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 BLOG >> April 2022

Capital Conversion [Finance
Posted on April 26, 2022 @ 09:53:00 AM by Paul Meagher

Currency conversion involves exchanging currency in one denomination (e.g., USD) for currency in another denomination (e.g., CAD). Today, if you wanted to exchange US dollars for Canadian dollars, 1 US dollar would yield 1 dollar and 28 cents in Canadian currency. The yield often varies in ways that exhibit a trend. Investors often look for opportunities to exchange currency when the exchange rate appears to be approaching a peak before it goes down again. Currency exchange platforms can be setup to notify you when a certain exchange rate is exceeded which might be your signal to buy the target currency.

The purpose of this blog is not to discuss foreign exchange (forex) trading but to use the idea of currency conversion as a way to think about capital conversion.

Capital Conversion, as I will use the term, refers to any conversion, or flow, between the 8 forms of capital discussed by Ethan Roland & Gregory Landua in their often cited essay 8 Forms of Capital (2011).

The 8 forms of capital they identified are: social, material, financial, living, intellectual, experiential, spiritual, cultural. The 8 forms of capital appear as 8 forms of currency shown in this essay diagram.

The importance of the concept of capital conversion arises because it can potentially be used as an explanatory framework for how a business might get off the ground and why certain businesses get funded.

A business might get off the ground by converting different forms of capital into financial capital. For example, a person that has an active and positive presence in a community might be able to convert social capital into financial capital if they started the right type of business in that community. The conversion rate may not be high resulting in rapid wealth, but it could be what gets you started and helps you to continue to grow financial capital and other forms of capital over time.

In terms of funding, a startup might be worth funding because they are a store of several different forms of capital (social, material, living, intellectual, experiential, spiritual, cultural) that can be converted to financial capital sufficient to generate a return for an investor.

The main takeaway of this blog might be the idea that starting and funding a business can be understood as a capital conversion process between the multiple forms of capital.

Curtis Stone has a nice video in which he discusses these different forms of capital.

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Fighting Inflation [Trends
Posted on April 22, 2022 @ 09:31:00 AM by Paul Meagher

One of the biggest concerns alot of people in North America have now is inflation. The rise in gas prices is one of the most obvious signs of inflation which has knock on inflationary effects for many other consumer items. Fertilizer prices have gone up significantly which will likely have effects on the price of food; if not, farmers could be going out of business. Supply chain issues are causing goods like automobiles to become scarce (i.e., lack of semi-conductors to build new vehicles) which is leading to increased prices for existing inventory. Real estate prices are also seeing inflationary pressures due to lack of supply, low interest rates, investment buying and a multitude of other factors. The rise in costs also puts pressure on businesses to pay higher wages which is an inflationary cost for businesses as well.

The consumer is hearing news about rising inflation and starting to adjust to the new reality. Is this new reality similar to the new reality that the pandemic brought us and which we had to adapt to in many ways? There were winners and losers that came out of that new reality. Are there going to be new winners and losers if inflation continues to rise? Will new business arise to help businesses and consumers save money?

The way items are priced is a critical factor that will be important for businesses to watch. There is a natural temptation to increase prices but if your product or service is more discretionary then necessary, you might be pricing yourself out people's willingness to pay. Restaurants have to thread the needle between dealing with their rising costs while recognizing that customers might decide not to eat out as a way to save money.

Inflation, like the pandemic, is not a positive reality to have to adapt to but adapt we must. Some businesses may even find a way to thrive in this new reality because they are offering solutions to helping low and middle class consumers save money. If you can do that without compromising too much on quality then you might have a winning proposition.

This blog was inspired by Joel Salatin & Dr. Sina McCullough's recent video discussing the strategies they are using to fight food inflation while eating healthy.

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Side Projects [Entrepreneurship
Posted on April 20, 2022 @ 02:37:00 AM by Paul Meagher

Where do new businesses come from?

In one version of the story, the founders have an idea or a market opportunity, pursue that idea/opportunity with a lean methodology, and eventually, if they were correct and the market responds, they will be on their way to launching a successful company.

In another version of the story, the entrepreneur starts a side project for whatever reason while continuing with her bread-and-butter work, but that side project starts to evolve and appear like a bigger opportunity than she initially imagined. The entrepreneur involved in the side project wants to use it and maybe a few people she feels inclined to share the idea with. The idea is shared and the feedback helps the entrepreneur figure out things to add and remove and the feedback gets better. The entrepreneur sees more possibilities in her side project and decides to launch and make it available to a wider audience. The wider audience responds, the entrepreneur devotes more time to her side project, and a new company is born.

In the first version, the company is more of a planned undertaking while in the second story the company is more of an evolved side project that may adhere to lean principles by necessity rather than through conscious adoption.

From this observation, one could draw the conclusion that learning a startup methodology is not really necessary to creating a successful company. We've been starting companies for a long time now without any Learn Startup theory and principles. One of the ways we have been doing this is by launching side projects that morph into a business. These side projects operate under a different set of constraints than our main projects, they get done when there is time, there is very little to no budget directed at them, if they get shared with a small circle of people then there is the opportunity to collect feedback and better adapt the product or service and perhaps receive encouragement to share your product or service more widely with people they know, and so on.

There is no recipe for choosing what side project to work on, they often arise out of ideas and experiences that you are interested in pursuing for an extended period of time. If the ideas and experiences involved in your side project are intrinsically interesting to you, then monetary rewards do not have to be the motivating aspect of your side project. By working on a set of ideas for an extended period of time, and sharing your ideas with others, you may get to the point of launching your side project for the greater benefit of others. Seeing that others want to use your product or service may be the main goal of our side project. If that is achieved, however, then other possibilities open up. If your side project has some traction in your niche then that is a good foundation for seeking investment to further the evolution of your side project.

So if someone asks you "How do I become an entrepreneur?" you might advise them to take a class in entrepreneurship, learn how to pitch their idea and do all the stuff that startups have to learn how to do. You could also ask them if they have any side projects they are working on or are thinking about working on.

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Good Enough Management [Management
Posted on April 8, 2022 @ 09:13:00 AM by Paul Meagher

I don't make an award winning wine, but I hope I make a good enough wine that I can sell it and make a profit doing so.

There are a long list of things I should be doing and buying if I wanted to become a better wine maker, but it is work that I juggle with other work that has a higher priority. I have to be satisfied with just being able to get things done (i.e., add to wine inventory every year) using cheap brewing and storage containers in areas of our old wooden barn retrofitted imperfectly to making and storing wine. Some day I hope to have more time and money to make professional wine in bulk tanks and oak barrels residing in impressive buildings, but for now, I'm satisfied with making a good enough wine.

My trellis system is not very spectacular either, but it is good enough. Most of the original untreated wooden posts I put in the ground are now weather beaten, some being eaten by fungi, and some others by ants. I started adding steel t-posts to the trellis system each year and will be doing so again this year. The work is keeping the trellis system standing vertical but the professional vineyard managers would not be impressed by the look of it. I am trying to keep down costs pre-revenue so I'm going to have to be satisfied with a good enough trellis and a good enough vineyard.

Sometimes good enough management is what is required because the world throws you curve balls all the time that you didn't anticipate. If you are operating in an environment of high uncertainty, spending too much time trying to come up with a perfect plan can be counterproductive. A good enough plan that you don't obsess over may be the optimal plan.

I understand that in some cases you need to up your game and engage in Perfectionist Management. Accounting can be like that. When hosting an event you need to plan out micro details. When negotiating a deal it is good for both parties to conduct extensive due diligence and to consider all scenarios. Eventually, though,you hit a point where the accounting, event planning, and deal making work is good enough.

The most important aspect of good enough management is that you ultimately achieve your objectives. It is not as concerned about adhering to "best practices" because often the best practices assume things that are not true of your situation. Good enough management is not an excuse for shabby work or putting in minimal effort, it is more of a strategic decision to prioritize and manage the quality and conduct of your work based on how important the work is, the resources available to you, and how much uncertainty there is.

The purpose of this blog is to explore the idea of "Good Enough Management", what it might be, when it might be necessary, advised, or rejected. I think it is ok to accept a good enough standard for certain work, that more may not be required, and that you can achieve success operating at a good enough level. If you do things good enough, for long enough, it can grow and result in a successful business.

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