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Selling yourself short

Selling yourself short

Falling short of your target
Coming up short

Are you a shop keeper and selling yourself short? I hope to answer this question for you in this blog.

My last blog

In my last blog People in Business, but not really businesspeople I considered how the lack of proper business practices and basic business manners costs small business owners dearly. I looked at how this applied to all small businesses and, in particular, the building industry where these shortcomings are prevalent.

In this blog I will consider the retail industry, especially small retail businesses in the high street, where I think many owners are selling themselves short by making common, but avoidable, business mistakes. But my approach is different from my last blog – I wont just concentrate on the negatives. I also offer some help in what store owners should do, rather than just what they shouldn’t do. 

Retailing – disaster or opportunity?

The recent travails of high street retailers (also known as “physical” retailers or “bricks and mortar” retailers) do not need repeating by me. It is well known that all high street retailers have been in decline for several years, buckling under the competition from ecommerce shopping (and, in the UK, under the weight of high rents and business rates).  The advent of lockdowns due to Covid-19 has, of course, aggravated this trend.

However, bricks and mortar shopping still has a bright future. Those business owners who know what they are doing are still making good money. Importantly, when things return to a post Covid-19 normal even more profitable opportunities will arise. To quote a leading retail expert: “The death of the high street has been greatly exaggerated. Physical retailers have a precious resource that ecommerce companies covet: the ability to have personal, tangible experiences with their customers.”

Post Covid-19

The Covid-19 pandemic has weeded out retailing deadwood. It has also caused those owners still standing to think very carefully about their future. In particular, to review their operating practices to ensure that they are able to take advantage of the post-pandemic retailing opportunities. For those of you considering going into retail for the first time it will be important to ensure you are professional in your  approach and fully aware of the errors to avoid.

So, what are the main “14 Dos and Don’ts” that owners of small retailing shops on the high street need to consider? We will look first at the “14 Dos”.

What small retailers should do

Small retailers compete for the money spent on the high street not only with other small retailers but also, of course, with big retailers. This can be a daunting task, especially if they are new to the retail business. Their larger competitors have considerable advantages, including an established customer base, solid marketing campaigns, good store locations and well-trained staff.

Business owners can try to emulate what the opposition does, or they you can do things in their own way. But whatever approach they take, here are some ideas of the basic things they need to do, so they don’t sell themselves short.

I have assembled this list of 14 suggestions from my own experience and from what I have read from retail gurus.

1. Build a great online presence

To compete in today’s retail environment you must have an ecommerce presence. Fortunately, it costs less to create a brilliant online shop-front than it does to build one in the real world. Besides going online, make sure you also regularly post on Twitter, Facebook, Instagram and other social networking sites. (See also “Lack of Creativity” no. 4 in the “Don’ts”, below).

2. Accept all payment methods

Invest in a good point of sale (POS) system, preferably one that will integrate with your accounting software. Not only does this add to operational efficiency, it will also give your business a professional feel.

3. Have brilliant Interior design

The store environment must be professional and inviting. Ideas can be generated by referring to design magazines and blogs and copying other stores. Don’t overlook merchandising, which is discussed in more detail in “Don’ts” no. 3 below.

4. Properly train staff 

The look and feel of your shop, as well as the execution of your offer,  must be of the highest standard. This includes your staff, who should be well dressed and well presented, speak politely to customers and be helpful. Also, your brand should be visible everywhere, including on any packaging or carrier bags you give to your customers. And, by the way, I have met some shop owners who themselves were badly in need of some customer service training! How do you, as the owner, shape up? Do you set a proper example?

5. Make a virtue of being small

Small can be good, so make a virtue of being small. Many people          think it is ‘cool’ to buy from smaller, local, boutique-style stores.

6. Have focussed sales, but not too many

It’s fine to have a sale now and then to clear out merchandise or increase customer traffic in a slow period. But constantly using sales  looks as if you need to pay customers to come in the door! (See also “Having too many sales” no. 11 the “Don’ts” below.)

7. Negotiate with your suppliers

Don’t be shy: try to negotiate as many deals as possible with your suppliers. These could be on delivery times, custom made goods as well as price. Any legal and ethical ruse to get you ahead of your competition is acceptable.

8. Be different

Oh how difficult it is to be different! However, with thought and imagination and some sleepless nights you can achieve it. Difference  will help people remember you, your products and your business.

9. Offer the personal touch

Deal with customers on an individual basis where possible. Reward your employees for thinking creatively about how best to serve customers. Remind yourself what it has cost you to get those customers through the door – cherish them!

10. Use technology

Besides having an ecommerce presence and up to date POS, small retailers should have quality accounting software and inventory management programs to save time and money.

11. Be socially responsible

Many big businesses have tainted reputations when it comes to such things as the environment, payment of taxes, ethical sourcing, etc. This can work in your favour as a small retailer. Ethically minded customers who care about sustainability, fairness and ethical trading will be attracted to you if you genuinely share their views. However, avoid mere virtual signalling if you can.

12. Buy well

“The secret to good selling is good buying.” What this means is that it is easier to sell quality merchandise sourced at a fair wholesale price that generates a reasonable gross margin.

If you do not have this skill you should hire someone who has.

13. Employ well

Generally, staff at small businesses have much more influence over their business’s current operations and its future than in big ones.

It is possible to be more thorough when hiring one person than 100. Also, employee reward schemes can be more carefully tailored for the few rather than the many. This should help you to get good staff who will also be fully involved in the business. Hopefully, they will reward you with hard work, creativity and good ideas.

14. Harness your passion

The big advantage the small business owner could be their                    passion – their drive for success. If you have it – use it! This could          be your edge over your large competitors and, perhaps over many          of your your smaller ones as well.

Closed shops in town
Deserted shopping centre

Common mistakes that doom a retail business

I acknowledge that small businesses generally have many disadvantages compared with big ones. These include:

  • Lack of capital (particularly to face sustained losses)
  • Lack of professional training
  • Shortage of experienced management

Shop owners face the extra problems of online competition and susceptibility to consumer confidence.(And, in the UK, high rents and business rates.)  These factors are often cited by shop owners as the reasons for their failure. But, the truth is that problems more often arise through professional mistakes or bad choices. Some of these happen even before the shop has opened.

Continuing with the theme of whether you are selling yourself short we can now consider the 14 Don’ts for the small shop owner.

1. Wrong location

We have the mantra “location, location, location”. But what, exactly, does that mean in retailing terms?

To start: What do you know about “egress and ingress” to a shopping centre, traffic patterns and demographics?  Are you familiar with the influence of location on footfall? How do these things affect the rent you should be paying? To select the right location for your shop and pay the right rent you should know all this stuff intimately.

Yes, you can save 25% in rent with a location that’s off the main road, but what affect will this have on your sales and the cost of advertising to try to attract customers. Obviously, there is a trade off between traffic and rent costs; but what it is?

Do some research on suitable locations, current rent, traffic flows and your competition before you open that store!

2. Poor Inventory Management

Inventory management is one of the most important factors that retailers need to pay attention to. Negligence in stock management will  ruin your business efficiency. You need to have a good strategy for optimizing your inventory, so you can always meet consumer demand and be in control of your finances. Make sure that your stock levels are always adequate, neither too low nor excessive.

3. Don’t understand merchandising

Have you ever seen a fruit stall in an indoor Spanish market? Towers of fruit and vegetables piled high in brilliant and contrasting colours; fresh juicy and inviting. Can one resist? And this is dismantled and re-assembled every day.

How does your shop shape up in this regard? How much work do you put into merchandising?

You should note that large supermarkets are obsessed with merchandising, because they know how it affects sales, not only of those promotional lines they wish to shift, but also sales generally.

You might not wish to go into the complete science of this but you must understand the basics and, if you don’t, I advise you to get advice from an expert.

4. A Lack of Creativity

You won’t take your retail business to another level if you just rely on conventional marketing strategies. If you want your store to be visited by many people, then you should be able to find them and bring them in.  Ideas include creating your own online store, advertising on search engines, creating engaging social media content and many more.

5. Wrong target audience 

Many small retailers don’t know what their customers really want, so they stock the the wrong products. Or, they market to people who don’t even have any interest in buying their products . This is because they have the wrong wrong target audience. Before starting a retail business, you need to determine your ideal prospect based on several factors. These include demographic traits, psychographic characteristics and behavioural actions.

6. Taking customers for granted

Everyone should know that without customers there are no sales, and without sales there is no business. So, are you totally focussed on your customers and their needs? Have you trained your staff to have the right attitude? Are they good brand ambassadors, especially those who come face-to-face with your customers. In addition, do you have a flexible customer service that can manage various questions and complaints of your customers? Note, to help you deal with your customers more easily, you can install a customer relationship management system designed specifically for the retail industry.

7. Lack of long term strategy

Racing to catch-up with competitors, or reacting to changing trends in the market, can cause retailers to lurch from one short-term strategy to another. Rather than building a coherent business with a clear blueprint for the future, customers see a confusing jumble of messages and never really understand your offer.

8. Too enamoured with your own products

It is important that you love your products, but more important that your customers love them. Your product must fulfil customers’ desires, not yours. In the end you need to sell your merchandise at a price that gives you an acceptable gross margin from which you can make a reasonable net profit – see next item.

9. Not focusing on the fundamentals.

Profit and loss, breakeven and cash flow are the basics of running a business. If you don’t want to learn those basics that’s okay, but you’ll have to pay someone to do them for you.  You need to understand the fundamentals, like gross profit margins, or you won’t have enough money to cover expenses, let alone make a net profit.

Allied with this fault is the fault of focusing on reducing costs instead of adding value. If too much focus is put on cutting costs, and too little energy goes into adding value, then customers will see a shrinking in the value you offer to them.

10. Hiring and managing badly

There is a temptation in small business to hire friends and relatives. Unless they have the necessary skills and personality this is a very bad idea!

Also, don’t manage like the boss. Your job is to show and and train your staff so they do as well, or better than you. How you perform at work will be copied and emulated by your staff. Are you managing well by setting a good example?

11. Having too many sales

Competing on price, especially with big competitors is not a sustainable strategy. Economies of scale mean that the larger stores have more purchasing power than you and can drive down their suppliers’ prices. As I said above it’s okay have sales now and then, but constantly using them usually means you feel you almost have to pay customers to come into your store!

Sales attract price-focused customers, loyal to the concept of saving money if you like, but not loyal to you or your core offer. They are loyal to price only.

Finally, low prices are often associated with low perceived quality.

12. Wrong choice of partner.

Being alone in business is lonely. But having the wrong partner is worse than lonely: it can be a disaster! Be careful who you chose. You can read more on partnerships by going to FAQ 3.31

13. Being too attached to your existing systems

Retail has always been a fast moving industry. This is because large profits and wealth await those who get it right. This is even more so in the ecommerce age. So, accept that keeping up is hard, but don’t make it harder by sticking to old ways and old technology. If your core systems were built ten years ago its time for a change. Inertia is not an option in today’s world.

14. Clinging to the past

Sure, times are tough for small retailers. But, as was pointed out in the first quote in this blog, the death of the high street has been greatly exaggerated. Smart retailers are expanding, bad ones are going out of business. But, it was ever thus in all businesses. Even if you are one of the lucky ones still doing well in the high street, don’t be complacent, there is no guarantee that your formula will last another five years. In most of the developed world scores of well-established high street brands have failed to adapt to the conditions on the street and the digital economy and as a result no longer exist.

Further reading:

Please see my earlier blog:




People in business, but not really businesspeople!


People in business, but not really businesspeople!

estimating a building job
Builder Preparing Estimate For Home Improvement

An unhappy experience with a small business owner last week caused me to reflect on the fact that so many people who are in business are not really businesspeople. By that I mean they have no idea of the basic principles of running a successful business. Nor do they have any idea of basic business good manners. Consequently, they make fundamental business mistakes that have negative impacts across all aspects of their business.

These shortcomings range across most business sectors. Amongst the worst offenders are business owners in the building trade. However, they are not the only ones and I don’t wish to pick them out for unfair criticism.

The aim of business

Before looking at these mistakes and shortcomings I would like to step back and consider what are the aims of being in business, and how we can achieve these aims.

The basic aim or objective of most businesses I believe is to make a profit. I know some talk about other, often altruistic, business aims and I acknowledge their legitimacy. However, I still maintain that most of us are in business to make a living.

That said, there is more to setting up a business than just being good at a particular trade or skill. It is not enough just to have technical expertise, or some good business ideas. Running a successful business is a profession, an art, or a science – call it what you will. And to be successful in business you need to be proficient in business skills and know how business works.

The necessary business skills

The necessary business skills include the following:

  1. Understanding of the financial foundations of business. These include understanding operating and overhead costs, pricing, cost of goods sold, gross profit, net profit, budgeting and cash flow, etc.
  2. Being able to produce adequate accounting records, which not only record past performance, but also enable you to plan for the future.
  3. Providing goods or services that meet customer needs.
  4. Treating customers fairly, decently and in a friendly fashion. You must understand the value of satisfied customers and the importance of repeat customers.
  5. Executing your promise. That is delivering your services or providing your goods to meet your customer needs in a timely, efficient and cost-effective way,
  6. Having an operating business model that is viable, including among other things correct costing and pricing, controlled overheads, efficient invoicing and debt collection.
  7. Protecting your brand and controlling your advertising and marketing costs. You must understand that bad customer service and/or follow-up wastes or negates marketing and advertising spending.

The building trades

Moving from the general to the particular, let us consider the building trades industry.

In most advanced western countries, the demand for building services exceeds their supply.  Therefore, by the simple law of supply and demand most building trades businesses should make significant profits. However, I believe excess demand has lead to sloppy business practices in the industry, which in the longer term has engendered customer discontent and eroded profitability. It has also stunted business growth, resulting in many businesses never growing beyond the “one man and a dog” team.

Sloppy business practices are amplified because many business owners in the building trades have no idea of how to run a business. Many of them have been employees with a skilled trade who decided that there is more money to be made in setting up a business rather than working for someone else. But few of them have business experience or business skills and, consequently, many make basic and repeated business mistakes.

I list below some of the most common ones, set out in sequence from handling a sales enquiry to collecting the money due.

Typical mistakes

  1. Don’t return telephone calls or answer emails (often an initial sales enquiry).
  2. Make appointments, but don’t turn up.
  3. Come to the appointment but, subsequently, don’t provide a quotation for the work.
  4. Have no system for estimating in place and, subsequently, quote incorrectly.
  5. Provide a quotation, but can’t do the work for several months.
  6. Don’t start the work at the time promised.
  7. Start the work on time, leave a wheelbarrow on site and disappear!
  8. Work is badly organised, spasmodic and runs well over time.
  9. Complete the work, but leave loose ends undone, including failure to clean up.
  10. The work is well done, completed on time and the customer is happy – but they forget to invoice!
  11. Invoice incorrectly. For example, forget extras agreed on the job, or omit VAT, or payment terms.
  12. Customer doesn’t pay, but no reminders or follow ups are sent out.
  13. Eventually realise that payment has not been received and chase up the debt. Don’t have an adequate debt collection and follow up system in place and let debt lapse.

The outcomes

You may have been on the receiving end of some of this behaviour or, perhaps even been guilty of it. But whatever, its results are negative for all concerned. It’s frustrating and annoying if you are the client. Equally, for the business owner it’s very bad for your business in many ways.

Let us consider some of the outcomes.

  • Examples 1 to 3: This is not only bad business practice it is also bad business manners. It staggers belief that any business could not deal with a sales enquiry in an efficient and courteous way. Why, for example, would you incur advertising costs and then squander the opportunity of the enquiry? Why damage your reputation before you start with potential customers? What if the enquiry comes through a referral; what do this do for your reputation?
  • Examples 4 to 8: Here we are talking about operational issues, namely estimating, and completing the work. In other words, straightforward business competence. Where this is inadequate, as it often is, the damage to reputation and profitability is obvious.
  • Examples 9 to 14: This is about a much-neglected business skill: correct invoicing and competent debt collection. It is a well known  business maxim that a job is not complete until the money is in the bank. Also, there is no grater loss to any business than completing the work (or supplying the goods) and not being paid. I understand that non-payment of debts is often not the debtor’s fault and arises from the actions of the creditor. But it is an inexcusable business mistake if it does arise from the slackness of the debtor.

Good manners or not understanding your industry?     

The mistakes listed above are a mixture of technical misunderstanding of what makes a business tick and non-adherence to an unwritten code of business ethics, or good manners.  But it must be emphasised that  even those mistakes that appear to be merely ethical issues have a solid business rationale and will take their toll if not obeyed.

For example, returning telephone calls and answering emails to establish customer contact is not just good manners but also basic business common sense. Customers are your life blood. You have probably spent good money trying to attract them and to not follow up an enquiry is madness!

Another way of looking at these mistakes is to say they either break the rules of business common sense, or arise because of a lack of knowledge of the art or science of the industry.

In the building trade a critical skill is the science of quoting or estimating for work. Let us consider this through the eyes an expert, David Gerstel, who I am indebted to for part of this blog.

the skill of extimation
The tools for drawing up an estimate

 Quoting (or estimating) correctly

David Gerstel is the author of Running a Successful Construction Company, published by The Taunton Press. Please see:

David’s book is considered to be “the bible” of the construction industry. He has very strong views on the non-professional approach to business adopted by many business owners in then construction industry in the United States.  He points out that in the US nine out of ten building companies fail within two years. This is compelling evidence he believes of their incompetence in an industry where demand exceeds supply.

To quote David:

“Building companies fail because people who start them don’t know their trade well, or they don’t know business management.”

As an example of not keeping adequate financial he notes a builder who said: “I was so busy out in the field “making money” I didn’t have time to keep accurate records and make sure I really was making money.”


Turning specifically to the art of estimating, David says the following:

“Few builders ever get on top of their job costs. Jobs, they rationalize, are going to cost what they cost and it is impossible to estimate them accurately, so why try?  Or they think … they can estimate costs without the benefit of jobs costs records.”

“Like the builder who told me “Oh, I have got all kinds of computer programs for job costing, but I don’t need them. The costs are right in my head.

Without proper job cost records, David says the work of estimating is often merely a guess and not a strict financial exercise. However:

Capable builders do not just roughly estimate/guesstimate the costs of building projects they submit to clients. They calculate the costs and  figure the charges. They nail down those numbers and get them right.”

“Fudging is not necessary. Construction is not like a lawsuit. Costs can be accurately projected in advance. By developing systematic procedures, capable builders are able to turn out estimates and bids that come within a few percentage points of the work shown in plans and specifications.”

So, if the experts are confident it can be done, why are so many building estimates still just guesstimates? The obvious answer is that many tradespeople just haven’t properly learned their trade!

In conclusion

So, in conclusion:

  • If you are in business, you need to understand the technicalities of your industry. If you are in the motor industry you must how cars work. And if you are in the building trade you need to be competent in your trade and know how to estimate.
  • But you also need to know about the business profession itself. You need to recognize that to be successful in business you need to know how to run a business, which is quite a separate skill from knowing about the specialist technicalities of your industry.

But, from our review of the common mistakes made by business owners in the building industry we can see that too many people don’t know or understand these things. The fact is that too many people are in business without really being businesspeople!

Further reading 

For more on basic building skills please refer to FAQ 3.4:


The perils of being a committee member  

The perils of being a committee member

There are dangers lurking for committee members
Perils of responsibility

The perils of being a committee member

A spot of serious bother has been brewing at a local sports club, which has caused some mild panic amongst its committee members. This is because, although most people understand something of the role and responsibilities of company directors, few understand the personal risks involved in being an officer of a club or a charity.    

So what? you might ask. What can go wrong with a small club? And how many people could be affected?

More than 160,000 clubs

There are more than 160,000 sports clubs in the UK (excluding charities). Each club has an average of 141 adult members and an average of four committee members. Consequently, over 600,000 people are committee members of sports clubs alone in the UK.

And all these office holders face potential personal risks that could be financially crippling!

I will explain more about this risk later, but first some background on the personal liabilities of those trading in different legal entities.

Sole traders

When you are a sole trader, things are very simple. You are the business, and you are responsible for everything. Consequently, the business’s debts are your debts. Also, the business’s infringements of laws and regulations are your infringements. Therefore, if the business cannot pay its debts, you are personally liable for them. If you are unable to pay, you could go bankrupt.

Ultimately, you make all the decisions and you bear all the consequences.


If you trade together with other people, one of the ways to do so is in in a partnership. The partnership is a legal entity, like a company. However, things are not completely straightforward.

The partnership as such is not liable for debts or infringements, it is the partners who are personally liable. But, as an individual partner, although you might personally not have made a particular decision or incurred a particular liability, you could still be liable for the whole of the consequences.

Joint and several

This is because your liability as a partner is “joint and several”. In simple terms, this means that you are liable jointly with your partners for debts and infringements. However, if your partners cannot pay their part, or abscond, you could be individually liable for everything.

Moreover, creditors can take legal action against any individual partner they choose, leaving the losing partner having to claim restitution against the other partners.

Arthur Anderson

A sobering example of joint responsibility is the case of Arthur Anderson, the worldwide accounting partnership.

All the partners of  (AA) bore the full brunt of this principle when their audit partners were found to be liable for a negligent audit of Enron. Through the law of joint liability all partners had to pay the damages that arose from the negligence of the few.

Of course, AA had professional indemnity insurance, but the liability was capped and did not cover all the damages awarded. This meant that the partners had to meet millions of dollars in liabilities, sending many of them bankrupt.

The AA partnership was wound up.

The worst of all worlds

Many believe a partnership is the worst of all worlds. This is because  although decision making is out of an individual’s hands, all partners to are exposed to the mistakes of one or only a few partners. There is no limited liability the protection in a partnership.

Because of the risks involved in a partnership, few joint traders wilfully chose a partnership. However, certain professions such as law and accounting are compelled to trade as one.


Riding to the rescue of those wishing to trade jointly with others came modern capitalism’s great invention, namely the limited liability company, or joint stock corporation. This introduced several concepts, which we now take for granted.

  • First was enshrining in law that a company was a separate legal entity from those who had invested in it (the shareholders).
  • Second was the recognition that a company could be owned by people different from those who managed it (shareholders and directors, respectively).
  • Third was to limit the loss incurred by shareholders (or investors) to the total of their investment in the shares of the company.
  • Fourth (which is the consequence of first concept above), was to confirm that the shareholders and directors were not, in normal circumstances, individually liable for the debts of the company.

Legislation and lenders

While directors have received protection in some instances, they have through legislation been saddled with responsibility in others. This responsibility has arisen in particular through liability for insolvent trading and the development of the principle of the duty of care.

(I will cover duty of care in more detail below.)

Also, lenders have burdened directors with personal liability for debts through the imposition of directors’ guarantees. This is particularly onerous in smaller companies where directors and shareholders are often the same people.

Directors’ Statutory Duties: The Companies Act 2006

The Companies Act in 2006 codified for the first time the duties owed by directors to:

  • Their companies
  • The shareholders and
  • The broader community.

The Act set out several basic principles governing company directors’ behaviour and the breadth of their duty of care. These are too numerous and detailed to explain in a blog of this nature. However,  important ones include the duty to:

  • Act within the director’s powers
  • Exercise independent judgement, and
  • Exercise reasonable care, skill and diligence

Personal liability for the company’s affairs

While directors who carry out their duties properly are generally free from personal liability, there are certain circumstances where a director may now be personally liable:

  • If a director is in breach of his duties, they may be personally liable for any loss the company suffers as a result.
  • Company directors may be criminally liable if they provide information regarding the company’s affairs.
  • Where the company is guilty of tax evasion, the directors may be personally liable for the unpaid tax.
  • If directors allow the company to trade knowing that it is insolvent.

Protecting directors and others

Fortunately, there are steps company directors can take to protect themselves against liabilities and claims for breach of duty. Acting reasonably and honestly are the obvious ones. Having professional indemnity and/or third-party liability insurances is a good backstop!

Don't ignore the dangers of being a committee member
The perils lurk for committee members!

Unincorporated associations

So, what about clubs? Where do they fit into all this?

A club is an association of people who have a common cause or interest and who are involved in a non-profit endeavour, such as managing a village hall, or running a sports club.

These undertakings may also be charities (in which case they are also subject to the requirements of the Charities Act). However, although the responsibilities of trustees of a charity are similar, in this blog I will concentrate on clubs only.

As mentioned above, clubs are “unincorporated associations”. This means they have no legal identity themselves, unlike a company or partnership. As a result, they can only act through individuals, who are usually their officers or members of their management committee. The responsibilities of these officers and other management committee members may be extremely onerous, something many are unaware of.

I list some of the duties and risks to committee members below:


If you accept a position on a committee you are accepting responsibility, and you must fill those duties to the best of your ability without negligence. That is, you must:

  • Not create foreseeable risk of injury and
  • Take reasonable steps to deal with any foreseeable risk of injury which exists or arises.
Act prudently

The management committee(or board) must act prudently to protect the assets and property of the organisation and ensure that they are used to deliver the organisation’s objectives.   It is the management committee’s responsibility to safeguard the interests of the club through good planning and management of its finances, activities and risks.

Legal liability

The management committee is ultimately accountable for the club itself.  It is responsible or liable for the consequences of actions taken or not taken (acts and/or omissions) by the club, its staff or volunteers and other management committee members.

The management committee may have legal liabilities arising from:

  • Contracts (for example, with suppliers, funders, staff or landlords)
  • Statutory obligations (such as dictated by legislation relating to health & safety, child protection, staff conditions, etc), and
  • Duty of Care (that is the responsibility to take reasonable steps to ensure that others do not suffer loss or damage through what you do, or fail to do).

Should the club, its staff, volunteers or management committee members fail to meet their obligations in any of these areas, individual committee members and/or the management committee as a whole may be held to account by any external individual or body.

Can you be held personally liable?

The answer is yes, the perils are very real!

The management committee or its members can potentially be held individually and collectively liable, if they have not acted responsibly. This will apply regardless of the legal structure, or any insurance provisions.

This duty of care may be breached through individual action (or failure to act) by management committee members, staff or volunteers.

In all cases, the management committee members remain ultimately responsible for ensuring that others do not suffer damage or loss through the organisation’s activities.  They may become personally liable for debts or claims which result from actions or inactions.

Duty of care

Looking more closely at the duty of care.

A duty of care exists where:

  • There is a relationship between two parties, and
  • The consequences of the actions are reasonably foreseeable.

Breach of duty of care is concerned with the standard of care that ought to have been applied in the situation.  Therefore, if the conduct of the individual or club falls below the standard that a reasonable person would have expected, they will be negligent in their duty.

Alarmingly, many club committee members are not fully aware of their obligations under the duty of care principal.

Collectively & Individually

Management committee members could be liable collectively and individually for failings in their duty of care towards the organisation and care of its assets and reputation. It’s a bit like a partnership: you could be liable for your fellow committee members’ actions, or lack of actions.  The latter is often the problem!

A recent case

A recent court case in Scotland brings all this acutely into focus. In brief, the facts were:

  1. Mr D, a committee member and president of a rugby club, witnessed a contract signed by the club’s treasurer to carry out some building work on behalf of the club.
  2. The club paid the sum agreed, but not the agreed variations of £147, 000. The builder sued Mr D personally for the debt.
  3. Mr D argued that the treasurer, who signed the contract, and not him was liable.
  4. The court decided that all members of the committee, including Mr D, were personally liable under the contract.
  5. The court noted that the rules of the club specifically gave the committee the authority to act as agents on behalf of all the members of the club, and liability therefore lay with the committee members.

This case makes it abundantly clear that committee members (and in some rare situations, ordinary members) can unwittingly end up being personally liable for the acts of other members within a club.


Finally, if you are a member of a club but not a committee member, what can do if you feel that one or more of your club’s officers is behaving improperly? For instance, you might suspect one of the officers is fiddling the books.

You have two basic courses of action:

  • First, report any criminal activity to the police.
  • Second, take legal advice about your chances of achieving the appropriate remedy against the committee collectively, or an individual committee member. (In this second course of action you will probably need the support of other club officers.)


If you are a committee member and have just read the above, how do you feel?

  • Were you aware of all your responsibilities, both personal and collectively with other committee members?
  • Were you aware of your onerous duty of care?
  • Have you exercised your duties with due care and diligence?

For example, have you:

  • Done all you can to check the club complies with Health & Safety and Child Care regulations?
  • Undertaken adequate checks of your club’s annual accounts and ensured the security of your club’s assets?
  • Thought about getting the accountants in to conduct a professional review of the club’s annual accounts ?

Or, perhaps, you are just thinking of becoming a committee member? Well, maybe there is more to it than you realised?

Further reading

For more on styles of trading please refer to FAQ 3.1:

For more on partners please refer to:


You can get guidance on writing a small club constitution by going to:


Illusion v Reality

Illusion v Reality

What you think you see is sometimes not the reality
Is this real or imagined?

Illusion v Reality

Three things caught my attention this week and got me thinking about how appearance (the illusion) compared with reality.

  • The first was a quote from Joseph Kennedy telling his famous sons:

“It’s not who you are that matters, it’s what people think you are.”

  • Second was a letter from a business provider explaining a corporate divorce. The letter did not explain truthfully what had happened, but dissembled about the outcome.
  • Third was a blog on common illusions about startups.

Generally, two types of illusions were highlighted: one about people, the other about businesses.

Personal illusions

Illusions about people are pretty much the same as illusions about life. As Joni Mitchel said so beautifully:

“I’ve looked at life from both sides now,

From win and lose and still somehow,

It’s life’s illusions I recall

I really don’t know life at all.”

Creating illusions about ones life is common practice. No where is this more so than in the worlds of motion politics, motion pictures, the media and, of course, business. In these walks of life illusion is everything.

Also, those who populate these professions cross over or intermingle so that their activities and identities become indistinguishable. Who was Ronald Reagan? Who is Donald Trump? Are they actors, celebrities, politicians, businessmen, TV personalities or pure illusionists?

More importantly, what sort of people are they? Do they measure up in any way to their preferred image?

Frank Sinatra

The late Frank Sinatra was a prime example of the singer/actor/celebrity who moved seamlessly into politics and (shady) business, while fighting an image problem.

Sinatra spent a fortune on PR, building the illusion of the caring, generous, liberal, family oriented, Mr Nice Guy. In reality, he was foul mouthed, viciously tempered, philandering, disloyal and corrupt. He associated freely with the Mafia, made millions through gambling, cheated repeatedly on all his wives, was disloyal to his friends and switched from being a Democrat to supporting Ronald Reagan (a Republican) when he saw it was in his interest to do so.

Sinatra spent millions polishing his personal brand and it worked very well for him. He achieved America’s highest civilian awards while claiming friendship with Presidents, Ambassadors and Royalty. It is no co-incidence that he was also a friend of Joseph Kennedy and would have thoroughly agreed with what Kennedy said about the importance of illusions.

Business illusion

Turning now to the problem of illusion v reality in the business world.

Illusions are very important for businesspeople. Think Elon Musk, Richard Branson, Jeff Bezos, Mark Zuckerberg and all the other rock star entrepreneurs. Don’t they seem to spend as much time on their personal PR as on their businesses?

However, the business illusion I wish to talk about concerns business entities rather than the fantasies of individuals. This sort of illusion can be put into two broad categories:

  • The illusion that arises from PR and advertising, usually put out by larger, public companies.
  • And the illusion about the wealth, strength and trustfulness of private,  small or medium sized enterprises.

Public company PR

It makes me slightly ill when I see banks and other institutions posturing in their terribly PC and woke advertisements. A litany of virtue signalling and “togetherness” when what they are actually doing is just selling their services.

The illusion is that they are “helping” and “caring”; the reality is that they are trying to make money. We accept the reality – we expect businesses to try to make money. But please, spare me the rest of the flannel!

The small business illusion

Although the big company PR is slightly nauseous, more important is the illusion generated by some small businesses. This illusion has arisen from the concept of company incorporation. Central to incorporation is the idea that a company is a separate legal entity from the people who own or manage it. Associated with this is the idea of limited liability. Both these ideas can trace their birth to South Sea Bubble of the 1720s.

Now for a bit of legal history. Please skip this if it bores you.

Prior to the 1720s when people joined together to trade, they did so as partners. The individuals in the joint venture were known to those who dealt with them and, if the venture failed, the partners were responsible for the losses.

The South Sea Company was such a joint venture. Unfortunately, it collapsed causing huge loses to those involved, including the English Crown. This led to a series of Acts of Parliament addressing how businesses should trade. What follows is a brief summary of these Acts.

The Acts of parliament

  • The Bubble Act 1720, which forbade the formation of all joint-stock companies unless they were authorized by royal charter. (The Crown was effectively preventing business ventures from competing with the South Sea Company, because they had a large stake in it!)
  • Chartered Companies Act 1837, which enabled ventures to trade under “letters patent”. This was an early form of incorporation.
  •  Joint Stock Companies Registration and Regulation Act 1844, which allowed companies to be incorporated. However, the entities were still treated like partnerships, which meant the members (shareholders) did not enjoy limited liability for the company’s debts.
  • Limited Liability Act in 1855, which introduced proper limited liability, restricting shareholders’ liability to the amount unpaid on their shares. That is, shareholders were not responsible for the company’s debts.
  • Joint Stock Companies Act in 1856, which introduced the modern memorandum of association and the articles of association, among other things.

The “corporate veil”

The result of this legislation was the creation of a business entity which shielded its shareholders. It created what we now call the “corporate veil”, the mask or protection that shareholders have from public view, and, more importantly, from being responsible for company liabilities.

To get at the shareholders you must “lift the corporate veil”. But because the courts have been reluctant to lift the veil. Consequently legislation has been introduced by Parliament over the years to make shareholders, in limited circumstances, liable for company debts. An example is making directors (who in small private companies are often also shareholders) liable for some company debts. However, this has not been effective with public company shareholders and directors.

Companies can hide behind their image created by corporate magicians
The magic of illusion

But what has this got to do with illusion v reality?

Because companies can own other companies and because the owning company can be in a different country (or jurisdiction), there is a corporate veil that can mask ownership as well as the location, size, trustworthiness and wealth of a company. This makes creation of the illusion so much easier, but penetration of it so much harder.

In most developed countries companies must provide information (including financial results) to their regulatory authorities. In the UK this is Companies House. See:

However, this information is usually limited and usually out of date. (How does it help, for example, to know that a company you are enquiring about is owned by another company in the Bahamas?)

The result is that we often don’t know much about many of the private companies we are dealing with, whether we are a customer or as a creditor. This ignorance includes knowing about their ownership and/or their current financial position.

Hiding the facts

It’s relatively easy for a company to hide crucial facts about itself. The use of a fancy website, City grandees as directors, an aristocratic Chairman, a pompous name (as well as fancy corporate literature) will all go a long way to presenting an illusion of trust and solidity. But who and what really sits behind the corporate veil?

[Note the regulation of the governancefinance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governance rights.]

The internet & social media

In this age of increasing scrutiny through the press and social media one would think that we should know everything about the businesses we deal with. This is true for many businesses, where things like reviews on forums and discussions on social media can reveal the reality behind the illusion.

But this by no means universal. Many clever businesses have, indeed, utilised the anonymity of the internet and the illusion of an impressive web site to defraud investors and customers. Scammers, of course, utilize these illusions every day.

The illusion of startups

Finally, I want to draw your attention to a very good blog I came across recently. It was called, appropriately, “What are the greatest illusions about startups?” and was written by Tim Berry Founder of Palo Alto Software.

He said there are several illusions about startups. These include the illusions of:

  • “Few businesses have truly new ideas. Apple didn’t; Facebook didn’t; Google didn’t. They took an existing idea and did it better, or differently. Quite often the second or third entrant into a market wins. Furthermore, business ideas have no value. Execution gives them value. At the idea stage, they are just vapor, with no way to tell if they will even work.
  • You would think that all startups go from business plan to pitching to funding to launch. But no. That’s the exception. Out in the real world, the early stages are usually a lot of struggle, work without money, doing things on your own time and after hours. Only a small minority, the best of the best, get other people’s money to spend. And that usually happens after a period of struggle, not at the beginning. Investors fund businesses but not plans, and ideas even less so.
  • Nope. Your customers are your boss. Your employees are your boss. Start a business and you answer to a lot more people than you did as an employee.
  • Persistence only matters if the fundamentals are sound. Otherwise, it’s just digging deeper holes. Successful entrepreneurs often tell crowds of hopefuls how they need to stick to it, but that’s not really fair. Yes, their persistence won in the end, but for every success there are several failures who should have seen the signs sooner and should have given up sooner.
  • Passion is necessary but not sufficient. Yes, being committed, believing in the goals, is a good thing, for sure. You almost have to have it. But passion doesn’t make a bad business good. It doesn’t fix cash flow, overspending, low demand. Lots of failed businesses were fuelled by passion. When startup founders emphasize their passion, potential investors are usually rolling their eyes and waiting for them to get to the real content of their pitch.

Illusion v Reality: Conclusion

So, illusion is with us everywhere in people and in life. It is rife in business, existing in statups and international corporations.  We don’t have to look to hard to find it.

However, you probably think personal illusion is mostly pretty harmless. I would agree. Perhaps, it is just a fact of life that people are often not what they seem to be. And maybe this is actually a positive. Who wants to be known warts and all? And, do you really want to know all the shortcomings of your heroes?

But business illusion is an entirely different matter. It leads to fraud and theft. Moreover, it creates uncertainty, distorts relationships, enhances risk and costs consumers billions every year. I’m not sure who we blame for this, but the South Sea Bubble should take some part of it.

You may also wish to refer to:





Will shopping ever be the same?

A shopper

Will shopping ever be the same? 

Although I am not a shopper (and my wife tells me I am a nightmare to go shopping with), I came across two interesting articles about shopping last week.

The first was by Tom Witherow from the Daily Mail. I usually read the Daily Mail only when I need an antidote to the doom and gloom put out by our old friends the BBC, so it must have been one of those days.

The second was by Suzanne Moore, a Guardian journalist. This is a real anomaly because I never read the Guardian! However, I came across Suzanne’s article somewhere.

The articles

Tom Witherow’s article was about the here and now. He was explaining the retailing statistics for September 2020 published by the CBI. Suzanne Moore’s article was more about the future. She ponders whether attitudes to shopping will change forever because of the Covid-19 pandemic.  Or maybe she hopes they will change?  Anyway, more on them later.

The retail facts

Before I commented on the articles, I thought I would get the bald facts if I could.

It is widely reported that the effects of the various Covid-19 lockdowns on many high street retail outlets have been largely negative. But, leaving aside the more alarmist stories in the media, what is the true picture? How is retail doing? How has it been affected by the pandemic?

To find out I went to the Government website:

The statistics

Unfortunately, dry statistics are often dry, and a bit boring. Please ignore this section is you find them indigestible. Anyway, this is what I gathered:

  • In August 2020, the value of retail sales increased by 0.7% and volume sales by 0.8% compared with July 2020.
  • When compared with February 2020’s pre-pandemic level, total retail sales were 2.5% and 4.0% higher in value and volume terms, respectively.
  • When compared with the previous three months, a stronger rate of growth was seen in the three months to August, at 16.4% and 16.7% for value and volume sales, respectively.
  • The only measure to show a decline was value sales in the three months to August when compared with the same three months a year ago, at negative 0.6%.
  •  Comparing the change in year to date sales volumes in 2020 (January to August) with the same period a year earlier, we see:
  •  Total retail sales volumes decreased by 4.8% up to August 2020. All sectors, except for food and non-store retailing, saw a fall in sales.
  • Food stores increased by 4.4% and non-store (online) retailing showed strong growth at 28.6% when compared with January to August 2019.
  • From March 2020, consumers shifted to spending in essential food stores and online retailers as many stores within non-food retailing faced temporary closures.
  • Total non-food stores fell by 18.2%, with a strong decline of 30.1% for clothing stores.
  • While many fuel stations remained open during lockdown, movement restrictions, including homeworking, had reduced travel and volume sales fell by 24.3% in 2020 as a result.
  • Looking at the volume of retail sales for each store type from March to August when compared with February’s pre-pandemic levels we see:
  • In August, total retail sales volumes were 4.0% higher than February. Sectors above February’s pre-pandemic level were food stores, other non-food retailing, household goods and non-store retailing.
  • All other sectors have shown a slower rate of growth since lockdown and continued to recover.
  •  Volume sales within non-store retailing increased sharply in April and May, and sales in August were 38.9% higher than February 2020. This was driven by a shift to online orders during lockdown because of temporary store closures for non-essential stores.
  • As a result, all non-food stores experienced a sharp decline in April, with signs of recovery from May to August 2020. Clothing stores were the worst hit during this time as sales in August were 15.9% lower than February 2020.


A short summary

The overall conclusion to be drawn from these rather bewildering figures is that the picture is mixed. Since June (when the first lockdown restrictions were introduced), on-line sales (also called “non-store” sales) generally are booming, while the high street is still suffering. Petrol and in-store clothing sales have declined sharply. However, in-store (high street) sales of food and home essentials are growing strongly.

Tom Witherow’ article

Tom Witherow’s article helped to explain what is going on. He considered the findings of the retail sales figures to September 2020, which can be found in the CBI Distributive Trades Survey at:  

Tom neatly summarised the facts and cited some specific trading results of household names in the retail sector. I further summarise his facts as follows:

  • Compared with a “normal September” the biggest in-store retail winners (besides food) were household furniture, DIY, pets and hardware. Their sales were up an average of 35%.
  • Clothing and department stores were the biggest losers, down 40% and 23%, respectively. Also, these stores are still struggling and there seems to be no immediate prospect of recovery.
  • DFS (the furniture store) is booming. It explains its success as due to “the nesting instinct” brought about by the pandemic. It recorded an increase in sales of £226 million over a ten-week period to September 2020.
  • Pets at Home is also doing well, cashing in on the desire by pet owners to spend more on their pets. It has recorded double digit growth to September.  

So, again the picture is very mixed, with in store clothing being the big loser. What these results don’t tell us, however, is how much clothing is being sold on-line.

Suzanne Moore’s article

Suzanne’s focus is on the future and she wonders whether the pandemic has changed forever our attitudes towards shopping. She wonders whether we will ever return to “the normal”. I quote her at length because she puts it very well:

“We don’t need to endlessly renew our wardrobe and our look. However, consumer logic says the opposite: that you can never have enough. If only you buy one more thing, everything will be better …

The pandemic has changed all that…  It is no use (the politicians) telling us to go back to sandwich chains or high-street stores out of patriotic duty when we have found small local shops that suit us better. Many of us have also discovered we do not need all the things we once thought we did…

The mutation of shopping from buying necessary stuff to being a leisure activity – “retail therapy” – has been one of the most miserable cons of modern life. Do people in these big out-of-town malls look happy, ever? …

If the idea of getting back to normal means going back to mindless shopping instead of picking up on more sustainable trends – repurposing, DIY, buying second hand, supporting small shops – then I don’t want to go back to normal. The homogenised high streets of our cities needed repurposing long before the coronavirus.

“What consumerism really is, at its worst, is getting people to buy things that don’t actually improve their lives.” Who said this? Some French Marxist in the early 70s? No, Jeff Bezos.

What improves your life is entirely personal. You may indeed find it online. Or you may find it at the bottom of a pile of clothes. If anything good has come out of this awful time, it is this. A reconnection with our material lives, a pause in mindless consumption. “When the going gets tough, the tough go shopping,” they used to say. Well, it’s no longer true, if it ever was.

The tough find, if we’re lucky, we actually already have a lot of what we need. We don’t need to add to the pile.”

“Things will never be the same again”

The “Things will never be the same again” argument that Suzanne raises rages on. Some say the effect of Covid-19 is purely short term (whether your short term is 6 months or 12). Others believe that it will cause a fundamental change to the way we live, especially in how we travel and how we shop.

I am on the side of the short termists believing most things will soon return to normal. But then I never was a shopper. But, what about you? Do you think we will soon return to “the normal”. or have things changed fundamentally?

See also


Is Forex trading a scam?

Easy Money!

Is Forex trading a scam?

The trading of foreign exchange (FX or Forex) is a legitimate international industry. It is also exotic and complex. It has the lure of mystery, promising large financial returns for traders. But, it is also the home of unscrupulous fraudsters. So, is forex trading a scam? If so it could be the scam of the moment.

The scam of the moment

The scam of the moment in the 1980s was the Nigerian $10 million give away. I first came across it when I was working in Australia. It relied on the novelty of email. Email, that hi-tech wonder which enabled unknown people from all over the world to contact you with tempting promises.

Badly drafted and barely literate emails would arrive from a nearly- legitimate sounding bank in Lagos. You were advised that (amazingly!) you had been chosen as the beneficiary of a $10 million bank stash. This money was the unwanted surplus left over from an oil deal that needed a home.  All you had to do was acknowledge that you would be happy to have the cash and it was as good as yours! Oh, and by the way, could you please just send $2,000.00 to finalise the bank transfer? (This second bit of information only becoming apparent later.)

Anyone who had any sense would know this was rubbish. However, it was surprising how many people didn’t have any sense and believed it was true. One of my clients, a recipient of such an email, said to me: “Well, it might just be true, so I’ll reply and find out.”  I won’t bore you with the outcome.

Of course, we think we are far too smart today to fall for this sort of thing. We are too familiar with the clichés: “There is no such thing as a free lunch”, and “If it seems too good to be true, it probably is too good to be true.”

Well…perhaps we are aren’t so smart after all.

Frauds move on

Frauds move on. However, their success is still driven by the same old human weaknesses, namely stupidity, laziness and greed. We want more money, preferably without working too hard for it. We are also suckers for get rich quick schemes. While email is old hat, social media ubiquity and anonymity fill the gap nicely.

The current scam of the moment that ticks all the boxes is the trading of foreign exchange (FX). This is particularly true if it is coupled with pyramid selling and, perhaps, a bit of Mr. Ponzi thrown in!

Some statistics

Before we look at how some of the schemes operate, let’s look at some statistics.

  • The FX market is the largest financial market in the world, with over $5 trillion traded every day.  Traders can take advantage of a market that trades 24 hours a day, five days a week. The vast bulk of traders are, of course, completely legitimate. However, many trading schemes are run by fraudsters. 
  • In the UK the Financial Conduct Authority (FCA) said fraudsters stole a total of £27 million through crypto and FX scams in the 2018/19 financial year. Moreover, the number of reported crimes tripled compared with the previous year. It believes FX investment scams caused investors to lose an average of £14,600 each last year (2018/19).
  • The European Securities and Markets Authority says between 74.5% and 89% of retail investors lose money trading in FX markets.
  • The figure for losses in the US is 84%.

According to an Action Fraud media report, young people are being sucked into FX scams by Instagram and Facebook. This results in average losses of £9,000 each. A recent report in The Times newspaper says 79.5% of people lose money in FX trading schemes in the UK.  

How do FX scams operate?

Typically, a FX scam works like this:

  1. Initially, potential investors (punters? victims?) are contacted by promoters (who are friends, contacts, or influencers) through social media outlets, such as Facebook, LinkedIn or Instagram. The promoters tell of making large, easy and regular returns on their “investments” in a FX scheme. Usually, the principals of the scheme are licensed FX Brokers. (I will say more about licensing below.)
  2. Investors are told that money can be made through trading FX themselves, or allowing the FX broker to trade for them. They can also earn money by signing up their friends, relatives and contacts to the scheme.  “There are at least five sources of regular income” I have been personally told by an FX promoter.
  3. Claims by promotors such as: “I make regular money every week without doing anything”, or “I have never ever made a loss” are common.  
  4. Once an investor is in the scheme, he or she then becomes both a trader and a recruiter, bringing in other investors. The recruiter earns money from every new investor they bring in. They also earn money on the trades of the people they have recruited. The recruitment element is, of course, pyramid selling, or multi-level marketing.
  5. Some FX schemes claim they are training firms as well as trading firms.  Once trained, the investors can begin trading on their own behalf.  In the meantime, the broker will trade for them.   
A pyramid scheme?

Pyramid or MLM Selling

Pyramid selling traditionally has had a bad name. But, a cleaned up and rebranded version called multi-level marketing (MLM) has established itself as a legitimate and very effective marketing system. Profitable, well-established and reputable companies such as Utility Warehouse (Telecom Plus) use MLM to great effect. 

There is nothing wrong with MLM as such. However, FX scammers are cleverly incorporating it into so called “FX Investment” schemes. Consequently, recruitment income can for a time hide the actual FX investment losses, or indeed, be the only income earned by investors.

It is reported that some social media influencers who promote schemes (and boast that they are making millions from trading) don’t trade at all. They earn money by simply bringing in new investors, who in turn bring in new investors … and so on.  Like all MLM schemes, the original recruiters earn income from everyone brought in “downline” from them.

Part of the initial “investment” in FX schemes could be used to buy training tools, such as videos. It can also be used to pay fees for the actual training itself. Recruiters will, of course, also earn income from their share of these costs paid by their recruits.

OK it’s a way to earn a living, but is this really FX trading or just recruiting MLM-style?

Are FX trading schemes a Ponzi Scheme?

The next issue to consider in deciding whether forex trading is a scam is to decide if some FX schemes are, in fact, also Ponzi schemes?

Of course, FX trading per se itself is not a Ponzi scheme.  Most FX brokers and traders are perfectly legitimate, but are some Ponzi schemes?

I think the answer is yes, some fraudulent FX trading schemes do rely on the methods used by Mr. Ponzi. To remind you, a Ponzi scheme relies on fresh income coming into the scheme from new investors to pay the returns (of interest, or profit, or dividends), which are paid regularly to current investors, whether or not the investments are making money.

Some fraudulent FX schemes pay regular “profits” to their investors every month, or even every week. This is true particularly in the early stages of their investment. This re-enforces the promotors’ claims that “We never make a loss in trading”, giving both the investor and recruiters confidence in the scheme. Also, it boosts their willingness and ability to recruit new investors. As we have seen, the recruiting of new investors is vital to keep a Ponzi scheme going.

How do I know whether the FX scheme is a scam?

Amongst all the information and misinformation how would you know whether a particular FX scheme is a scam? There are two main areas to look at, namely:

  • The giveaway (or tell tale) signs, and
  • Formal licensing (or regulation).

Look out for the tell-tale signs

If are thinking of investing in FX, you can hire a regulated broker to invest for you. This is pretty straightforward. Find a regulated (licensed) broker and go ahead.

If you are thinking of joining a FX scheme where you are able to trade on your own account, the first thing to do is to look out for the tell-tale signs that show you it could be scam. Asking the following questions could help to establish its bona fides:

The questions

  • Is the scheme being promoted through MLM? You will know this if you are being recruited by a friend or a social media contact who tells that you will earn income not only from trading, but also from bringing in others into the scheme. If you are unsure, ask your recruiter. You might get an honest answer!
  • Does your recruiter make comments that, by applying common sense, you feel are too good to be true? These could include: “We never make a loss”, “I have made money every month from trading”, “I have doubled my initial investment in three months.” Remember, there is no certain way to make quick money in financial investment, otherwise we would all be multi-millionaires. Look at it another way: if the investment scheme is so fool proof and profitable, why is your recruiter bothering to recruit you and not just making their millions through trading?
  • Are there any other things joined to the trading that are being promoted as money earners? Does it involve selling products to new investors, fees for training and so on? If its true FX trading you are interested in, these things should be irrelevant.  
  • Is it claimed that “profits” from investment are paid out every week or every month? If so, how can this be true in a high-risk game like FX investment where 75% of traders lose money?  Is this really a Ponzi scheme relying on money from new investors to keep it going? Does this explain why there is such an emphasis on new recruitment?
Happy and not so happy pyramid sellers

Regulation or Licensing Licensing

Licensing (or regulation) is the next important issue to consider when you are concerned about the legitimacy of a FX trading scheme. The regulator of financial dealings in the UK is the Financial Conduct Authority (FCA). It has a comprehensive website that has a lot to say about FX schemes. However, does any of it help us to answer the question: “Is forex trading is a scam?”


 The FCA on its web site has this to say about FX schemes:

“UK consumers are being increasingly targeted by unauthorised forex trading and brokerage firms offering the chance to trade in foreign exchange, contracts for difference, binary options, crypto assets and other commodities.

They promise very high returns and guaranteed profits, either through a managed account where the firm makes trades on the investor’s behalf or by trading using the firm’s trading platform.


We are aware that scammers are targeting consumers searching for investments online, in particular through search engines like Google and Bing. Although some scammers offer high returns to tempt you into investing, they may also offer realistic returns to make their offer appear more legitimate. Those offering or promoting products or investment opportunities found through search engines are not necessarily authorised or regulated by the FCA. You can check the FCA Warning List for firms to avoid.

Many scam firms claim to be based in the UK and even claim to be FCA authorised.

Beware of clone firms

Many bogus trading and brokerage firms will use the name, ‘firm registration number’ (FRN) and address of firms and individuals who are FCA authorised. This is called a ‘clone firm’.

The scammers then give their own phone number, address and website details, sometimes claiming that a firm’s contact details on the Register are out of date.

Scammers might also claim to be an overseas firm, which don’t always have their full contact and website details listed on the Register.

Scammers may even copy the website of an authorised firm, making subtle changes such as the phone number.

How to protect yourself

You should check the FCA register of authorised firms before dealing with any firm. If they’re not authorised by us, it’s probably a scam. You can also check our Warning List of firms to avoid.”

Avoiding the need for a license  

Obviously, the FCA is aware of the ways bogus firms pretend they are licensed, or try to avoid being regulated. In my experience, a sneaky ruse some FC scammers use to avoid regulation is to claim they are training firms and not trading firms. While it is true that training could be part of what these firms do, it is not their main purpose. the main purpose (or at least the main advertised purpose) is to trade FX. So, why are they not registered or licensed as such?

Legal action against FX scammers

The FCA states that “To offer advice on regulated products, companies must be authorized”, and “to do so without authorization is a criminal offence”. However, there is little evidence of the FCA taking any meaningful legal action to shut down these illegal FX firms  

The Times, in the article I have already mentioned, says that part of the problem is that enforcement powers fall between HM Treasury and the FCA, resulting in a standoff between them. Some campaigners believe the answer lies in classifying FX investments as gambling, so they can be regulated by the Gambling Commission. Perhaps, that says it all!


The regulatory bodies know all about some fraudulent FX trading schemes, but they continue to trade unabated.  Does this mean that most forex trading is a scam and just nothing is being done about bit?

This is hard to tell, but undoubtedly, this lack of intervention makes it very difficult for individuals who want to trade FX legitimately to choose between the good and bad firms.

It seems it is up to the individual to exercise due diligence and their common sense. I hope you heed the warnings and wish you well in your research.

See also:


Sales forecasting for startups

Computer spreadsheets can spew out meaningless sales forecasts!
The computer and sales forecasting

Sales forecasting for startups

I came across this quote the other day, which caused me to reflect on the question of sales forecasting for startups.

“Plan financially for it to take you twice as long to sell half as much as in your original business plan.” (Toby Reid, director of BioCity Nottingham.)

One of my bugbears. is the inability of most new businesses to produce accurate sales forecasts. This is, after all, the most important forecast there is. However, every startup I have been involved with always gets it wrong!

The importance of sales forecasting

Sales are the lifeblood of a business. Nothing is more important. Without sales there is no business.

A business’s operations are planned around the volume of sales it will generate. Sales volume influences everything important that happens in a business. This includes cash (or capital) requirements, office or factory capacity, staffing levels, transport requirements and operational activities.

Sales forecasting is, therefore, the vital ingredient of the business plan.

Established business

To accurately forecast sales in an established business is difficult for many reasons. These include the variations in the economic cycle and unusual events such as a pandemic. Also, more mundane factors (such as increased competition, disruptions to supply and/or manufacture, strikes and staff problems) can make forecasting difficult.

However, with an established business one has historical data to work from. Actual sales from previous years set the benchmark from which estimates of future sales are made. Sensible sales assumptions based on such things as:

  • Expected events within the economy
  • Factors that may effect the business and
  • Probable activity by competitors

Should result in a forecast that is accurate within, perhaps, a ten percent variance.

Sales forecasting is more effective if done in teams.
The sales forecasting team

New business

However, with a new business (or startup) you have none of these benchmarks. To accurately forecast sales here is of a different dimension all together. There is, by definition, no history in a startup: there are no past sales on which to base future sales. Most estimates things are a pure guess.   

Startups in established industries

To help overcome the difficulty of having no history, potential startups in established industries undertake market research. This research attempts to establish such things as the size of the potential market, the activity of competitors and the likely share of the market that the startup is hoping to capture.

Information can also be gathered by:

  • Talking to vendors or wholesalers
  • Studying trade magazines
  • Considering how similar products preform
  • Looking at how rival businesses preform
  • Deciding whether your product is seasonal or not

Established industry forecasts

Using the methods above, startups in established industries can hope to produce sales forecasts that have some credibility. However, they are still usually inaccurate. Without exception they are inaccurate on the upside, plagued by mistakes such as assuming that sales will increase by a set percentage every year and happily feeding this information into the spreadsheet.

The result is a forecast that is not only wildly optimistic about quantum, but also about timing. This is where Toby Reid’s comments above are so relevant.

I used to say to my startup clients: “Estimate the sales numbers, divide them by two, and then divide them by two again and then add a year.” Pessimistic? Maybe but, in the event, usually closer in outcome than the original numbers spewed out by the computer.  

Sales forecasting is an important part of the overall business plan.
The sales forecast is part of the business plan

Startups in a new industry

Occasionally a startup is so innovative it is attempting to create a whole new industry. Although this is rare, it does happen. Where the new business is in this situation (that is, establishing an industry which is itself new), the process of forecasting its sales becomes doubly difficult or, probably, impossible.

The business cannot undertake the research mentioned above because there is no industry, competitor, or existing product information to find out about. Where there are no industry sales statistics (because the industry does not yet exist) it is, of course, impossible to forecast what sales might be using tried and tested (albeit unreliable) methods.  

Forecasting for a new industry

So, what is to be done about sales forecasting in these circumstances? Is there any point in attempting any forecast at all? Or put another way, can one place any credence on these forecasts, or are they just wild guesses?

The first answer is probably yes, you must produce sales forecasts. The second answer is no, you cannot place much credence on them. In these circumstances the startup owners must go on gut feel as much as anything else. The forecasts are probably just wild guesses and more or less useless. Consequently, the business will have to be flexible and nimble and adjust to the sales actually achieved.   

Flexibility in forecasting  

The inaccuracy of forecasting is only one element of a startup’s uncertainty. It is likely that the business will have to undergo numerous changes in its early life, such as adapting or changing its products, its location, its management and its method of sales to survive. This ability to “pivot” (to use Silicon Valley’s jargon) is vital to the continued existence and growth of many startups.

However, in the struggle for survival and emergence as a viable business, the accuracy or otherwise of a startup’s initial sales forecast will have long since been forgotten – a bit like your GCSE results when you are seeking promotion as CEO!

See also:

You can view a useful forecasting toolkit at:


HSBC & TESLA – A Tale of Two Shares

The difficulty of picking the right investment
The ups and downs of the share market

HSBC & TESLA – A Tale of Two Shares

This story looks at the fortune of two companies, HSBC and Tesla, over the last year. I call it A tale of two shares.

It has a moral, but I haven’t worked out what it is yet!

Some basics stats

If you were an investor thinking of what to do with the money you received a year ago from dear Aunt Mabel (now deceased) you might well have considered the blue chip banking leviathan HSBC Holdings or the high-tech, high risk Tesla, maker of electric cars.

Here are some facts about the two companies in September 2019.


  1. Share price Sept 2019: $US 767.00
  2. Revenue $US56.0 billion
  3. Net income: $US8.7 billion profit
  4. Total assets: $US2.7 trillion
  5. Expected dividend: 8% of profits


  1. Share price Sept 2019: $US 444.00
  2. Revenue $US24.6 billion
  3. Net income: $US1.1 billion loss
  4. Total assets: $US34.3 billion
  5. Expected dividend: NIL

Their stories

HSBC focuses on the high growth area of Asia but has operations all over the world. Tesla too has world-wide markets. But there the similarity ends. Have a look at the tables above. HSBC had an annual turnover in 2018/19 of US$56billion, Tesla’s was only US$24.6.

But HSBC had a profit of US$8.6 billion (and a profit of in excess of US$20 billion the previous year.)  Tesla lost over a billion US dollars in 2019/20 and even more in the previous year.

HSBC’s total assets were US$2.7 trillion in September 2019, while Tesla’s were a mere US$34.4 billion.

Finally, HSBC was expected to pay a handsome dividend of 8% of the share price, while Tesla was expected to pay no dividend at all.

The analysts

You had read conflicting reports of Tesla’s prospects. Many analysts believed Tesla would lose money for years and could possibly go bankrupt. Some others were more optimistic, anticipating their shares to rise to US$1,000!  What?

Most analysts felt that HSBC’s share price was about right and although some anticipated a slight fall, at least there was a handsome dividend expected to compensate for any short-term losses.

What to do?

Naturally, you owed it to Aunt Mabel’s to invest “her” money wisely. It wasn’t vital to keep you going, but it wasn’t surplus to requirements either. The safe HSBC, or the highly speculative Tesla?

The decision

In the end you took the safer and much wiser bet: you went for HSBC. HSBC was, at least, steady. The analysts thought HSBC’s price about right. Tesla’s share price was already over-valued and could fall quite sharply. Tesla was a casino bet.

So, what happened in 2019/20?

So, what happened? HSBC hit a tsunami of problems: The US and China continued their trade face-off damaging sentiment in the Far East HSBC’s most important market; interest rates moved even lower; Covid-19 badly affected trade; HSBC suspended its dividend (!!!) and analysts saw new fintech innovations as being negative to established banks.

Tesla too had Covid-19 problems causing it to close its Californian and China mega-factories; Elon Musk continued to behave erratically saying his shares (at US$ 440.00) were overvalued; the market continued to “short” the stock; the company made a profit (albeit a very small one) in the 3rd Quarter 2020). Competition in electric cars from the big boys of motor manufacturing increased sharply.

Similar problems, similar outcomes?

Similar problems, perhaps leading to a similar outcome for the shares? Don’t you believe it! Let’s have a look at the statistics for September 2020.


  1. Share price Sept 2020: $US 413.00
  2. Share price movement over 12 months: – 46.15%

The safe HSBC saw its shares continue to tumble from nearly US$800.00 in September 2019 to US$413.00 in September 2020 – a fall of 46% (and there was no dividend by way of compensation!).


  1. Share price Sept 2020: $US 2,200
  2. Share price movement over 12 months: + 394%

The high-risk Tesla saw it shares increase from US$444.00 in September 2019 to US$2,200 in September 2020 – an increase of nearly 400%. (Note Tesla undertook a 5 to 1 share split on 31st August 2020 since when its shares have increased by a further 12%.)

It was obvious

So Aunt Mabel, what do you think the moral of “HSBC & TESLA – A Tale of Two Shares” really is? It’s hard to say isn’t it. But the outcome was obvious, wasn’t it? 

However, I still think only a speculative fool would have bought Tesla.

Further information

For further information on the London Stock Exchange go to:

And for New York Stock Exchange go to:

See also FAQ 2.1:


How different countries view business failure

The demise of a company brings anguish to ite owners
The agony of business failure


How different countries view business failure

In my last blog I wrote about how business failure affects the business owners and entrepreneurs who suffer from it.  The one before that looked at the way VCs consider previous business failure when making startup investments. In this blog I want to look at how different countries (or cultures) view business failure.

Anecdotal ideas

Most of us have ideas on this subject. For example, it is commonly believed that in the USA there is a much more relaxed attitude towards business failure than in the UK. Also, we believe that the Japanese consider business failure as a massive loss of face. Further, that the Germans thoroughly disapprove of it.  However, hard research does not necessarily support these views. 

Commonly held views

I will look at the commonly held views first and then at some research findings. I acknowledge my indebtedness to Sue Bryant’s article How different cultures deal with failure for this section of my blog.

The following are some commonly held views about individual countries’ attitude towards business failure:

The West

The USA, as we have seen, has a high tolerance to business failure. Entrepreneurship is widely admired and business failure is considered to be a useful stepping stone to success.

UK attitudes towards business failure are mainly negative. Debt is no longer a crime, but it was once. It was not too long ago that there were debtors prisons in England. However, in the entrepreneurial 21st century we like to think that attitudes have changed. But, if they have, it is only at the margins and, perhaps, only in the world of high-tech startups.  

In Germany a series of rules and laws hold the social fabric together. Long-term security is sought after and prized. People view failure as a weakness and the result of inefficiency, not bad luck. Consequently, great effort is taken to minimise its likelihood.

Japan & India

In Japan a business failure can be fatal to a person’s professional reputation. An executive involved in a failed company may struggle to find another job. Moreover, the chief executive of a failed enterprise needs to apologise for letting people down. The resultant loss of face from business failure is likely to be career-ending.

India is fast emerging as a country of opportunists and entrepreneurs. Historically, India has considered failure as a disaster that could even affect an individual’s family name and marriage prospects. But its technological innovation, the availability of venture capital and a Silicon Valley mentality, has created a boom that has dramatically changed attitudes.


In Australia attitudes are more conservative than one realises. This is despite the fact that the outside world views it as a bold and daring country. On the contrary, Australians have an almost British-like aversion to failure, which negatively affects entrepreneurship.

Islamic cultures

Islamic cultures generally are not tolerant of failure. There’s is a culture where maintaining harmony and face are crucial. Also, a strict hierarchy, risk aversion and fatalism are commonplace. Consequently,  there is little room for experimentation and failure.

It seems the the more conservative the culture, the less tolerance for failure. Saudi Arabia, for example, is known for its intolerance and lack of entrepreneurial spirit.

But there is an exception. Multicultural United Arab Emirates is a society increasingly open to encouraging entrepreneurs and there is, consequentially, a more liberal attitude towards failure.

Some research findings

The idea that cultural factors per se influence attitudes towards failure and resultant rates of entrepreneurship has generated a number of research papers. Most of them admit to having produced what they call “mixed results.”

From my reading of some of these papers, “mixed results” means that researchers find it difficult to come up with any hard and fast conclusions. In particular, they are indecisive on how general cultural attitudes in different countries influence how their citizens view business failure.

Failure and economic growth

Interestingly, some research suggests that where there is rapid economic growth there is a more tolerant attitude towards failure. Interestingly, cultural values alone do not form opinions.  

Also, moral views do not necessarily affect attitudes. More important can be such things as legal reforms associated with such things as insolvency. Where legal reforms have lead to a more lenient outcome for insolvency, attitudes towards failure are more tolerant.

Other findings

The following are some quotes from research papers, which give a flavour of their findings: :

  • “We should be mindful of the fact that the inter-country differences observed here are very small…”
  • “It may well be that we have failed to capture important nuances in attitudes to business failure. For instance, recent research has suggested that people make sharp distinctions between ‘honest’ and ‘corrupt’ business failures.”
  •  “We need to be aware of the limitations of explaining national differences in terms of individual attitudes and values. Even if value differences are found to systematically predict differences in entrepreneurship between countries, this is still far from a satisfactory explanation either sociologically or economically. To say: ‘Americans take risks because that’s the sort of people Americans are’ leaves us no wiser about the nature of values and the causes of value differences.” 

Perhaps then academic research does little to either reinforce or diminish popular views on this subject. Despite research, our commonly held views are still based on anecdotal evidence.   

Loss of money: loss of face

Finally, what is it about business failure that attracts negative reactions? There are two obvious reasons.

Psychological damage

The first is emotional or psychological damage. That is the embarrassment, shame, loss of face (call it what you will) that the business owners of failed businesses experience. I believe the countries who feel this most acutely have the most negative attitudes towards failure. The shame felt rubs off on the community at large. Thus moral condemnation appears appropriate.   

Loss of money

The second issue is loss of money. This affects not only the business owner and their families, but also the unpaid creditors of the failed business. The number of people negatively affected is greater and their loss is real, measurable. It is also, perhaps, longer lasting than the psychological issues previously mentioned.   

Financial loss has nothing to do with moral values as such. It is negative because it hurts. Almost everyone who is financially affected by business failure dislikes it. 

Greater impact

Both the psychological and financial issues are important in influencing how people feel about failure. However, it is the loss of money that in my opinion has the greater impact on attitudes because it directly affects a greater number of people and in a place it really hurts: their pockets!

Neither the business owner who has gone bankrupt, nor the unsecured creditor who has sustained a business-threatening loss, is likely to accept that a business failure is a positive learning experience. And this is true whatever county they live in.

Further reading 

See also:


Also you could refer to FAQ 3.37:

For business failure rates in the US, please refer to:


The effect of business failure

A business disaster!

The effect of business failure

In my last blog I looked at the attitude of VCs towards entrepreneurs who had experienced business failure. In this blog, the effect of business failure, I would like to consider how business failure effects business owners themselves.

Attitudes towards failure

If we believe some gurus who pontificate on the subject, business failure is not a failure at all. It is a form of success from which business owners learn vital business and life affirming truths.  They say “It only makes you stronger” – and believe entrepreneurs are all the better for it!

Business owners should, therefore, have no fear of failure and can expect to rise up stronger and better for the experience. Is this true in the real world, or are these just platitudes?

Different types of owners

I don’t think it is possible to arrive at a simple answer to the question that applies to all business owners. Business owners come in all shapes and sizes. Consequently, and one would expect them to have different reactions to failure.

I hope the following hypothetical stories about two very different business owners will illustrate my point.

Owner No 1

The first hypothetical owner is a 22-year old computer programmer who considers herself to be a modern high-tech entrepreneur. She has launched a startup with VC funding aiming at the teenage market. None of own money has gone into the venture, largely because she has none. Her business is a website, which she herself has built. She is single with no dependents and she lives in a big city. She does not own a house and has put up no security for the funding secured.

The VCs who have funded her consider her to be extremely bright with a good understanding of the market she is aiming at. However, they installed a financial manger to oversee the growth of the business, retaining our entrepreneur in a senior technical and marketing role.  She has 40% of the shares in the business.

Owner 2

The second owner is a 50-year old married man with two teenage children. His is a traditional engineering business, which he owns all of. He started thirty years ago with a loan from a high street bank. The loan is secured over the owner’s home.

The business has made losses over the last six years. To fund the losses the owner has used an ever-increasing overdraft facility from the bank, secured by second mortgage over his home. The bank also has a fixed and floating charge over the business assets.

The owner lives in a provincial town, where his children are at a fee-paying school. He is well known in his local community.  He drives a smart car (on lease) and some in the community resent (and are jealous of) his apparent success.

The businesses fail

Let us assume that, despite their differences, both our businesses fail. What do you suspect will be the effect on our two owners?

I suggest the following is a reasonable assumption of the outcomes:

The high-tech startup

After two years trading the VCs decide that although the business appeared promising, its business model is fatally flawed. They decide not to advance further funding. The business is liquidated with the VCs suffering losses of £200,000. Some unsecured creditors also lose money.

The young entrepreneur is bitterly disappointed that “her baby” has been closed down. Naturally, she feels a sense of loss. Her pride is wounded and she feels some mild embarrassment among her immediate circle of close friends. But, the business was being run by a professional manger, so, perhaps, it wasn’t really her fault. She does not know the unsecured creditors personally and feels that their loss is just the risk of doing business. Consequently, she loses no sleep over them.

Although she is out of a job, she has suffered no capital loss and has sufficient savings to live without an income for a while. On the positive side, she has two or three other ideas for start-ups brewing. The VCs have expressed initial interest in these ventures. She has also had an offer of work from a computer programming company.

After a month or so she starts to regain her confidence and continues to mix freely with her friends and business associates. Her life has not changed. Her confidence and sense of well-being is boosted further by what she reads about failure being merely a steppingstone to success, etc., and from the support of her business colleagues. She accepts what has happened to her with equanimity. She has always considered herself to be a modern high-tech entrepreneur. After all, isn’t what has happened to her the same as what has happened to many other successful entrepreneurs? She feels confident her next business will be bigger and better and can’t wait to launch her next startup.  

The engineering business

Inevitably, the lender bank becomes increasingly nervous about its outstanding loans. Following several unsuccessful attempts to find alternative funding, the owner is advised that he will be breaking the law if he continues trading and he instructs his accountant to call in a liquidator.

The bank replaces the liquidator with its own Receiver. The business is wound up. The Receiver, under power of the bank’s mortgages and charges, sells the family home and all the business’s assets. There is a substantial shortfall for unsecured creditors.

The family moves to rented accommodation. The business owner considers bankruptcy. His children are moved from their fee-paying school.  The business owner’s marriage comes under severe strain and he separates from his wife.  

He doesn’t read internet articles about the positives of business failure. Consequently, he feels ashamed of the failure of the business for which he blames himself. He is embarrassed about the losses of his creditors, many of whom he knows personally. As a result, he doesn’t mix as freely in his local community or with his friends (most of whom are business-related) as he had done in the past. 

His doctor diagnoses him with depression. He believes he will never be able to regain his former social or financial position.  One of his main concerns is that he is too old to get a job. In short, he is stranded in no man’s land.

What are the effects of business failure?

Yes, business failure can be a positive for some business owners. But it can also be a life-shattering disaster for many others. It is obvious that our hypothetical business owners will be affected in very different ways by the failure of their particular businesses.

So, what do you think are the effects of business failure? Do you think the outcome is dependent on who you are and the circumstances of your life and business? Can we generalise about the effects? Or do you think it is always negative for the owners? Are you convinced by gurus who romanticise the effects of failure?

Or is this a cultural issue, different in, say, the US than it is in the UK?

Next blog

In my next blog I will continue with the theme of business failure and look at how different countries consider it.

Further reading

See also:


You could also refer to FAQ 3.37:


Attitudes towards business failure

An extreme reaction to business failure

Attitudes towards business failure

Recently I came across this quote:  

“It is obvious why some entrepreneurs in the UK aren’t prepared to take risks.  When they are successful…people hate them, and when they fail … people hate them’.

It got me thinking about the different attitudes towards business failure, particularly the differences between the US and the UK.   It seems to be accepted in most business circles that the UK has a much less tolerant attitude towards business failure than the US. I wondered though whether this was true, or just an assumption loosely arrived at. I wondered also whether there was recent research on the topic.   


Pursuing my thoughts I found the research paper Attitudes of Venture Capital Investors Towards Entrepreneurs with Previous Business Failure by Jason Cope, Frank Cave and Sue Eccles.(Lancaster University Management School Working Paper 2004). A lot of what I say here is based on this paper and I would like to acknowledge my use of their material.  I will refer to this research as the “LUMSWP”.

Personal and external

Business failures affect those who fail personally, as well as the attitudes of outside parties towards those who fail. These attitudes are, of course, interconnected. In a country where entrepreneurs feel ashamed of their business failures, their contemporaries’ attitude towards them are also likely to be negative. It seems these attitudes are deeply cultural. Although there is evidence of recent changes in attitudes in some countries, national generalisations still seem to hold true.

However, in this blog I will leave aside the more personal attitudes towards business failure among the population at large. I look instead at how professional investors (VCs) consider the previous failures of those entrepreneurs who seek finance from them.  

Investors’ response

It’s common sense to believe that the response of VCs to start-up funding applications will be based not only on the perceived viability of the business idea and plan, but also on how the VCs feel about the persons promoting the idea (the entrepreneurs). So how is this response affected by the fact that the entrepreneur has had a previous business failure? This is important because many start-ups are promoted by entrepreneurs who have, in fact, failed in previous business ventures. The LUMSWP focuses on this question.

Business failure rates

About 65% of small business start-ups fail in the first three years. This figure is true for both the UK and the US.

VC investment start-ups are thought to have a better chance of success. Here only 40 % of their investments fail in the first three years.

VCs believe the major cause of failure is bad management and management’s inability to understand the size and accessibility of the marketplace. In contrast, where VCs were personally involved in the management, failure was primarily attributed by those VCs to external causes. This included such things as the level of competition and changing market dynamics.

Previous writing 

The LUMSWP looked at previous writing and research on this subject. It considered the belief of previous writers that VCs considered any failure of the company was a personal failure of the entrepreneur. Also, where there was personal failure, whether VCs would back an entrepreneur or venture team that had an uninspiring track record.

George Deriot, a well-known figure in the US VC industry, took a negative view. He said: “A grade-A man with a grade-B idea is better than a grade-B man with a grade-A idea.”

The LUMSWP examines whether these beliefs were true. It says: “Such findings have major significance in terms of the present study and will be explored subsequently in relation to the research findings.”

Attitude generally towards failure

The LUMSWP interviewed two dozen venture capitalists in the US and the UK. Their views were not always totally consistent. On the question of VCs’ attitude generally towards business failure it has this to say:

“On the whole, it appears that the decision to invest in an entrepreneur is not negatively affected to any significant degree by a previous experience of failure. A number of factors shape the decision to invest. Many of these can prove more important than the recognition that the entrepreneur has failed in the past.”

The LUMSWP quotes various VCs’ views on this matter as follows:

“If the business is sound, and the technology is sound in our view, we would pick someone who has been round the loop before, given that they had a sensible reason for the failure.”

“With entrepreneurs I think people are more inclined to bet on people who don’t have proof one way or another about whether they can be winners. I think that they are more concerned about the quality of the idea than they are the quality of the management of the entrepreneur.”

“I wouldn’t hold a failure against somebody. Investing in an entrepreneur who has experienced failure as opposed to a new starter depends entirely on the concept”

Having start-up experience

On having previous start-up experience, the LUMSWP has this to say:

“An interesting issue to emerge from the data is that previous start-up experience, either good or bad, is an important aspect of VC investment. An entrepreneur’s experience with previous start-up ventures and new ventures should not be neglected as a source of advantage.”

It quotes a VC as saying:

“Personally, I would prefer to back a failed entrepreneur, subject to seeing what the failure was, rather than a new starter.”

And another:

“In many respects, failure is a positive experience. Failures are not necessarily bad, because they teach you things.”

“What is apparent from these comments” says JUMSWP “is that VCs are often interested in entrepreneurs who have a range of experiences, rather than merely investing in people who have a history of success.”

Differences between the US and the UK

On the question of the general cultural differences in attitude towards business failure between the US and the UK , the LUMSWP says: “The US is more sympathetic and supportive of entrepreneurs and entrepreneurial activity in general, and this is reflected in a more tolerant attitude towards failure.”

One of the specific reasons for this difference according to the LUMSWP is the concept of “churning management”. This idea is that entrepreneurs will quickly pass on managerial control of the business to someone more qualified for this role. This idea is prevalent in the US. To quote LUMSWP:

“In highlighting potential distinctions between the UK and the US in terms of VC investment, Mark (a US VC) describes a key difference between the two countries, namely the concept of churning management.

“(In the US) … it is very rare that we would actually have a conversation here in Silicon Valley where the founders say, “oh, I am going to take this company public”. It is much more normal for him to say “I will take this to this stage. And then I will recruit somebody to take it to the next stage and then we will recruit somebody to take it public.”

In the UK this idea of “giving up one’s baby” is not so common.

Entrepreneurs’ attitude towards their own failure

An important factor in determining how VCs view business failure is the their attitude towards their own failure.

To quote the LUMSWP:

“Simon (a US VC) confirms the need for VCs to adopt a positive, healthy attitude to failure. ‘So, if you don’t talk about it and you don’t have a healthy attitude towards it, there is always this kind of underlying dynamic going on, but you are just avoiding the real key issues.”

A related issue that VCs feel is important is the ability of entrepreneurs to be honest about their failure. For example, they need to recognise that they entered the market at the wrong time.

Matthew (a UK VC) says: “There was some reason why the business idea was flawed and they need to admit that they just got it wrong. Perhaps, they got in at the wrong time. If it wasn’t an error of execution specifically, then I would rather go through the transaction with someone like that’.”

Conclusions of the LUMSWP research paper

The conclusions of the LUMSWP’s findings are as follows:

  1. Contrary to many previous studies, the entrepreneur is not necessarily the most important factor in the VC’s decision-making process. This is true even when considering proposals from entrepreneurs who have previously experienced failure.
  2.  The quality of the concept or opportunity is paramount. A primary reason being that any perceived weaknesses in the entrepreneur can be supplemented. This will usually be by the introduction of an experienced CEO and/or senior management team.
  3.  Entrepreneurs need to be able to provide a sensible and coherent reason for the failure. If they recognise their own limitations and are willing to ‘stand aside’ if necessary, then the ability to receive future VC support is not jeopardised to any significant extent.
  4.  VCs do not always perceive entrepreneurs to be the primary cause of venture failure. This finding is contrary to several previous studies on the subject.
  5.  The majority of the VCs adopt a tolerant, flexible and open-minded attitude to entrepreneurs who have experienced failure. The VCs are keen to understand the circumstances in which the failure occurred.
  6.  VC’s decision to invest in an entrepreneur is not negatively affected to any significant degree by a previous experience of failure. Other influential factors, such as a high-quality concept, can offset this aspect of their track record.
  7.  However, if an entrepreneur has experienced multiple failures and very little success then this seriously brings into question the entrepreneur’s abilities and the viability of their proposal.
  8. Attitudes of VCs towards previous business failure in the US and the UK do not diverge greatly.

Important research  

The LUMSWP is obviously very important and interesting research. It refutes the widely held view that major differences exist between US and UK attitudes towards business failure. This is particularly true of the attitude of professional investors. It also shows that in both countries many factors are considered when investors make their start-up funding decisions. Interestingly, previous failure of the promoting entrepreneur is usually not a major one.   

In my next blog I will look at the more personal aspects of business failure. Namely, how business failure is considered by the community at large in different countries and how these attitudes affect business owners.  

Further reading

See also:


You could also refer to FAQ 3.37:


“I have a good business idea but admit I haven’t got an idea about business!”

Working on a good business idea.
Working on business ideas

“I have a good business idea, but admit I haven’t got an idea about business!”

In reality, you seldom hear anyone actually say “I have a good business idea, but I haven’t got an idea about business!”.

However, it is true that many people who start up a business enterprise have no idea of how to run a successful business. People plunge into the deep end, perhaps influenced by what they read and hear.

The glamour of business

The internet and television give a highly distorted idea of what business is really like. TV has its Dragon’s Den, while the media glamorises entrepreneurs who have made millions from their great ideas. However, business is seldom glamorous and successful entrepreneurs are often even less so.

Concepts of the great idea and the overnight success are usually myths. Business porn might make for exiting reading and watching, but it does not represent the slightly sweatier reality.

A good business idea

Having some idea of how your business will operate is the first step for starting a business. An idea of how your business will be different or better than the competition takes you a step further.  But, from my observation, many people start a business based solely on their knowledge of having worked in a particular business sector. Or, because they have a technical skill. Also, because they are convinced they can do it better than the boss.

So, they have an idea for business, but do they know anything about business?

Business knowledge

Running a business is different from working in a business. Thinking you can do better than the boss is not the same as being better than the boss. Business is both a particular skill and requires a particular mindset. Also, having a business idea, even a great business idea is not by itself a sound basis on which to start a business.

An idea is just an idea; you need the business skills as well as the business mind to execute the idea.

Business skills

The textbooks will tell you what the basic skills for running a business are. These include:

  • marketing
  • bookkeeping,
  • understanding cash flow
  • communication
  • team leadership anf
  • selling

The entrepreneurial mind

Likewise, the text books list the qualities of the entrepreneurial mind. These include the following:

  • passion
  • vision
  • self-belief
  • resilience
  • drive
  • risk tolerance
  • robust health

Most experts claim you can be taught business skills. However, most believe you or either born with the entrepreneurial mindset or you are not.

I agree with the latter, but I am not so sure about the former. Those who fall into the category of “I have a good business idea, but I haven’t got an idea about business!” might have an entrepreneurial mindset, but do have have the necessary basic business skills to succeed.

Born with the business skill

I have dealt with business owners for nearly 50 years. They have been both highly successful ones and those who have not achieved a great deal of business success.

Some writers believe that the business skills and the entrepreneurial mindset necessary to startup and grow a truly successful business are inherent (that is a part of one’s nature). However, others believe they are acquired (that is a part of one’s nurture).

I understand the dangers of generalisation. However, one factor that distinguishes the successful from the unsuccessful is the “feel” for business. That is, the inherent ability to recognise how to do a deal, how to buy the right stuff at the right price and how to make a profit.

Mark McCormack the American lawyer and sports promoter wrote a famous book called What they Don’t teach you at Harvard Business School. The gist of his book was that street-smart skills in negotiating, marketing, deal making, etc., were more important than merely acquiring academic MBA theory if you wanted to run and grow a successful business. He believed these skills were acquired partly through experience and were partly inherent.

In my view, the skills are more likely to be inherent or, more specifically, that people with the inherent business mindset are much more likely to be able to learn the business skills than those without.

Startups drive the economy

People are rightly encouraged to start up businesses, as a vibrant economy needs new businesses starting up all the time. In fact, the number of startups is both a driver of a strong economy and evidence of the economy’s strength.

However, startups are not for everybody. If business startups are to be successful, their owners need to have a good idea of what business is all about. They need to have a feel for the business world.

Business idea analysis

On this website we offer a free analysis of business ideas. The analysis is in two parts. The first part looks at the idea itself and the second considers the characteristics of the person who has the idea. The owner of the idea completes a questionnaire. A couple of the questions focus on basic business principles, such as gross margin and profit percentages.

It is surprising how many people have no idea about these basic principles. For example they have no idea how to price their product to make a reasonable return. In my view these people should never go into business.

Similarly, the mechanic, the electrician, the builder, the web designer who havn’t the feel for business and how to cost a job, should avoid being their own boss. By staying employed they will probably have an easier life and earn just as much money

The right sort of people   

So what do we make of those who say “I have a good business idea, but I haven’t got an idea about business?”

Firstly, it is clear that many of the wrong sort of people often launch startups. This is evidenced by the fact that 65% of small businesses fail in the first three years.

However, many of the right sort go into business as well. The 35% that succeed represents hundreds of thousands of small businesses trading away happily and profitably, some of them going on to be successful big businesses.

This is the way a successful economy should operate – the successes more than compensating for the failures. The only negative is the impact of failure on the poor folk who own the businesses that fail.

Free help

For free help in analysing your business idea please go to:

Further Reading

For more on business ideas please see:

And for more on business failure please see: and

See also FAQ 2.4

and FAQ 2.6


Do I need a new idea to start a business?

The inspiration of an idea leading to a new business
The inspiration of a new idea

Do I need a new idea to start a business?

Aspiring entrepreneurs often ask the question “Do I need a new idea to start a business?” The question raises some interesting issues about the role new ideas play in business generally and in startups in particular.

Type of startups

In my last blog I mentioned that you could say there are broadly two types of startups. Firstly, there is big idea startup (also called the “true startup” by Peter Thiel, the PayPal co-founder). Secondly, there is the “ordinary”startup.

The big idea startup is based on a revolutionary idea that will result in a very big business, which will become a virtual monopoly. The ordinary startup is the run of the mill “me too” type of business, usually found in well established industries. Obviously, ordinary startups are, more common than big idea ones.

A new idea

If you hope to launch the big idea startup, you obviously need to have a big idea. This big idea will usually also be a new idea. But, what exactly is a new idea?

I have been reading a very interesting book by Matt Ridley called How Innovation Works. Please see:

In the book Matt explains how business ideas are generated. He also examines the people who have come up with them. Furthermore, he looks at the people who have implemented the ideas.

Matt calls the first group the inventors, and the second he calls the innovators. He notes that sometimes, but not very often, they are the same people.

Matt believes that innovation is a mysterious process. He suggests that the formation of new ideas results from a cumulative effort through the cooperation of associated individuals. Consequently, ideas are passed from person to person with incremental changes being made on the way. Their final form is often dependent on the corresponding advance and availability of new technology.

Moreover, he suggests that nothing is actually completely new and there is seldom a eureka! moment (in the bath or elsewhere), or an apple dropping on a head.

The passing on of ideas

Although Matt Ridley is concerned with business innovation and ideas, the same process in passing on ideas and building on them can be seen in the artistic world. The novel just didn’t appear fully formed in the nineteenth century. It was adapted and developed from what had been written earlier. No single author can claim to have “invented” (or had the new idea) for the novel. It was a cumulative process with authors copying and building on previous genres.

Similarly, in music, although there are many candidates, no one can say who invented rock n’ roll. Was it Bill Haley, Little Richard, Elvis, or Arthur “Big Boy” Crudup?

I’m sure we all have our opinions, but if I had to choose I would go for the Big Boy.

What is a new idea?

If we assume there are no completely new ideas, it doesn’t mean that there are no new ideas in the way we usually understand the term. On the contrary, there are thousands of new ideas generated everyday. There are thousands of ideas that those who have them think are new. Or put another way, thousands of ideas that are incremental but important advances on other previously known ways of doing things. The last description of a new idea is the one I think works best.

This has been succinctly put by the person who said “Better is better than different.” In other words, it is enough to be able to undertake business tasks in a better way (quicker, cheaper, cooler, friendlier) rather than inventing a new way of doing things. If you new idea is the newish way of doing things, this could be enough.

Doing it in the same way

In reality, despite all the focus on new ideas and innovative technology (and the glamorisation of entrepreneurship), millions of businesses start up all over the world without the owners having any new ideas in any sense of the words. These are the ordinary startups that occur in “ordinary” businesses. These include businesses such as retailing, hospitality, small manufacturing and distribution, etc.

Not only are there no new ideas utilised in these businesses, the owners are probably not doing anything in the business much better than their competitors.

These me-too businesses are doing things in the same way as the thousands of other me-too businesses all over the the world. Unfortunately, however, there is a distinct disadvantage in this approach, namely approximately 60% of them will fail within three years

Answering the question

Politicians are often (rightly) accused of answering a question that has not been asked. Not wishing to make this mistake, I will answer the original question “Do I need a new idea to start a business?” in the negative.

However, I suggest that a more relevant and useful question would be “Do I need a new idea to start a successful business?” The answer to this is yes. But only if by “new idea” we mean either a clever adaption of an existing idea, or a better way of implementing the original idea.

And I thank Matt Ridley for helping me to reach this conclusion.

Free help

You can bet your business idea analysed for free by going to:

Further reading

Please refer to



“Pioneers end up with arrows in their backs”

Pioneer’s home in Utah

I came across this saying “Pioneers end up with arrows in their backs” when reading about the risks of starting a new business and it got me thinking about the myths and reality surrounding startups and entrepreneurship.

Conventional wisdom

Conventional, often glamorised writing on startups is usually along the following lines:

  • Find a great new business idea, which you are passionate about
  • Be clear about your target audience
  • Build suitable customer “avatars” (i.e. your perfect customers) for your target audience
  • Get direct feedback from your avatars, to ensure your great business idea fulfils their needs
  • If all is positive – launch your business
  • Maintain your passion; work hard; huge financial success will surely follow!

Another view

In reply to the question “How should I start a new business in 2020?” from an obviously young enquirer, I was interested to read a rather more prosaic answer, which went as follows:

  • Don’t try to come up with a great business idea, or a hot new product
  • Remember, “Pioneers end up with arrows in their backs!
  • Rather … get a job first
  • Then become good at it
  • Then start a business selling to the clients from your old job
  • You don’t have to be passionate about your new business – you just have to provide a product or service people want
  • Ideas are not important; everyone has ideas; execution is what matters

What is a startup?

Before trying to decide which of the two startup scenario discussed above is the closer to reality, it is worthwhile trying to define what we mean by “a startup”. This will help us establish whether the writers with the apposed ideas are talking about the same thing. (We will call the two types discussed “big idea startups” and “ordinary startups”.)

One of the more famous entrepreneurs of our times is Peter Thiel, a joint founder of Paypal and now a writer and billionaire investor. Thiel’s best known book is Zero to One in which he says:

  • You must distinguish between new business ideas, which are a dime a dozen, and true startup ideas
  • True startup ideas are those that solve big, important problems by doing things in an entirely new way, instead of only making incremental changes (that is not just doing the same thing better or differently)
  • A true startup idea will lead to a business that will truly dominate the market and likely turn into a monopoly

Peter Thiel’s definition of a true startup falls clearly within our big idea type. He doesn’t say what he calls the other type.

Defining a big idea startup

To decide whether your business idea could become a true startup or not, Thiel suggests the you should ask yourself the following questions:

  1. What valuable company is nobody building?
  2. Can you create breakthrough technology instead of just incremental improvements?
  3. Is now the right time to start your particular business?
  4. Are you starting with a big share of a small market?
  5. Do you have a way to not just create but deliver your product?
  6. Will your dominant market position still be defensible in 10 and 20 years time?

New idea or same as?

The vast majority of new businesses arise not out of great new innovative ideas, but are merely “same as” entrants into existing industries: these are what we call the ordinary startup. It is clear that while they are not the big idea startups in Peter Thiel’s sense of the word, they are, of course, startups in the conventional sense of the word.

But is there a useful distinction to be made here or are we merely falling into semantics? To my mind an important distinction does exist and it is in trying to establish if there are different levels of financial risk between the two types.

Underestimating risk

The person who wrote “Pioneers end up with arrows in their backs!” suggested that there is more financial risk in big idea startups than in ordinary ones. But, is he correct?

A great deal of writing glamorises startups (especially on the internet) and highlights the financial reward while downplaying the risks. This writing usually does not overtly distinguish between ordinary and big idea startups but, by its tone and glamorisation of big idea entrepreneurship, it implies that failure is less likely with the big idea startup and that most entrepreneurs end up rich and famous – the rock stars of the business world.

Common sense, however, would suggest that the ordinary startup in existing, well-established, well-trodden industries would be the less risky proposition, while accepting that, unfortunately, its proponents are less likely to become rich, famous and involved in rock and roll!

The facts

There are no statistics I know that break down startup failure rates between the ordinary startups and the big idea ones. We only know that the overall rate of failure for all startups is an alarming 70% to 80%.

One problem in trying to distinguish risk between the type of startups is that failure rates will be influenced as much by the types of people that start up businesses as by the type of businesses that they are starting up. It is possible that less talented people start up ordinary start up businesses.

So, do all “Pioneers end up with arrows in their backs?”

Ultimately, it is probably more correct to say that all startup entrepreneurs are likely to get arrows in the back, than to say it is more risky for one type of startup than the other. What is certain is that entrepreneurship (whatever type of business you start) is not so much glamorous as hard work.

However, as successful entrepreneurs will tell you, it is all worthwhile in the end!

Free help

You can get your business idea analysed for free by going to:

Further reading

See alsoFAQ 3.4 and


The long term impact of Covid-19

Covid-19 has adversely affected business
The Corona virus

The long term impact of Covid-19

The Covid-19 virus has had a dramatic impact on national economies. It has forced many business to close and completely changed the way others can operate. It has turned once busy centres into ghost towns; brought international travel to an almost complete standstill and has caused stock markets to crash. It has changed the business world completely and a strong view prevails that “things will never be the same again (TWNBTSA)” But, is this really true? What is the long term impact of Covid-19?

Lessons of the past

The world has faced many economic shocks over the last 100 years or so. These include two World Wars, the Spanish Flu, the 1930’s Dust Bowl, followed by the Wall Street Crash and Great Depression in the US. Not to mention the 1970’s Oil Crisis, the International Financial Crisis of 2008. There have of course, been many others.

During and after all these crises many experts felt that the economic and business world had changed irrevocably and TWNBTSA. What happened, in reality, was that although many things did change, at their core, things remained pretty much the same. In fact, the economic world is in constant change whether there are external shocks or not.  

Business models

When we say “TWNBTSA” one of the things we are referring to is the way businesses will be set up and run. We ponder what will be the typical successful business model of the future?

Looking at the aftermath of previous financial shocks, we discover that basic business models have not really changed in any fundamental way. For example:

  1. Customers still buy from those who supply superior, cheaper, more innovative goods and services.
  2. Efficient, customer-friendly businesses are still more successful than inefficient, old-fashioned ones.
  3. Commercial success is still achieved through superior technology and management.
  4. Those with an entrepreneurial mindset are more still successful than those without, and so on.


This is not to say that things haven’t changed. Of course they have! But as I said earlier, the business world is always changing. Consider, for example, the industrial revolution, the railways, the motor car, the telephone and the computer. All these brought about profound change to the way people did business and how fortunes were won and lost.

So what do we expect will change post-Covid-19? What has happened in the last six months will give us some clues.

The most obvious changes have been in shopping, working from home, international travel and investing. Let’s look at each of them in turn.


In imposing a lock down, Government effectively closed all bricks and mortar shops, excluding essential food outlets. Most shopping was, subsequently, done online. Is this the future of shopping and has the change been brought about by Covid-19?

It’s common knowledge that high street shopping has been declining for years with out of town and online shopping replacing it. The virus closed out of town shops too, so online shopping has increased even more sharply at the expense of the traditional ways. But, the virus is not responsible for the long term decline in high street shopping. It has merely accelerated what was an established trend. 

I expect this trend to continue. However, bricks and mortar shops will adapt and still have an important part to play in the shopping experience of the future.

Working from home

The lock down imposed by Governments all over the world resulted in a huge increase in the number of people who previously worked in offices now working from home. Will this be a permanent situation once Covid-19 has passed. If so will this reduce the demand for and value of office space?

Covid-19 has had a devastating effect on business
The world-wide influence of Covid-19

Property expert

When considering the long term impact of Covid-19 on property, a well known property expert based in Sydney, said the following:

“In recent history there’s been a trend towards higher density occupancy in modern offices. This has resulted the reduction of office space footprint for most large organisations, by basically fitting more people into less space. However, economic growth over the last decade has resulted in more companies requiring commercial real estate, albeit on a smaller footprint, but net demand has increased.

However, social distancing and hygiene vigilance off the back of COVID-19 may buck the trend of higher occupancy densities resulting in each staff member requiring more space m2. If hot-desking is a victim of COVID-19 then this will also kill ‘Dynamic Densities’ should staff demand having the same workspace every day. This on its own would mean large organisations would require more office space, but I suspect one driver for the long-term adoption of working from home will be opportunity for large organisations to offset the need for more office space but adopting working from home permanently if efficiency gains aren’t compromised.

Future workplaces

Then there’s the issue of how future workplaces will need to be modified to accommodate the privacy and noise issues of constant Zoom or Teams style meetings if some people are working in an office and some people are working from home – this too could have an impact on occupancy densities for the need to incorporate a larger quantum of break out spaces or the creation of a greater number of smaller meetings rooms further lowering occupancy densities.”

So, the prognosis is that probably space requirements will not fall in he long term, which means the value of prime office property will hold its trend.

See more on this in the forums at:

International travel

There are three major issues effecting international travel at the moment:

1. The need for social distancing.

2. Quarantines enforced by Governments.

3. Passenger fear of infection.

It is difficult to see how these issues will be resolved unless and until a Civid-19 vaccine is produced. Numbers 1 & 2 above could be removed when it is felt the virus has been contained. But passengers will still be fearful of being cooped up in a confined space with strangers for a long period. So, it is also difficult to see how airlines can change their business model short of drastically reducing seat numbers and isolating passengers from each other. This would certainly be the death of low cost airlines and, perhaps, all airlines for at least the mid-term.


The short term effect of the onslaught of the virus was to reduce share the price indices of the major Stock Exchanges by 40% or more. Commercial property and retail values also fell substantially, while house prices were marginally depressed. However, the government reduced bank rates (interest rates) further from a low base and, in some countries, to a minus interest rate. This factor that usually increases the prices of assets. All this is very dramatic and a tad confusing, but will Covid-19 change the long term nature of investment?

In the case of shares, world stock markets, although still volatile, have recovered most of their losses. In the case of the NASDAQ, more than all its losses. Shares in certain sectors (such as travel and entertainment) have not recovered and could remain depressed for a long time. I expect that difference in industry performance will continue as will the old problem for investors of what to buy. But I can’t see any long term change to the fundamental principles of investment.

It is probable that high street property prices to continue to fall, unless they can be converted to residential use. However prime commercial property prices will probably remain unaffected in the long term. House prices will probably continue to go up at their long term trend rate.


So, what is the long term impact of Covid-19 likely to be? Will things will never be the same again? Will the way we do business change irrevocably? Not in my opinion.

I think in a very short time most businesses will be operating fundamentally as before, but that change will continue for the reasons it has always done. The rate of change will accelerate, but due more to Silicon Valley than Covid-19.

Further reading

Please refer to FAQ 3.37:

And John’s Blog:

Also see:


Business Partners

Successful business partnerships can be between people of any age or sex.
Business partners

Business partners

The dramatic court case in the UK involving the Barclay Brothers (owners of the Ritz Hotel and Telegraph Newspapers) highlights the difficulties that can arise from having business partners and, particularly, family business partners.

I thought I would consider some of these problems and possible solutions in this blog, particularly in relation to private companies or small partnerships.

(Legally speaking, a “partnership” can arise either from having fellow shareholders in a limited company, or being partners in a pure partnership. For the sake of this blog I will consider shareholders and partners as being basically the same thing.)

Should I or shouldn’t I ?

Most business owners face the dilemma sooner or later of whether they:

  • Should trade on their own, or
  • Go into a form of partnership.

They will weigh up the advantages of having a partner against the advantages of not having one before reaching a decision.

However, although the advantages of having a partner can be obvious, the disadvantages are not so obvious. This is true especially for those contemplating having a partner for the first time.

The advantages of a partnership

The main advantages of a partnership can be summarised as follows:

Skill sets

Most of us are good at some things and not at others. Many business owners start a business because they have a technical ability in their chosen industry. This could be this mechanical, technical, or creative. However, these technocrats often lack other skills necessary for a successful business. These other skills could marketing, selling, people management or financial management. Therefore, taking on a partner or partners with skills to fill the gaps makes good sense.


Many startup owners need finance they don’t possess to develop and grow their businesses. However, they can raise finance though various sources, one of which is to bring in a partner with capital. The ideal arrangement is where a partner has both the complementary business skills and the necessary capital.


Sole traders can find business very lonely. Just having someone to talk is a great help, especially in the early days. Working in a team environment can also be stimulating and invigorating. Therefore, bringing in a business partner to overcome loneliness and for more personal stimulation could be a solution.

The obvious disadvantages of a partnership

This where things get a bit tricky. Let’s examine the obvious disadvantages first and then we will look at the not-so-obvious ones.


  • One of the advantages of taking on a partner, covered above, is the introduction of capital required to set up and develop a business. However, a fundamental purpose of a business is to generate an adequate living for its owners and some businesses are unable to provide a living for more than one person in the long term.


  • A common problem in business is that partners fall out. This is particularly true in small businesses where partners are under each others’ feet all the time. The reasons for the fall out can include a mismatch of business abilities, or jarring personal chemistry, or a disagreement on job descriptions and responsibilities.

Outside influences:

  • Destabilising pressures can be put on a partnership. For example, pressures from spouses who believe that their partner is taking on too much work and/or responsibility, or is not being rewarded fairly for the work they are doing.


  • It is an unfortunate fact of life that some people are dishonest. Many partners have stolen from their businesses, with devastating consequences for their business partners and families. Think of Robert Maxwell in the UK and Bernie Madoff in the US. Consider how their dishonesty ruined their businesses and shattered the lives of their business partners and children, who in some cases where the same people.

The not-so-obvious disadvantageous of a partnership

Partners do not always consider what could happen when they enter into partnerships. These include the following circumstances:

  • The sale of the whole business, arising from a severe fall out between partners and a break up of the partnership.
  • One of the partners leaving prematurely for reasons of ill health and wishing to dispose of their interests.
  • One of the partners behaving in such a way (for example, bringing the partnership into disrepute) that the other partners wish to remove them from the business and compel them to sell their shares.
  • The majority partner wishing to sell the whole business for reasons not necessarily related to retirement or partnership fall out.

These circumstances can lead to numerous problems for the leaving or remaining partners and are considered below.

Having more than one person look at a problem can help to solve it.
Solving the problem

The Problems

1. Any partner wishes to sell their share of the business

The most obvious problem with any sale of a share in the business is the resultant disruption. But there are also other important questions that arise, including the following:

  • Is the partner entitled to sell their share in the business to a party other than the remaining partners?
  • If so, to what other parties?
  • If the sale has to be to remaining partners, how is the share to be valued and who will be entrusted to value it?
2. The majority shareholder wishes to sell the whole business

Some of the following issues can arise:

  • Minority shareholders or partners are happy to sell at the price stipulated by the majority shareholder/partner.
  • Partners or minority shareholders are happy to sell, if a price to be paid for their minority interests can be agreed.
  • Minority shareholders or partners refuse to sell their shares.

The solution

A properly drawn up shareholders’ or partnership agreement is the solution to most of the problems outlined. Importantly, you should draw this up at the same time as the initial shares or partnership interests are sold or allocated.

Be careful to check the terms and conditions of your shareholders' agreement.
Shareholders’ agreement
1. The sale of interests by any partner or shareholder

The shareholders agreement should include the following:

  • Agreement as to whom a leaving shareholder or partner is allowed to sell their interests. This could be to the remaining shareholders, or to nominated parties such as family members, or to anyone at all.
  • Agreement as to how the interests being sold are to be valued. Is this, for example, at a predetermined set price? Or at a price based on an agreed multiple of profits (or turnover) over an agreed period? Or at a nominal price only?
  • Agreement as to who will undertake the valuation. For example will it be an independent valuer appointed by the majority partner?
  • Recognition that the circumstances of sale may vary. For example, a partner may be forced to sell due to fraud or negligence on their part. (This is known as a “bad exit”). Alternatively, a partner may leave in a “good exit”. This includes leaving due to natural age retirement. Importantly, should the agreement on the acceptable buyers and the calculation of the sale price differ between a bad exit and a good exit?
  • Provision to enable remaining shareholders to purchase the interest of the departing one. In the case of death, this will usually be in the form of “cross-insurance”. It is more difficult to provide funding in the case of age retirement,
2. The majority shareholder wishes to sell all of the business

Although many small shareholder and partnership holdings are equal between shareholders and partners, many are not equal. Often, a founder owner will introduce minority partners into the business. Additionally, he may issue shares to employees as a reward or incentive to remain with the business. These shares or partnership interests are often only a very small percentage of the total shareholding.

When the majority shareholder receives an offer to buy the whole business he must be able to deliver the whole business to the offeror. He does not want to be reliant on the minority shareholders’ agreement to sell their interests for the sale to complete.

There is a way to avoid the need to request the minority shareholders’ agreement to sell. That is to have a shareholders’ agreement in place that compels minority shareholders to sell their shares when the majority shareholder wishes to sell the whole business.

The shareholders’ agreement should also address the question of the price to be paid for the minority shareholders’ shares. This price could be:

  • The same price as the majority shareholder’s price.
  • A discounted price in recognition of the fact that minority interests are usually valued at a lower price that majority interests.
  • A premium price in recognition of the sacrifice the minority shareholders are making where they have not themselves chosen to sell.


In theory, a properly prepared shareholder’s agreement should overcome many of the difficulties that arise from shareholder disputes, or the sale of shareholder’s interests. However, like all written agreements it is not a certain cure-all solution and relies on human goodwill to ensure even relatively trouble-free relations between partners.

In the real world of business the crucial decisions facing business owners, are:

  • Deciding whether they really need business partners, and
  • Choosing the right ones!

See also FAQ 3.31:

An interesting article on how to find a business partner can be seen at:


SEO for beginners

Like most business owners who have just set up a web site I am grappling with the mysteries of search engine optimisation (SEO). For a start, I needed to get to grips with the jargon and, thankfully, I found out early that SEO as well as being the science, the doing, also stands for a person who does the SEO – the search engine optimiser. Having realised that, I was able to move forward to attempt to unravel more difficult challenges.

The aim

The aim of SEO is, I understand, for your website, having been indexed by search engines, to pop up first or, more realistically, on the first two pages of the results when users search for the products or services you provide. By search engines we really mean Google, because Google accounts for 90% + of all searches.

This sounds pretty straight forward you would think, so its only a matter of finding out what you have to do to make this happen. Or, all you need to do is ask a suitable SEO (the person) to tell you what to do, or pay them to do it for you? Surely? Well, unfortunately, it’s not that easy.


You now come to realise that SEO (the science) is, to put it mildly, a rather inexact one. It could be seen as the alchemy of the 21st century: the attempt to turn the dull lead of my website into the shiny gold that the SEO (the person) tells me is possible, if I would only hire them to solve my problem.

The trouble is that when you ask what exactly the SEO is going to do, the answer is usually rather vague (and you get lost in the jargon). Furthermore, when you ask another SEO, you are likely to get a different answer (and another lot of jargon).


It is said that if you ask 10 economists in a room how to solve an economic problem you get 12 answers; with SEOs I think you would get 15! But we can’t entirely blame the SEOs. Their difficulties begin with the fact that no one understands exactly how Google’s search engines work, except Google and they won’t give away their secrets.

We know that search engines “crawl” the internet burrowing into web sites to index their content and to rate them on such components as content quality, authority, readability, links to other sites, ease of use, etc., etc. And we know that Google has developed ingenious algorithms to control this process. But exactly what improvements to each component of the site will make the difference to Google’s rankings no one has made clear to me.

Should you hire an SEO?

So should you hire an SEO to answer these questions? There are many views on this, so lets go to the top and ask Google itself. This is what Google says:

“Deciding to hire an SEO is a big decision that can potentially improve your site and save time. Make sure to research the potential advantages of hiring an SEO, as well as the damage that an irresponsible SEO can do to your site.”

In short, according to Google, an SEO could potentially improve your site, but they could also damage it. I don’t find this totally reassuring!

Three further questions

Only partly reassured by Google, three further questions come to mind:

  1. If you have had your site built by a well-regarded professional web designer (and have paid good money for the privilege) won’t your site be sufficiently search engine optimised from the get-go anyway? In which case, would you need SEO? And, if so, how much SEO would you need?
  2. If everyone else who owns a website is having SEO work, are we all spending time and/or paying out money just to remain in the the same position relative to each other, with no change to the rankings?
  3. Finally, a well-regarded SEO, (who quoted me several thousand pounds for his SEO work) pushed by me to provide some idea of what his work would achieve said that he was confident that it would improve my site’s rankings by 3% over a year!

SEO for Dummies?

I called this blog SEO for Beginners. Perhaps, in my case, I should have called it SEO for Dummies, because frankly I am no further forward than when I started! Perhaps you could enlighten me?


Networking or selling?

A remark made to me this week got me thinking about the attitude to selling in different countries and the related question of whether networking was really selling or something else.

Different attitudes

In the United States selling is openly recognised for what it is: vital for all successful businesses. Its great entrepreneurs are all recognised as highly skilled salespersons; its great salespersons are admired and richly rewarded. Selling is a profession to be proud of.

In the UK we are not too sure about selling. It’s considered a bit common, a bit pushy; not a profession you want to stay in if you can help it. If you are a top salesperson you probably hope get “promoted” into a job in which you will likely become a poor administrator. We know we have to sell, but we are uncomfortable with it.

A friend of mine used to highlight the attitude to selling in the UK by the salesman he knew who, on his daily rounds to his clients, would always open his pitch with due diffidence: “Good morning Mrs X, you don’t really have time to see me today do you?” You see, we don’t want to be seen as too pushy, we don’t want you to think we are selling you something!


Why these different attitudes prevail in different countries is for others more qualified than me to decide, but I wonder whether the more diffident approach has helped to explain the exponential growth of networking meetings, the business phenomena of our age?

Networking is a difficult beast to describe. The duck-billed platypus of the business world, a cocktail, if you like, of socialising, a reason to get out of the office, an excuse to have a good lunch or breakfast while pretending to be working and, oh yes, a chance to “build relationships”. But what is its real underlying purpose?

Is the purpose of networking to sell? Or is it selling in a polite, disguised, non-pushy, “non-salesey” way that we can feel comfortable with and which doesn’t demean us too much? If so, why the hypocrisy?

Embracing selling

All of us in business should be constantly selling ourselves, our business, our goods and services and, indeed, be being proud of doing so. Selling should be accepted for what it is: a vital part of every business, but also a highly skilled profession, which requires training, hard work and application.

I accept that different national characteristics will determine the style of selling that is most successful in different countries. The British will say “We are not as brash as the Americans, we prefer a softer approach.” I agree, but it is still selling, why be ashamed of it? Also, why are we in the UK so judgemental about selling approaches where they don’t tie in with our views of what we consider acceptable? Just hang up, or say no thanks. After all, most business people are just trying to make a living.

Sun Life of Canada

My father at one time of his life worked selling life insurance with Sun Life of Canada. Appointments were acquired either through “qualified leads” or cold canvassing, the latter not for the faint-hearted! Sun Life chose and trained their salespeople carefully, treated and considered them as respected professionals (rightly so, as most of the company’s income was derived directly from them). They also were aware that their salespeople needed psychological support and would tell them the following story:

A salesperson after an unsuccessful call, received an apology from the client because he had not bought a policy. “Oh that’s quite alright Mr Smith.” responded the salesperson, “You have earned me $250.00 today, thank you.”

You see, Sun Life had statistics that showed one in three client sales call resulted in a sale and each sale averaged $750.00 commission for the salesperson. No call was a waste of time.

The lesson

I tell the Sun Life story because to me it highlights a few important issues:

  • Without selling there is no income; without income there is no business
  • Selling is a noble profession that requires hard work, strong will and dedication
  • Salespeople require our support and admiration
  • If you own a business, don’t kid yourself, you are a salesperson. If you are not, you won’t be in business for long
  • And, by the way, I will keep the remark and the source to myself


Desire, need or problem?

Desire, need or problem?

Planning your startup

When considering whether to start up a business, conventional advice says that for a business to be successful it must provide a product or service that fulfils a customer desire or need, or solves a customer problem.

Note that sometimes a need and a problem are considered as the same thing.

On the surface this seems to make perfect sense, but I think in the real world of business this advice needs further analysis.

Conventional wisdom

Let us first examine a case where the conventional wisdom is totally accurate. These are the facts:

  • I intend to provide dental services.
  • My customer has a bad tooth ache.
  • Consequently, they have a desire to relive the pain; they have a need to relieve the pain: and they have the problem of a toothache.
  • I can fulfil the desire, I can satisfy the need and I can solve the problem.

The idea of setting up a business that provides dental services will pass the desire, or need, or problem test with flying colours!

Need but no desire

Now let us consider the business of exit planning services.

  • All private business owners need to plan for the exit from their businesses.
  • This because they will all either want to retire, need to retire or will die.
  • So, in setting up a business providing exit planning advice, I appear to have passed the test of providing a service that satisfies the need of business owners.
  • But, although business owners, on the face of it, need exit planning advisory services, they don’t usually want them.
  • At least not now, or until it is too late.

This tells us that for some businesses to be successful, need and desire are not either or. They both have to be present. The business owner not only needs exit planning, he also has to want it.

Desire alone

In some cases, need and desire both have to be present to justify starting up a business. However, this is not the case with desire alone.

Customer desire can be enough for a business to be successful whether there or not there is also a need or a problem. If customers desire something they will buy it whether or not they actually need it.

The vast fortunes of a business like Apple are based on a product (the mobile phone) that customers did not actually need when the product was invented. There was strictly no need, there was apparently no problem, because telephones and cameras already existed. But, a desire was created and this desire was quickly followed by what we would now consider as a basic need.

Or, putting it another way, a problem existed that required a solution.

A problem

What then about a problem? A problem is similar to a need, but only more so. A future problem arising through not having received exit planning advice is not necessarily enough for the business owner to desire the service. Whereas the problem of the toothache will almost certainly result in the customer wanting the dental service.

So, providing a solution to a problem alone could be enough on which to base a business. But it is not necessarily so.

Solution, but no problem?

This raises another interesting issue. Many startup ideas on based on a solution to an apparent problem. Often these solutions are ingenious. However, on examination (often by starting up a business and trying to sell the ingenious solution) it became apparent that the problem didn’t really exist.

A “solution looking for a problem” this is called and, unfortunately it will usually lead to failure.

Fulfilling desire

Finally, let us look again at the apparently infallible approach of fulfilling customer desires even where no real need or problem exists. I have said that it appears that for a business to be successful it can be enough for it to fulfil customer desires. The trouble with this is that customer desires change.

Where desire alone exists without a need or a problem, a business is vulnerable to changes in fashion, tastes or circumstances. The rise, fall and disappearance of many famous businesses is testament to this fact.


So, what does this all tell us?

Firstly, traditional businesses like selling food, providing medical and financial services, and building and repairing houses pass the desire and need/problem tests on all counts and subsequently prosper and endure. They are, however, crowded with competition, which drives down their margins and their profitability.

If you are considering a startup in these industries, you need not worry whether there is there is customer demand. You can do well in them, subject to being better or as good as the competition, but fortunes are hard to find.

Secondly, where there is a need or a problem there may not be a desire. In these cases your startup could be a risky one.

(Have a look at the competition. Not much you say: should be good opportunities you say. Not necessarily so. Could there be not much competition because there is not much demand or desire?)

However, if your product is something new and ingenious you could create the desire and you could be on your way to your first billion!


Why do people go into business?

Hope and despair

As this is my first blog I thought I would start at the beginning and consider the question: Why do people go into business? Why, when so many small businesses start with hope and end in despair?

Why do people go into business?

The usual reasons given for going into business are:

  • “I want to be my own boss.”
  • “I wish to build something myself.”
  • “I desire more money than I can earn being employed.”
  • “I think I can run the business better than the boss can.”

Others say they are pursuing a passion. Or wish to have a better lifestyle (and avoid the 9 to 5 grind) Others wish to express themselves more fully. Some do it because they have lost their jobs and need to earn a living. Finally, there those who have what they think is a world beating idea that will make them a fortune.

Why I went into business

It’s true to say that everyone has their own reasons, some good some bad. Sadly, many startups don’t succeed, despite the reasons. But, rather than consider other people’s reasons, I thought I would reflect on why I decided to go into business and how it has worked out for me.

I stated my working life as a conventionally-employed person in a well-known publishing firm. I had no burning desire to be my own boss, nor did I have any world beating entrepreneurial ideas. My work was enjoyable. Obviously, the fact that I was working with interesting, well-educated and experienced people who were teaching me about work and life was a positive.


I have, however, always been keen on change. Be this location, or countries, or work. So, I decided after a few years of publishing that I would study law and accounting and ended up working in corporate advice and reconstruction. This was a change from publishing! In this period I also moved from Zimbabwe to England and then to Australia.

It was while in Australia, nearly 40 years ago, that I decided to start my first business. This was, in truth merely an extension of what I was doing while employed. In essence, I decide to set up on my own doing the same thing. Perhaps, I thought I could do better than the boss! In reality, of course, I couldn’t, but I made a living.

Reflecting now on my personal reasons for wanting to go into business on my own, I believe the strongest motivation was a desire to achieve something through my own efforts. A desire to say what I have I have built up by myself. I am standing on my own two feet, win or lose.

The right decision?

So why did I go into business and did I make the right decision?

Would I have been better off staying in publishing and climbing the corporate ladder? Did I squander an opportunity when working with Sydney’s top insolvency and reconstruction firm?

Was it the right path to take? Who knows? I don’t!

The same choice

But I do know that having the same choices again I wouldn’t change what I did. Because it suited me; because I like not having a boss. I like starting and building things and I like being on my own boss and determining my own destiny.

I’m glad I took the path perhaps less travelled.

See also FAQs 3.37 & 3.29