The warehouse can easily release stocks for delivery while delivery trucks can easily change course to drop the impromptu orders at the new branch.

Lastly control is solved faster. With experience on his side, the Franchisor can train in advance the people necessary for the outlet. Training is the advantage of an established organization. Small startups may not have the resources to setup a training course especially when their own systems are not yet finalized.

Conclusion

Franchising is like a business-in-a-box product. You open the box and the business is ready to operate on day one armed with the experience of the franchisor. This means for people who do not have the time or the patience to prepare as a startup, then franchising is the way to go. There is less headache and money loss involved with franchising. Time is saved, money is saved and everyone is happier.

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Success is 1% inspiration and 99% perspiration. Never tire.

Computerization is just a waste of time

Yes it is because Information Technology is about bringing valuable information to the decision maker at the right time and at the right moment. Computerization on the other hand is simply like robotizing your factory without any good plans.

What's the difference anyway?

1. Business softwares are information systems. These are systems that accept input, process data, and give out helpful information.

2. Computerization is just recording unto the computer what was formerly recorded on paper.

Which is better?

Of course Information Systems are better. A good example is that of a Customer Relationship Management (CRM) software. This software records each lead you get. Any customer that expresses interest in buying your product is tediously recorded into the software. After a few days, you can then run through the list and do follow-ups on those interested parties. For long negotiations, you will be able to tap into the records and see the progress of any particular lead.

This software is a godsent for companies that are aggressive in their sales initiatives. Companies usually deal with hundreds of leads and trying to make sense of each lead is impossible. The software can then present the records in ways that are meaningful like having "Most possible leads", "Most high-value leads" or "Best-selling products". These lists will focus the sales manager's attention to the big picture and help him make good decisions. With such help, the manager can opt to target the recurrent customers or even push for the best-selling products rather than waste his efforts on the non-moving items.

Choose your software carefully.

Now, don't just rush to implement a CRM or inventory system overnight. Remember, software will just emulate a process being done by the company. Once you've finished the code, the system or process will be pegged. There will be limited flexiblity for changing the process once a software is being used.

If for some reason you suddenly decide to change your system, your investment in your present IT system may be lost and another round of software acquisition will happen.

Be careful and study your business processes well. If you are sure that the software design reflects the actual physical process and there's ample room for future changes then this system will greatly enhance your operations.

Advice

1. Hire a good Systems Analyst and have him design the software very well. After, hire a good programmer who will encode the design.

Software is like construction. You need a good architect to visualize and design your building and you also need a good carpenter to actualize the physical building.





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Success is 1% inspiration and 99% perspiration. Never tire.

We have underdeveloped equity market

After canvassing for other equity fund managers, I have discovered that it is not good at all to invest directly or indirectly in the stock market.

UITF's may not be worth it

1. Equity funds from the banks have management fees of 0.50 (BDO) to 1.50% (BPI) per annum. Plus they charge you another 0.50% if you cash out before the agreed upon holding period.

This is outrageous. This is the investor's money and the bank is hijacking it and even charging you for moving your funds.

If you go direct to a stock broker and manage your own portfolio, you'll just get charged the usual 0.50% fee. No holding period.

2. UITF's trading is very unfair for the everyday trader. The banks will inform you that trading time is between 9am to 12pm. This is no problem. It means you can buy or sell your UITF units during this time.

The problem is you will not know at what value you will buy or sell. This happens because when you buy/ sell at 10am, your base price will come out only by 12pm and not the price at 10am. At first you may think this is okay. You'll say to yourself that you'll just buy in the afternoon BUT remember, this is not allowed. It is practically gambling!

The stock broker meanwhile is just a call away! Tell him at what price you want to sell and if there's a buyer, your sale is done. This can be done during trading hours at your price.

Market is too small

1. Philippine Stock Market is too small. Unlike the US stock markets, here there is no ready market. The amount of money involved in the daily trading is so small that some index stocks don't even change prices. These are already index stocks!

This means that the traditional advise of "buy when the market crashes and sell when the market is in the upswing" will not work perfectly here. You may end up with worthless stocks for a couple of years. The upswing will not come unless foreign investors start buying local stocks- just like today.

Why speculate in the stock market if your returns will not immediately be realized?

Advise:
1. Stick to doing business to increase your income and cash.

2. Ride the bull market if you want but never be too greedy to sell when you've gained.



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Success is 1% inspiration and 99% perspiration. Never tire.

Bonds, Mutual funds, UITF's and Equity markets

Here's an explanation on the various investment instruments that a person can use. I draw these explanations from my experience with them.

I. Funds

These are generally pooled money handled by an individual, fund manager, group, bank, or company. What the company does is to pool small tranches of investments and make a big pool of cash amounting to maybe tens of millions of Pesos. The money is then invested in the highly volatile stock market. This is an exciting investment for those in their 20s and 30s.

How small then is one tranche?

These institutions usually have a minimum investment value of 25,000 to 50,000 Pesos. BPI has the 50,000 minimum investment requirement.

Why pool them together?

There are two reasons for pooling moeny together. First, to buy stocks or equities (These are synonyms by the way.) in the stock market, you'll have to meet the minimum quantity. Sometimes these minimum quantities reach 10,000 Pesos just for a certain stock. Your 50,000 Pesos then will not really get to be exposed to all the good stocks and if you're unfortunate, you may have bought a stock that will plunge way way down in price.

Second reason. With the pooled money, the institution can hire professional, experienced portfolio managers. They are the insiders in the industry. They know the trend of the stock prices, and the expected outcomes of good news and bad news. Sometimes, they may also know of some inside information that may help the manager choose the correct stock to buy. At least here, the expensive pay of the managers is spread over hundreds of investors.

Portfolio is the term we call for a set of stocks that a person is tracking, or investing in.

Insider trading which uses privileged information is illegal. This privileged information is so helpful that knowing this will surely push an investor to buy or sell a certain stock. Martha Stewart did this and earned millions but she got caught and had to pay and serve a sentence.

How volatile is the stock market?

The stock market is very volatile. With 50,000 Pesos, you may earn or lose 4,000 Pesos in a matter of 3 hours.

Is there a guaranteed return?

NO. This is not a bank deposit. You may earn or lose money. Just learn when to cash out and when to reinvest into the fund. It is all about timing. Buy when the market is down and sell when the market is up.

II. Equity funds, balanced funds, bond funds, mutual funds

These are different kinds of fund categories. When you invest in the stock market, it is called equity funds. When you invest in a basekt of government securities and stocks, this is balanced fund. When you invest in funds dedicated to government bonds and other bonds, this is bond fund.

These funds are usually handled by private companies. The SEC monitors these privately managed funds.

III. Unit Investment Trust Funds (UITF)

This is a kind of Fund. This is handled purely by banks and is monitored by the Bangko Sentral ng Pilipinas. As of three years ago, the Bangko Sentral has implemented international standards in fund management. Before that, it was up to the bank's portfolio managers to systemize their investing.

UITF's are formerly called common trust funds (CTF).

IV. Bonds

Bonds are loans from an institution. Bonds usually range from 6 months to a few years. Governments and big companies issue this bonds to raise cash. They will pay interest for the duration of the bond period. Returns here are usually better than bank deposits.

Usually, an individual will not have direct access to the bond market. Bond offerings are worth tens of millions of Pesos and the small investor can't afford this. The way to get access to this is through the UITFs or Funds.

V. Treasury bills

Treasury bills work similarly to bonds but they are more short term. They range from 3 months to 12 months. Returns here are smaller compared to bonds but are better than bank deposits.

Again, the easiest way to invest in treasury bills is through UITFs or Funds. Treasury bills are also worth tens of millions of Pesos and the government usually sells wholesale. However the Bangko Sentral, from time to time, does offer Retail Treasury Bills (RTB) worth 5,000 Pesos each. You'll have to look for specific banks that sell these RTBs. Not all banks offer this instrument.



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Success is 1% inspiration and 99% perspiration. Never tire.

Cash is king is convenience store

In all my reading of business books, one important reminder always pops up: Cash is king.

It seems then that the retail convenience store is a very good business to go in to. Take the proliferating Mini-stops as an example. It just has the right combo and mix to attract frachisers and investors.

1. It is retail CASH.
Unlike the local sari-sari store, convenience stores don't sell on credit. Everything is cash.

2. Minimal overhead
Store owners have practiced the self-service creed to the last dot. They only employ two, maybe three staffs for one big store. Hotdog have to be skewed from their steamers and soda drinks have to be collected from their dispensers. So busy are the personnel manning the cashiers, rarely will one see any idle personnel.

3. Convenience
This is the best part. Convenience stores sell convenience and therefore charge premium prices for the good location.

Questions. Questions do swirl around my mind when I think of this business. Remember, convenience stores are just high-class sari-sari stores and they operate somewhat similarly.

1. Security
There maybe savings from personnel but there's an added cost for the security guard. 7-11, Mercury and Jollibee. These popular and successful companies have regularly employ security agencies to protect their stores from theft and robbery. Is there then real payroll savings from the Philippine convenience store model?

2. Branding
Does one need a brand to operate a profitable convenience store? I have seen very few own-brand convenience stores. Most of them are 7-11's or Mini-stop's. Is its cost structure so high that a premium- a brand premium- has to be present? Is the good location not enough to charge for good prices? If there's no brand, does the convenience store become a sari-sari store?

3. Credit
Won't the business earn more if it extends some credit for its repeat customers? Sari-sari stores have employed this credit policy successfuly and yet I've not seen this with the big players. Maybe it's just the lack of competition.

4. Extending your payables
What's the point of focusing on cash management if you can't stretch your terms with your suppliers. I'm sure as Mini-stop or 7-11 franchisees, you'll have no legroom in negotiating with your supplier- who most likely is also your franchisor.

There are so many answers to these questons. Bottom line is I've not seen the industry crowded enough to address the issues. There is still room to grow while players are but a few. Perhpas one day, I'll see a more sari-sari store inspired convenience store to open around the block. Until then this industry is very easy to enter into and is ripe for competition.

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Success is 1% inspiration and 99% perspiration. Never tire.

The Era of Free Cellphone is Coming

At the WEB 2.0 conference, Google CEO Eric Schmidt announces that cell phones shall cost nothing. Subsidies for these phones will rise as more advertising is channeled through mobile phones.

Taking a cue from the uber advanced Japanese mobile phone market, cell phones will one day be free! In Japan, there's already the 1 Yen mobile phone. This is roughly 50 centavos.

For free cellphones to exist in the Philippines, there are some factors that have to be in place.

1. There has to be more competition in the market.

Since the entrance of Sun Cellular to the market, it has been loud and industry-shaking. It has provided unlimited calls and unlimited text promotions. As a response, Globe and Smart has been dropping their text messaging rates and has also spinned off their own unlimited text and calls promos.

Right now, a text message costs between 50 to 70 centavos and I believe their is pressure to go even further down. Hopefully as more younger and hungrier telcos introduce plans to the market, they will be compelled to heavily subsidize phones and just focus on content (news, movie scheds, chismis) and service (text messaging, video feeds, calls) earnings. This is the only way to go for these baby telcos if they want to grab market share, controlled 80% by Globe and Smart, and at least get some resemblance of volume.

2. We have to increase further the penetration rate from 38% to 80%.

"Globe estimates that excluding subscribers with multiple SIMs brings down the actual penetration rate to 38% from 45%, which means the industry is perhaps another two years away from the expected peak penetration rate of 50%," the analyst noted.

- From BusinessWorld Research. Aritcle GLOBE TELECOM INC. from Stock Pick column. Dated December 4, 2006.
http://www.bworld.com.ph/Research/stockpicks.php?id=0094

Selling ads through mobile phones is still a novel idea in the Philippines and to do this you'll have to have a big big subscriber base. The 38% penetration rate, roughly around 15.2 million Filipinos,is already respectable but not yet good enough. Aside from the usual services, pushing advertising is a good strategy. However, their reach must be wide and across the spectrum. Remember, not all people will want ads being sent to their phones and not everyone will read text ads. Mobile phone companies then, like newspapers, will have to use their subscriber count in order to justify for pricey advertising rates.

3. Telcos must heavily push for the use of 3G services.

If a company wants to fully subsidize phones, they'll have to earn bigger margins. By tapping the top 15% of the population and pushing for the lucrative 3G services like tv-on-demand or video phoning, companies will be able to charge around 10 to 40 pesos per service. Multiply these prices over 2.3 million users and you'll get earnings of 23 million pesos per day- just from the 3G services. 2.3 million is the 15% of 15.2 million subscriber market. With this kind of projections, telecom companies will have enough cash to sell phones at a lost.

Wait! Don't get your hopes up yet. The free cell phones that will be offered are the basic bare-bones flavors. These phones will only be good for calling and basic text messaging with limited memory. Perhaps a comeback of the Nokia 3210 or the presently affordable Nokia 1100 will be the initial free models.

Paid-for-mobile units will still be here, especially the higher end ones. Remember, companies like Nokia and Motorola market their phones as fashion accessories and not as communication tools. Nokia's Vertu line and the pricey Nokia 8800 (pictured above) are all minimalist in design and yet exude the same fashion statement as a Louis Vuitton bag. These kinds of phones, made from titanium and embedded with diamonds, will survive the free phone rush and will still sell madly to the ultra-rich crowd.

The way to go then for these telecom companies is still to tap the price sensitive Filipinos. They have gotten rich by offering 1 peso text messaging and why not get another boost by offering free phones. I do not see 3G services being as successful as text messaging but this sector will help prop up margins high enough to subsidize phones that will deliver services to the primary market.


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Success is 1% inspiration and 99% perspiration. Never tire.

Microfinance is a Sound Business Strategy

In defense of microfinance, I'd like to correct the notion that it is unsound and only works as a semi-charity activity. In the Jonas Gonats "Banker for the Poor" article (http://jonatsgonats.co.nr/), the author cites that lending to the poor is too risky and disserves the bank's shareholders.

This is untrue. For these reasons:
1) Lending to the poor is not a trust issue. It is pure business. As regular banks can only get around 12% to 15% per annum returns on their loans, microfinance offers 20% to 60% per annum returns- and this is being conservative!

2) It is risky but the returns will compensate for that. Take the popular 5/6 loans of the local "bombays". If it isn't that profitable, these mobile bankers will stop to exist.

5/6 works like this. For every 5 Pesos you loan, you have to pay 6 Pesos. You pay everyday but you have to close your loan in 40 to 60 days. Sounds affordable right but if you compute it in a per annum basis, you'll see that the return is actually 120% conservatively.

3) There are ways to minimize microfinance risks. One is through peer pressure. The way microfinance institutions lend out money is through peer pressure groups. These groups continue to get access to credit as long as their credit standing as a whole is good. This is where the pressure begins.

Let's say in a group there is Farmer A, Farmer B and Farmer C like in Bangladesh. They each get a loan of 1000 pesos to buy necessities while waiting for this season's harvest. If for some reason Farmer C suddenly stops paying his loan, Farmer A and Farmer B will have to shoulder the cost. If Farmer A and Farmer B decline to pay, there credit line will stop. They can't borrow anymore. How can they stomach this as they don't have any income source for the next three months. They will now pressure their friend/ neighbor Farmer C. As Farmer C is known to the local community, he will be ostracized and scolded for burdening his peers. This will then force Farmer C to return and continue paying his loan.

4) Another way of minimizing risks is by niche marketing. Russian as other European banks have discovered that women are more diligent in paying their dues. They are also easier to scare. This is why these banks now have subsidiaries that cater to women alone. This is also the niche Mr. Yunus' Grameen Bank has targeted with 97% of whom are women. http://www.grameen-info.org/bank/index.html

5) Mr. Yunus' Bangladesh operation is not a break-even operation. Its repayment rate is 90%, meaning its Non-performing loan (NPL) ratio is just a low of 10%. This is a big difference with the Philippine bankers NPL ratio of 12.7%. (http://www.senate.gov.ph/publications/PI%202005-05%20-%20Banking%20on%20Banking%20-%20Issues%20and%20Challenges%20Facing%20the%20Banking%20Sector.pdf) Take note that the Philippine bankers' NPL ratio is low only because of the Special Purpose Vehicle (SPV) Act, while Mr. Yunus succeeded in having a low NPL ratio of 10% without any SPV Act.

Special Purpose Vehicle Act is a special law meant to unload banks of non-performing loans aka bad debts. There is an entity called SPV. It is a company that buys non-performing loans from banks. They handle collection of the loan. They get a cut for doing this service. Banks like this SPV because they immediately remove some of the bad loans that appear on their balance sheets. Better balance sheets mean better confidence from investors. Don't forget that the bad loans don't just disappear. They are transferred to another entity. Until they get paid, the actual NPL of a bank will be high. To learn more of how an SPV works read http://www.ey.com/GLOBAL/content.nsf/Philippines/SPV_Act:_The_answer_to_the_Philippine_NPL_problem

6) Mr. Yunus has been targeting the rural poor and not the urban poor. This means his customers are the farmers and village vendors. Small entrepreneurs and not loafers.

Conclusion:
These microfinance facilites are unsecured but they provide one of the vital necessities the poor need: access to credit. The poor does not mean they do not have income, they just have seasonal droughts as their livelihoods are seasonal.

There are a lot of creative ways to tap this unseen market. Mr. Yunus just showed us a few of the popular ways.

I therefore believe that microfinance is a good business strategy. It is not charity as my arguments have shown. It is viable and can be proven with statistics and balance sheets. Lastly, it is profitable enough to absorb the risks of giving out unsecured loans.

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Success is 1% inspiration and 99% perspiration. Never tire.