I knew I had only touched the surface of this topic so in today's blog I want to search the net using the term "8 forms of capital" and comb through text results, image results and video results and share some of my top finds.
Googling on "8 forms of capital" brings up as a top text result this page titled Wealth: The 8 Capitals. What is interesting about the author's approach is that they take a community-level approach to thinking about capital and all the forms that it can take. I introduced the idea of 8 forms of capital at the individual level, but it can also be applied to groupings of people in a community, bioregion, urban area, etc... For those seeking to apply the 8 forms of capital beyond the individual level, this might be a good article to read.
Googling on "8 forms of capital" brings up as a top image result various images associated with the the Gitcoin Governance website. According to the
Cryptopedia Gitcoin page, "Gitcoin combines open-source programming projects with a crypto payment system". I was wondering if the cryptocommunity was exploring the intersection of "8 forms of capital" and "cryptocurrency" and it appears the Gitcoin community is playing around with these ideas.
Googling on "8 forms of capital" brings up as a top video result a video by popular Youtuber Patrick Bet-David (3.4 million subscribers) who added one more form of capital (9 forms) and discussed its relationship to entrepreneurship.
In conclusion, in today's blog we took a tour around the net to see some applications of the concept of 8 capitals. We found these resources by googling "8 forms of capital" and compiling some top picks from the text results, image results and video results.
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.
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.
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.
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.
Posted on March 9, 2022 @ 09:15:00 AM by Paul Meagher
In my previous blog I applied the concept of a "payback period" to a farm investment I recently made, namely a portable toilet. In this blog I want to apply the concept to another recent purchase I made, discuss limits to its application, and how it might mislead you into making a bad investment.
Oil Fryer Example
This is the time of year that I like to make investments for our farm property for the year ahead. Our primary focus this year will be hosting on-farm events and hopefully selling our wine (once we get licensed to sell). We anticipate generating at least double the revenue this year from farm events. Some of the investments we need to make in order for that to happen should be made now rather than after revenue is earned from the events. The concept of a "payback period" can useful for determining if certain equipment purchases might be worth investing in or not.
At our last event in 2021, we tested out a 4 gallon oil fryer for making french fries to see if we could offer good quality fries and how people would respond. We had good demand and people enjoyed them. The fryer attaches to a normal propane cylinder and can be operated outside like a barbeque. It fries using 4 gallons of cooking oil which means it doesn't decrease in temperature too much when you dump fries previously soaking in water into it. This means you can potentially keep up a fairly steady rate of fry production however there is some loss in temperature even with 4 gallons of oil. The fryer has two baskets so I try to cycle the baskets so they are not being loaded with fries at the same time and this helps to alleviate that problem and maintains steady production.
We used our last event in 2021 to 1) figure out a process for slicing up the fries efficiently, 2) gauge the rate of production of fries,
3) determine what container we would use and how many fries we would include, 4) what condiments we would offer and 5) what we would
price a serving at. This experiment in selling fries was more about testing systems and learning than it was about making money. One thing I did
learn was that if we wanted to serve fries to +500 people at an event this year, we would need at least one more fryer. Yesterday I decided to pull the plug and invested in a second fryer with a final price tag with tax of around $720.
Some simple math might be used to estimate a payback period. If we sell a generous serving of fries for $10 per serving, then 72 servings of fries
would yield $720 in revenues. Of course we have costs in oil, potatoes, condiments and containers that might mean we have to sell 100 servings
to recoup the investment. Nevertheless, I would expect this $720 investment to be recouped on the first outdoor concert event and then we are into revenue generating territory. The fact that an additional fryer would be required to generate more food revenue from fries, and that the payback period is very short, makes it a good investment for the farm. It should be noted that my decision to buy the first oil fryer was based on a food truck selling out 250 lbs worth of fries during our first event so I knew there was good demand for that type of food offering.
Payback Period Limits
Some equipment purchases seem to be more readily analyzed in terms of payback period than others. Some equipment you just need to purchase and it doesn't necessarily generate an obvious payback. An example is a lawn tractor that we need to purchase this year as our
existing one is starting to breakdown more frequently and we rely upon it quite a bit. Mowing grass helps make the property look nice and is used to maintain the vineyard and orchard but it is hard to put a price tag on that and it is hard to avoid the need for lawn mowing. In contrast, if I were purchasing a mower that would be used to make square bales then I could use the revenue generated from the square bales to compute a payback period. While I think the concept of a payback period is helpful in making decisions about equipment purchases, it does not obviously apply to all equipment purchases
you might need to make to run your business. When the required equipment is not linked to saving or generating money, other factors come into play to determine the particular piece of equipment you might decide to purchase.
Payback Period Failure
I purchased 9 bicycles 4 years back thinking I would rent them from the farm. That business never really took off. As I was purchasing
the bikes I was already counting the money I would be making renting them a few times a week. I got the bikes for a good price. A bike
shop was getting rid of 5 hybrid bikes it was using for rentals and the rental season was over. I later purchased 4 new mountain bikes for a good price on a year-end clearance sale.
One issue that I didn't really anticipate was the space the bikes would take up, especially if you include helmets, repair stand and
extra parts. It almost requires it's own small building. I have been storing them in the barn but they are mostly just taking up space that I would rather use for other purposes. When you take into account the space requirements, and the market cost of storage, the total cost would go up significantly and the payback period would lengthen considerably. So, keep in mind other costs that you might not be considering when you purchase revenue generating equipment, especially the storage aspect.
I also didn't give enough thought to the disadvantages of renting from my farm. The biggest disadvantage is that you have to peddle
2 miles (4 kms) up a fairly steep hill to get to our farm. You have to be a pretty dedicated bicyclist to want to drop off your car at our farm, go downhill for a day riding the countryside, and then finish off your day cycling up a steep hill for 2 miles. For this business to work involves more complex logistics than renting from my farm. I would do better by bringing the bikes to a better location and picking them up from that location. I don't have the time to hang around trying to sell bikes off farm so this didn't happen. The bike rental business is currently a small sideline and I should decide this year if I want to keep doing it or sell my fleet.
My bike rental business was also disrupted last year by a nearby e-bike competitor who dedicated all his time to renting e-bikes and attracted customers who might otherwise have considered renting a traditional bicycle. It is worth giving serious consideration to whether you might not achieve your payback period because your business could be disrupted by other competitors.
Where you can easily apply a payback period to a purchase, and you have some evidence that the equipment will either save costs
or make money, then it can help to guide your decision making towards making a good purchase for your business. The payback
period concept is not useful for some equipment purchases that have no obvious relationship to saving or making money.
Also, you must be careful not to convince yourself that an equipment purchase will have a short payback period by not taking
into account all the factors that should be entering into the decision (e.g.,storage costs, location of your business, availability
of labor, interest rates on a larger purchase, competitors, etc..).
Posted on February 25, 2022 @ 04:53:00 PM by Paul Meagher
In this blog I want to discuss the concept of a "Payback Period" and how it can be used to analyze an investment decision.
I will use a recent investment I made to illustrate the application of the payback period concept.
Early this week I purchased a used Portable Toilet of the type that you use at outdoor events or for construction crews. It was pretty near brand new and I paid $1000 for it.
We held a couple of multiday weekend events last year at our farm that required renting portable toilets. The cost to rent each toilet was $100 ($25 transport, $75 rental). We will be hosting more events on the farm this year. In a non-pandemic year where there are more events happening, and there is significant inflation in the economy, the portable toilet rental company may need to charge more than $100 per unit for the weekend this year which I consider to be a pretty good deal. By having at least one portable toilet that we own and don't have to rent, a conservative estimate might be that we save at least $200 in fees for renting toilets each year in which case the investment will have a payback period of 5 years or less.
The payback period could be faster if we managed the portable toilet unit on site by transferring waste to a larger storage tank and only bringing in a vacumn truck to empty that larger storage tank. Sounds gross but I spent some of my youth shovelling cow manure into a wheel barrow so I am not easily grossed out by the thought of human manure handling.
Purchasing the portable toilet also gives us the ability to offer washroom facilities at the barn without having to make a larger investment into septic system upgrades right now. We can also be flexible in where we setup the portable toilet.
We have our first wedding event planned for the barn this year. We will likely rent the portable toilet out for wedding events which would speed up the payback period and start generating profit once the payback period is reached.
The payback period concept is a useful concept that can be used to think about investments involving buying certain goods that might assist your business. The payback period for an investment can change under different scenarios for how the purchased asset might be managed. Generally there are several different factors that people take into account when making an equipment purchasing decision and if the decision seems like a good one from several different aspects then it might be a good purchase to make.
Posted on January 27, 2022 @ 09:05:00 AM by Paul Meagher
Liz Hodgkinson in her book "The Complete Guide to Investing in Property" (5th Edition, 2010) distinguishes between "owning" a property and "investing" in property. She argues that we don't automatically "invest" in a property when we buy a property because many property buyers don't have an overriding intention of making a profit from the property. This distinction was probably clearer back in 2010 shortly after the subprime housing crisis when many home owners found that the
value of the property was worth less than the cost of their mortgage. In today's environment of low interest rates and rising housing prices, the distinction is arguably less clear, but the possibility of a housing bubble that could bust at any moment or rising interest rates means that if you are actually investing in property you are more likely to have a strategy for dealing with some of these potential threats to your investment.
About 3.5 years ago, I purchased 4 adjacent parcels of remote vacant land (no buildings on it) at what I considered a good price. At the time I justified the purchase of one 9 acre parcel on the basis that it was a property investment that I might make more off in the future owing to the fact that a power line ran through it along the main road (most parcels around here don't have access to the grid), that it had great cell coverage for a remote area, and that it had a nice view that overlooked a lake from a distance. The other parcels were purchased because they had wild blueberries on them that I wanted to use for wine making. Purchasing wild blueberry land was the main reason I purchased 3 of the parcels with the idea of property investing being my main justification for the remaining parcel.
The reason I mention this is because even though I thought I was investing in the 9 acre parcel as a property investment, I wasn't really doing much to increase its value. That started to change late last year when the power company cleared away a wide section of trees around the power lines. This opened up the possibility of putting in a road to the middle of the parcel. Just before xmas of 2021 I spent a few days cutting down more brush to define where a road might go into the property. One of my goals this year is to install a culvert, haul in some gravel, and make an actual road into the property. The simple act of making a road
begins to open up other possibilities. With a road in place, I can get a power truck in to extend power service into the property. I can also bring in my trusty old Massey Ferguson 135 with a bush hog to start maintaining some cleared areas before trees start to grow back in. This will help to define where lots might be setup.
It is easy to convince yourself that you are making a property investment just because you purchased some land that has some desirable features. In some cases, you can in fact just hold the land for a period of time and make a decent return. A realization for me this year is that I could increase the speed at which the land might increase in value by strategically adding features that would make it increase in value more quickly and signal to potential customers that work was done to make it more valuable. The reason Liz's distinction between investing and owning property resonated with me was because I realize now that simply owning a property doesn't make you a property investor. I need to be more actively engaged in figuring out how I can more rapidly increase the value of that property if I want to call it an investment.
Posted on January 19, 2022 @ 12:05:00 PM by Paul Meagher
We may be accustomed to thinking of investors as the party that invests into a company, but the entrepreneur is also investing time and money into growing it as well and those investments will determine the success or failure of the business. So an entrepreneur also has to be an investor
and must continually ask whether they are making the best investments they can with the limited time, money, and assets they have at their disposal.
Today I invested $240 into getting a yard of cement delivered and poured at my farm property. I used the cement to stabilize the corner of a building with a cement foundation. The corner was being worn away by rain damage as rain tends to concentrate on that corner. Turned out that I had quite a bit left over and was able to pour a ramp up to my barn floor so that I don't have to use planking to reach the lip of the barn floor. That is a nice bonus.
Overall I was very happy with my investment into the farm. There are many things I could have invested my time, money, and assets into, but investing a bit of money to protect a valuable farm building was a high priority investment this week. I also have a better idea of how much cement is in a yard and how to form and trowel cement so this was also a time investment into developing cement skills that will likely come in handy in the future.
Each day tempts an active entrepreneur with projects to engage in and money to spend. Sometimes you have to spend and engage in projects, other times you need to disengage and not spend. It is this pattern of investing and non-investing that is key. Many ideas may seem to be important, but in the long run they are a waste of time and resources. An entrepreneur has to be a shrewd investor of money, time, and assets. They need to be always investing.
Posted on December 4, 2021 @ 02:15:00 PM by Paul Meagher
In this blog, my aim is to identify the most important features of business planning. Three critical features of business planning all begin with the letter D so I am calling this perspective "3D Business Planning". The 3 critical features of business planning are: Decision making, Design and Documentation. Business planning is the interplay of these 3 types of activities in pursuit of an economic
I think it is helpful to highlight the importance of decision making in the business planning process. Your business plan may not reveal the amount of time and thought you spent in coming up with the main objectives outlined in your plan and the approach you settled upon for achieving those objectives. Often the decisions you make are constrained by available capital and resources
and by the costs associated with various options for achieving your goals.
The two other features of business planning, design and documentation, are helpful in the decision making process. Often the decision you are making involves selecting between different design options based on cost, feasibility, aesthetics or other dimensions. Documenting your design digitally or on paper can uncover issues (easier for others to critique) and assist in making good decisions.
There is often significant design work involved in business planning. That work might involve designing a physical space, a manufacturing process, a business logo, a website, a corporate structure, etc... When you are designing something you often end up coming up with 2 or more options and deciding on one of those options. Startup business planning may be for a conventional business with guidance from how others have done it in the past, or it could be for a new idea that involves design work
that is more creative and innovative in nature. The designs you come up with as part of the business planning process can help your decision making and also help to fill in critical parts of your business plan with fleshed out details to work from.
You can do designing and deciding in your head, but ultimately if you want to share your business plan with others your need to document your decisions and designs in a business plan document. Documenting your decisions and designs in a final form allows these decisions and designs to be constructively criticized by yourself and others. Critical feedback
is necessary if you want to get some useful feedback on your decisions & designs and refine your business planning.
In this blog I didn't get into the nitty gritty details on how to put together a business plan for a potential funder. There are many other sources that provide that these details and I encourage you to consult them.
What I focused on in this blog were higher level aspects of business planning. 3D business planning focuses on decision making, designing, and documenting as three critical aspects of business planning. One can view deciding, designing and documenting as discrete stages of business planning, but I view them as being mutually supportive activities. Business planning is when design, decision making and documentation come together to create a plan for conducting your business into the future with an economic return that makes it worth doing.
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