Sonoma County: News and Notes

If you follow my writing, you will note that I was silent last week.  That is because of the North Bay Fires.  I ended up in a spot that did not require evacuation, but was out of power for about 96 hours.  There were two times that I thought we were going to be evacuated, but it just never came to pass for me.

Today, things are relatively calm for me.  There are still fires but there are containment lines between them and me.  I am still unaware of the fate of my office, but I expect it is okay.  This makes me much better off than a lot of people in Sonoma County and the North Bay at large.

This is my 3rd large scale natural disaster – the Ice Storm of 64 and Hurricane Andrew being the others.  Having those experiences helped me cope with what was around me.  Essentially, I drew in my perspective to what was truly local to me.  Of course, I was cut off from most of the news and had to rely on texts from the local authorities to know what was going on.  That is a great service and everyone should find out how their local emergency services want to communicate with them.

What comes next is likely to be a blame game.  The Coffey Lane area in particular will be a target with: “How could this happen?”  I am greatly concerned that we will spend an inordinate amount of time on this.  I ask our local and state officials really to focus on the rebuild.  We had a crisis in housing here already.  It just got worse.  We need to start rebuilds and new housing as fast as possible.  We are short on Construction Labor.  I know this because I hear it every week from various Contractors that are clients and friends.  If you know somebody out of work in the Trades, there will be jobs here for a long time.

Will we recover?  I am sure we will.  But this takes a lot longer than people think.  It took about 5 years for the full recovery after Andrew.  This will be a year or more.  So it is a time for both patience and steady action.  Let us look to a brighter future and make it that way.

Have a great day!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

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Sonoma County: News and Notes

I was asked about another public company here in the North Bay and what I thought about them.  That company in Biomarin Pharmaceuticals.  I don’t have any background in the company nor do I have a lot of background in the drug companies.  But I will give it a shot.  This is a bit last minute, so I was only able to do a modest amount of research on the company.  As I move forward, I hope my reviews get better.

So the basics.  Biomarin reported Revenue of $317.4M ad a loss of $0.21 per share.  One of the first challenges here is that the company is also reporting a Profit of $17.6M instead of a loss of $36.8M.  That delta of over $54M is mostly in stock based compensation.  Many of these plans do not require the company to spend any cash.  It is one of the reasons that these are excluded in non-GAAP versions of the financials.  There is a lot of work to do but it means that the company got about 5% Profit in the quarter.  That is not great but it is a lot better than a 10% loss.

The company has a lot of cash and similar components (over $1.2B) and in some quarters is building cash and in others it is losing it.  So, the company is in no difficulty at the moment.

Right now this company is worth $16.5B.  To put that in perspective, Keysight is worth $7.8B and Autodesk is worth $25.5B.  Keysight is the most profitable of the 3 today, but Autodesk has the most clear growth path forward.  From a value investor standpoint, I could not buy Biomarin shares.  But that is me and how I look at things.

Clearly the value here is in all the drugs and research.  The problem for me is that I read the transcript and would have needed a PhD in something to understand much of it.  There are several drugs that are moving along in trials.  The challenge is that there is little to no information about the competitive landscape or the prospective future value of these drugs.  The analysts do me no favor in asking the questions that they do.  They don’t seem to really understand what is going on.

So, what does that mean for you.  Hey this could be a great stock.  It seems pricey, but other folks that play in this area seem even more so.  I hope to have better advice for you in the future.

Have a great day!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

Financing Your Business:  Heading to an IPO or Sale

 

Much of what I have posted in this series is about the every day happenings at most small businesses.  However for a minority of them, there is a chance for a large exit.  This would be an IPO (Initial Public Offering) or the Sale of the Business to a Strategic Buyer.  These exits are generally many times the invested value and are a huge source of wealth for those involved.  These are generally Product Companies (those that make something) instead of Service Companies (those that have people do something) or Sales Companies (those that sell goods and services of others).

The reason for this is scalability.  Service Companies will need people to deliver the service and they scale only when you add more people.  Sales Companies scale with space or Sales People.  Product Companies scale on Production Volume, which is something that can be bought with cash one time.  It is not to say that the other kinds of companies can not grow and become large.  It is just that the path to getting there is different.  The kind of returns that a Venture Capitalist wants and the time allotted for these returns are normally not met by these companies.

So if a Product Company is in a rapid growth phase, it will often need additional money past the “A Round” (that first round of external VC financing).  There are companies that have gone through many Rounds (F, G, etc.).  But most go through one or two more before some sort of exit happens.  There are funding sources that the VC companies know that specialize in this.  They are often different than those that will fund an A Round.  The A Round guys have a higher potential outcome.  Those that join later have some more certainty but less return potential.

So, how will this work.  The company will sell shares to raise that money at a pre-money valuation.  Investors will agree (or not) to purchase shares under these terms.  Note, that the founders will own less of the company than they did before.  If the pre-money valuation is above an earlier round, it is called an “Up Round”.  Otherwise it is a “Down Round” and generally the existing shareholders will lose a lot percentage of their ownership.

Once the Round is completed, the company will have a new valuation called the post-money valuation.  That will come with a change in the ownership structure (called a cap table).  The company gets the money it needs to grow and things move on.

Have a great day!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training

Annual Plans:  Why Have One?

We have just started Q4 of 2017.  That means it is time to start looking forward to 2018.  In my view, that means the development of an Annual Plan.  This is somewhat different than a Business Plan because it has a lot of tactical details about how 2018 will be executed.  But we will come to the contents of a plan in another post.  Today, I want to talk about why we have one.

The first reason I want to give you is what I call “The 7% Problem”.  What is that?  It is the Operating Expense Inflation that businesses go through year after year.  When I used to measure it at Advanced Fibre Communications it was 7%.  It is the answer to the following question:  If I do nothing, how much Operating Expense will I have next year?  I found that costs went up about 7% year over year.

Now, I am quite sure that you have a different number.  But I bet it is not that far off from 7%.  Even in my own business today I saw a 20% rental increase on my office year over year.  So, this can happen to the smallest of businesses.  When you have employees, remember you have to give people raises.  Raises impact Worker’s Compensation and other Insurance costs.  In any case, you need to expect your costs to increase over time.

“The 7% Problem” is all about what you are going to do about it.  Are you going to increase Revenue?   If so, how and how much?  How about Operating Expenses?  Can you reduce them?  How about Costs of Goods Sold?  Is there a way of lowering them?  In any case, all of these things require Change to your Business and the way it operates.

That leads to the question:  If I am making a Change, how do I know it is working?  And that is the point of the Annual Plan.  You take last year’s business and you overlay it with specifics about the changes that you are going to make.  Most importantly, you build metrics around these changes.  This becomes part of your dashboard for next year.  You can review your progress against the metrics and figure out how to make them work or do something else.  You need to make these plans living documents to use them to help your business.

Have a great day!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

Financing Your Business: Closing Thoughts

As this series comes to a close, I wanted to add a few things.  I left off many of the more odd forms of business finance.  The ones that I have discussed are what I would say are the most typical.  There are more.  In fact, there are so many varieties that it boggles the mind.  Some of these are for rare situations.  Others are for specific industries.  If you are unclear of what you are being offered, drop me a line.  I am happy to talk to you about it.

Some of these financing options come at really high interest rates.  Credit Cards are generally very expensive if they hold a balance.  The better credit that your business has, the more likely you can get a lower rate.  There are business credit counsellors that can help with that as well.

There is a natural tension in the Accounting world between Credit and Taxes. Saving money on Taxes means you are lowering your Profit.  By doing this, you lower your ability to obtain Credit.  There is no way around this except to identify the ways that you have lowered your taxes and keep them separated from other expenses.  This can allow you to show a lender or investor what you have done.

Finally, I want you to think like an investor (and lending is a form of investing).  They want to know how they are going to get their investment back with a rate of return.  A CFO that I worked with said once that they (investors) don’t care if you make dollies or donuts.  What they want is to make money.  The primary vehicle to communicate this is a Business Plan.  If you don’t have one, get one.  Learn to make it a living document and understand your numbers.  Again, feel free to contact me if you don’t know how that works.

Have a great day!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

 

Sonoma County: News and Notes

This week we are going to go over Autodesk’s results for its most recent quarter.  The story has been very good for them so it is important to take a critical look at where they are going.

Let’s start with the basics.  The company had $501M in Revenue and lost $0.66 per share.  Again, the company is in the conversion from Sales of perpetual licenses to a subscription based service.  This has caused this apparent loss but if I look at the Cash Flow statement the company only burned $27M in cash out of a total of about $1.6B on the books.  So, the company should complete the transition before it runs out of cash easily.  Autodesk also projected between $505M – $515M in revenue for the next quarter and a loss of $0.58 – $0.64.  It should be noted that the loss narrows to $0.12 – $0.16 if accounting charges (non-operating considerations) are omitted.  The good news is that these metrics are all better than expected.

So, I want to say something about “Beating the Street” or a “Miss against Expectations”.  The Sell Side Analysts on these calls will generally put out a note a day or so after the call.  They use the transcript of the call and the numbers provided by the call to give some thoughts about how the company is doing and where they think the price will go.  What they don’t do is deep market analysis by calling customers, studying market research, deeply studying competitors or any other type of detailed work.  They simply have too many companies to cover and so much analysis is surface layer.  All I am saying is that this is not PhD work.

As to Autodesk, I want to put forth some numbers.  Non-GaaP Operating Expenses (excluding all those non-cash, non-operating expenses) are $464M (from the Press Release).  Non-GaaP Gross Profit is $435M so on an ongoing basis the company only needs to close about $30M in Profit.  That equates to about $534M of revenue.  That number will not be done in Q4 (which ends 1/31/18), but should be achieved next year.

I saw an Article on Seeking Alpha that talked about the stock being at or near its peak.  I don’t work on those kinds of terms.  What I can say is that this transition shows great evidence of work and the company has a solid foundation.  They have some more transition to complete and I look forward to seeing more results from them

Have a great day!

 

Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

Financing Your Business: Crowdfunding

You know some people think that Crowdfunding is really something new.  In a lot of ways, it is not.  Crowdfunding works a lot like raising money for a non-profit.  In a non-profit, donations are given to a cause that someone believes in.  They feel that the particular group will spend the money well.  About the only difference in Crowdfunding is that normally there is a “perk” involved.  I think this is akin to the way that PBS stations raise money when they say that a donation of a specific amount will get you a gift.

The biggest difference with Crowdfunding is that the companies are using specific technology platforms to do this Capital Raise.  This gives better visibility than most non-profits get because they are able to use technology to get the message out.  One other difference is that generally Crowdfunded projects are funded in a binary way.  If they do not get the money requested, then they get nothing.  If you donate to a non-profit, then you hand them cash.

Now, the bigger problem is in the details of the spending.  I am sure we have all heard of abuses in the non-profit business.  You can find examples across the board that the Charity uses very little of its funds to deliver actual services and instead enriches the people that run it.  The same is true with Crowdfunding.  The most obvious example is Oculus.  This was a company that was completely funded through Kickstarter.  Then poof, it sold itself to Facebook for about $1B.  The original funders got no part of the payout.

So there are challenges with this kind of funding and one of the differences is that you do not need to be an accredited investor to participate.  If you remember when I posted about this, it takes a lot of money to invest in startups.  These forms of giving are excempt from those rules and thus have a somewhat higher likelihood of problems.

But if you have a project or a company that is as much cause as it is business, then you should consider Crowdfunding.

Have a great day!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!