Spark Magazine: Issue 2: Dated 1 July 15

THE FUEL FOR BUSINESS

SPARK

Magazine

Issue No.2 July 2015

Employee Share Ownership - Positive Changes Afoot.

Lease Negotiations – Getting a Good Deal at Renewal.

Support Start-Ups and Innovation.

Connecting the Dots with Research.

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Contents 7

Tips for Accessing the Right Government Grant.

There’s still government grant money about…here’s some tips to on how to get it.

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How Happiness Can Create a Quantum Leap in Business Growth.

Why spreading happiness is great for business and six steps to make it easy.

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Connecting the Dots with Research.

Why research brokers save you time and money as well as improve the quality of results.

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Essays in Business.

Foreign corespondent Barbara Barkhausen outlines the latest in international learnings on management.

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Support Start-Ups and Innovation.

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News.

Entrepreneur Ivan Kaye rallies investors around Aussie start ups and innovators.

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Five Simple Ways For SMEs To Build Their Brand.

Simple tips on how SMEs can inexpensively and successfully build their brand equity.

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Personal Business Coaches…What are They and Why do You Need One.

4 EMPLOYEE SHARE OWNERSHIP - POSITIVE CHANGES AFOOT. Law changes to give SMEs a big boost with greatly improved employee share option schemes.

The many benefits of SMEs using business coaches.

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Lease Negotiations – Getting a Good Deal At Renewal.

How SME’s can optimise their chances of success in commercial lease negotiations.

The articles in Spark Magazine are of a general in nature only. Always seek independent financial, investment, tax and legal advice.

ISSUE NO.2 JULY 2015

Welcome to Spark Magazine.

Thanks for visiting Spark Magazine and for the great feedback we received after our first issue in June. We were inundated with suggestions and have a strong bank of great stories of high interest and value to SMEs for future issues.

Spark Magazine is “The fuel for business”.

The target audience is business people, with an interest in innovation, technology and new ideas. We provide the ideas, motivation, and inspiration for success.

Published online, monthly, February to December.

In this month’s issue we continue the theme of property with an article giving tips on negotiating commercial leases. We also take a close look at things government in terms of the changes recently made to employee share ownership laws - which will greatly benefit start ups, government and business support for start-ups generally, and accessing government grants. In the news section we look at ASIC wanting to be experts in SME culture and the fall in Australia’s international competitiveness.

Countering the bad news about Aussie competitiveness is an opinion piece by BSI Group founder and entrepreneur Ivan Kaye. Ivan is leading the support for innovation and start ups in Australia. He is passionate about preventing a talent and capital drain overseas. Have a read of what he says and consider joining him.

There are also several articles about personal improvements that can benefit your business including: business coaches; putting the value of heart back into business; and branding.

Late last month your editor was fortunate, as a member of the media, to attend a workshop run by Kate Adler, “The Publicity Princess” where many great Australian business owners pitched their story to magazines, television, radio and other media. These entrepreneurs are the future for this great country and we will feature several of their stories in future issues.

As readers you are the centre of what we do, so do write and let us know what you would like to see featured in the magazine.

Paul M Southwick CEO and Editor paul@sparkmag.com.au

MASTHEAD SPARK MAGAZINE Pow Wow Pty Ltd Level 7, 14 Martin Place, Sydney, NSW 2000, Australia www.sparkmag.com.au

EDITORIAL Paul M Southwick paul@sparkmag.com.au (+61) 424 70 40 10

ADVERTISING Melissa Brant melissa@sparkmag.com.au (+61) 458 26 09 87

CREATIVE DESIGN MAP2 Pty Ltd katie@map2.co The information in Spark Magazine is of a general nature only and should not be relied upon for individual circumstances.

In all cases take independent and professional investment, financial, tax and legal advice. Spark Magazine and all persons and entities associated therewith accept no responsibilities for loss or damage related to any inaccuracies, errors, or omissions in the magazine, or reliance on anything in the magazine. The views expressed in the magazine are those of the authors and do not imply endorsement by Spark Magazine, its controlling entity or associated persons.

Similarly placement of an advertisement in the magazine does not imply endorsement by Spark Magazine its controlling entity or associated persons. In some cases journalists writing for SPARK Magazine may consult to or provide corporate writing for companies mentioned in articles. The journalists or Spark Magazine do not accept payment from companies to cover or include them. ©2015 by Pow Wow Pty Ltd. All Rights Reserved. Reproduction in whole or in part without persimission is prohibite.

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Employee Share Ownership - Positive Changes Afoot r

by Angela Perry

CHANGES AFOOT

S

ignificant changes in Australian employee share ownership legislation have been signalled by Minister Bruce Billson1, Treasury and more recently by the Treasurer in the 2015 Budget.

What will be the impact of these changes on innovative SME start ups and their ability to attract and retain skilled team members?

LEGISLATIVE MISSTEPS The story began in 2009 when legislation removed tax advantages for share option and other plans.

After the initial backlash the government backtracked but the remaining changes had significant negative impact on the employee ownership landscape.

Research has shown that over 90%

of plans were suspended during the first year and 30% of plans were suspended for up to two years. Of the 30% of plans suspended for two years many have not been reinstated2. Option plans also dramatically dropped in usage, by over 60%.

THE IMPORTANCE OF OPTION PLANS Option plans are important to startup and growth companies because these organisations often do not have the cash flow to attract the key staff needed to start and grow the business. The salaries offered to attract staff are not as generous as the salaries offered by larger entities.

Further, employees face greater risk and uncertainty in start-up organisations.

To counter this higher risk companies would offer key staff equity stakes. These equity stakes can have large potential upside.

Most commonly start-ups would use options because they are simple and more options can be granted to employees for the same cost as shares (because there is an exercise price).

Typically employees get three times as many options as shares, so if the underlying shares increase in value the employees’ initial holdings are much valuable. If the shares do not increase in value then the options simply lapse.

Share options are sometimes referred to as the “Google” or “Facebook” dream.

http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2015/Improvements-to-the-taxation-of-employee-share-schemes The Changing ESS Landscape since 1 July 2009, Employee Ownership Australia and New Zealand (EOA) Report April 2013

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On average there is outperformance by employee owned companies of the index by 10% year on year.4

THE IMPORTANCE OF START-UPS Start-ups are critical to lifting productivity, competition, economic growth, and employment through the creation of, and access to, new markets, as well as the invigoration of established markets.

Innovative companies are also significantly more engaged in the digital economy, earning over $144 billion in Internet commerce in 2010-11, more than three times that of non-innovators. Innovation encourages a more connected and skilled economy with greater market diversity and consumer choice. The start-up sector is usually responsible for most of the innovation because they are smaller, have a disrupter mentality, and have less of the constraints of large listed entities.3 In April 2013 Google commissioned a PwC report, “The start-up economy, how to support tech start-ups and accelerate Australian innovation”, that highlighted startups are likely to contribute $109 billion and 540,000 jobs to the Australian economy by 2033.

HOW DOES EMPLOYEE OWNERSHIP IMPACT PRODUCTIVITY AND INNOVATION? The Employee Ownership Index (EOI) is published by the Equity Incentives team at law firm, Field Fisher Waterhouse LLP in the UK. It monitors the share price performance of listed companies, comparing the performance of FTSE All -Share companies with companies that are over 10% owned by employees.

The EOI tracks performance of UK quoted companies that are over 10% owned by employees (excluding main board directors) or employee trusts. An investment of £100 in the EOI when the index began in January 1992 would at the end of June 2012 have been worth £591, whilst the same investment in the FTSE All - Share Index would only be worth $235.

On average there is out-performance by employee owned companies of the index by 10% year on year.

impact of the option plan changes (i.e. a reversal back to pre 2009) found the potential increase in money generated per annum to be $131.6 million.

With a full reversal of the 2009 changes this would make a $1.4b positive impact on the economy over a 10 year period .5

Australian research on the potential

Australian Innovation Systems Report 2012, http://www.innovation.gov.au/Innovation/Policy/Pages/AustralianInnovationSystemReport.aspx.

Source Field Fisher Waterhouse Employee Ownership Index, 1992 – October 2012 5 Employee Share Schemes –Their Importance to the Economy Employee Ownership Australia and New Zealand’s (EOA) Expert Panel’s Research Report July 2014 3 4

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What are the legislative changes?

There have been two key developments. One that applies to all companies, listed or unlisted, and one that is specifically targeted at the start-up area. Details are: 1. For all companies, there has been a full reversal of the option plan taxation position, i.e. options (and rights) will now be taxed at exercise (rather than vesting). If an employee does not exercise the options because the options are “underwater” (the exercise price for the option is higher the prevailing share price of the company) then they can get an offset against their other taxable income or a full tax refund (previously this was not the case if it was the employee’s choice not to exercise).

2. There has also been clarity about premium priced options (options with an exercise price above the market share price at the time of grant). These options sit outside the ESS taxation legislation because this legislation requires equity to be granted at a discount and premium priced options have no discount for income tax purposes.

Some companies used these to ensure that their plan fell into the CGT (capital gains tax) regime. There was some confusion about whether these were subject to FBT. This has now been clarified and they are not.

3. Rights (options and rights, with no or nominal exercise prices) do not need to have a real risk of forfeiture now, just a disposal restriction. This opens the way for Non-Executive Directors to potentially fee sacrifice into plans again (using rights).

4. Finally tax deferral now applies for 15 years not seven.

5. Safe harbour valuation methodologies have been created for unlisted companies to reduce their compliance burden. At this stage it looks like this will be based on net tangible assets and this is subject to industry consultation.

6. For start-ups a new, and very favourable, regime has been created which is at least as favourable as the position as the UK (the EMI scheme, that is now used by 8,000 companies in the UK).

If a company meets the start-up test they are able to grant options (or shares with a discount of 15% or less) and these options and shares (within the 15% limit) are not subject to income tax. They are only subject to CGT on disposal and more importantly for options the CGT concession will apply as long as the options have been held for 12months or more.

This is a very significant change and a completely new structure in Australia. To be part of the startup definition a company must be incorporated for less than 10 years, unlisted, an Australian tax resident (this can apply in certain cases to Australian subsidiaries of multinationals) and have aggregate turnover of less than $50 million.

There is also an ownership limit on

employees - they must hold less than 10% of the equity to get the concessions.

HAVE THE CHANGES GONE FAR ENOUGH? The government should be applauded for the new start-up regime which places Australia on par with the rest of the world, finally.

There are some concerns that the definition is too narrow to have real impact but time will tell if this is true, and like the UK, there may well be adjustments over time.

One of the limitations of the legislations is that listed growth companies have been excluded.

This misses a section of companies where innovation is just as possible.

For listed companies the wins are minimal and in a recent survey by the EOA 89% of those surveyed said the changes would have little or no impact. In fact for most companies it has added complexity, Companies now have three regimes to contend with pre 2009, post 2009 and post 1 July 2015.

Let’s hope that the Government’s commitment to innovation, SMEs and employee ownership means that this is only the start of the positive initiatives to come.

Editor’s note: The legislation

ABOUT THE AUTHOR Angela Perry is an expert in employee ownership in the Australia and the UK. She is Chair of Employee Ownership Australia and part of the Parliamentary Friends of Innovation Group.

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Tips for Accessing the Right Government Grant r

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by Marcus Webb

GOVERNMENT GRANTS LANDSCAPE he landscape for business grants across state and federal governments can be a daunting place for businesses both large and small. At last count there were in excess of 40 separate initiatives listed on the Federal Government’s www.business.gov.au portal, with still greater numbers of smaller grants available via an assortment of state government programs.

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As governments come and go, so too do the various industry grant and incentive programs they introduce.

The tendency is for existing initiatives to be either shut down, or suspended and reviewed by an incoming government, only to then be rebadged and announced as new measures is a well worn path.

In March 2014, the newly elected Abbott Government closed the $700m+ Commercialisation Australian Grants Program, only to announce last November a ‘new’ $476m Entrepreneurs Infrastructure Program containing an Accelerating Commercialisation Grant with almost identical guidelines and merit criteria as those of the previous program.

With what seems to be an everchanging array of grants programs and incentives, and many involving

a complex and time-consuming process to actually access assistance, it is easy to see why many business owners feel like the distraction from their core business, and the associated costs of finding and applying for government grants is just too great.

Early-stage companies, and are all trying to make every last dollar count. When they are stretching available funds to finish R&D, or launch a new product, the idea of a grant to support that work is attractive. There are some great grant products out there for business, but finding and applying for the right one, and then successfully getting to the funds, can be difficult.

One of the most frustrating aspects of competitive grant programs, is the

time required to progress through the multiple stages of the application process. Even for a well-prepared company, receiving funds can be expected to take months rather than weeks from the beginning of the application process.

Government is no speedster either.

In mid May 2015, six months after the launch of the program, the Federal Government announced the first recipients of grants under Accelerating Commercialisation, with just eighteen companies receiving a total of $10.6m in the first round.

Accessing grants well requires preparation and a clear understanding about the project, the amount of funding sought, and the likely impact of receiving government support.

Five tips or golden rules any business should follow when considering a grant program 1. Project

All grants programs require the applicant company to describe the project they’re proposing to undertake. It is critical companies understand what they are going to do, why, and how much it will cost, before seeking grant funding assistance.

2. Eligibility

Companies must understand the reason the funds are being offered by government and only apply for programs where they (and/or their adviser) can first confirm the company directly satisfies the published eligibility criteria – especially around things like national or wider flow-on benefits from the project. These criteria are usually available in a published Customer Guide, or Program Guidelines publication on the website of the responsible Department or Agency.

3. Benefit

Understand the final value of the grant less the expected costs of an application early on in the process. It is critical when companies are thinking about a grant to constantly ask whether the program they are targeting is worth the application effort. Companies should consider the contribution they are required to make, and whether allocation of similar resources to a commercial opportunity might yield a similar or better net return.

4. Timing

The lead time between finalising an application and getting a decision, and also when the first funds should be received are key aspects of the project that need to be known in advance. Some incentive programs, such as the R&D Tax Incentive, are retrospective and only provide a benefit after expenditure has been incurred. Other grant programs provide funding immediately, or via a quarterly draw-down as the project proceeds. It is vital for companies to review the specific funding agreement for the target program and make sure they are comfortable with the time frames likely to be involved in actually getting a deposit of funds.

5. Structure & Compliance

Different grant programs place different obligations on recipients about how they spend government money, how their contribution is measured and what records must be kept. Companies should make sure they understand what’s expected of them, again by reviewing the funding agreement closely, and getting an understanding of how this fits with their business plans.

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“Companies should consider the contribution they are required to make, and whether allocation of similar resources to a commercial opportunity might yield a similar or better net return.�

Addressing these questions as part of selecting the most appropriate grant will increase the chance of grant success. Companies that are not well prepared risk getting bogged down in the application process with a lack of relevant supporting information, and trying in vain to create a competitive application for a grants program that is actually not well suited to their project or company.

ABOUT THE AUTHOR

Photo by: JJ Harrison

Marcus Webb is a Director at BSI Innovation that helps Australian companies of all sizes on the journey through experimental research and development, and on to commercialisation.

BSI Innovation’s specialisation is around R&D tax incentives, and it also provides advice and assistance around state and federal government grants, exporting, and access to sources of early-stage capital.

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Opinion Piece

Calling all Australian Entrepreneurs & Investors r

by Ivan Kaye

Support Start-Ups & Innovation Designed by freepik.com

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“Australia needs to invest in and encourage entrepreneurs so that they have the right infrastructure and support to stay and build a vibrant start-up scene.”

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he startup scene in Australia has a long way to go says Nick Stanley, Sky Software CEO and Co-Founder, having recently returned from a trip to Silicon Valley.

that that will open the floodgates of investment in this space. Australia has:

“By contrast to the US, the Australian early-stage venture and investment scene can be characterised as something of a desert. It’s a desert with the occasional well and quite a few mirages…all of which give the weary traveller (i.e.: the entrepreneur) the illusion of water (i.e.: cash) but are either a mirage or a very deep well that is difficult to access…” says Stanley.

»» Excellent education facilities

In contrast to Australia, in the world’s largest economy, the US, there is water a plenty. The market is moving and there is a feeling of an impending “tech gold rush” says Stanley.

Australia is a nation of gamblers spending hundreds of millions of dollars on the Melbourne Cup yet, when it comes to investing in startups is particularly conservative.

It’s not because of a shortage of capital, there’s plenty of that, thanks to both compulsory superannuation and private wealth through business and property. There is even the motivation, authority and desire (“MAD”) to help support innovation and entrepreneurs.

What seems to be missing is the key

»» Richness in natural resources »» Many innovators & entrepreneurs »» Amazing infrastructure »» Stable government »» Low interest rates No different to dairy, manufacturing or mining, Australia shouldn’t ship entrepreneurial raw talent or capital offshore but rather cultivate it to add value and deliver benefits back to the wider Australian society - for both this and future generations.

Australia needs to invest in and encourage entrepreneurs so that they have the right infrastructure and support to stay and build a vibrant start-up scene.

the Governments “BITs Incubation Programme” and facilitated an $8m investment into 25 start-ups generating in excess of $200m of private equity. Two of these startups are now valued at more than $100m, 3 have been listed and 3 still have the potential to scale rapidly!

Australians are some of the smartest and most natural innovators in the world. Let’s help them flourish and transform the Australian economic landscape, generate spin off industries with related employment opportunities, and allow Australia to join the global “tech gold-rush” in a real way.

If you are interested in supporting and investing in Australian Innovation call or email me (details below) to register your interest.

Both government and industry have and must continue to play a role.

By investing in policy and initiatives that encourage early stage ventures and start-ups, government can create a hot-house effect to rapidly grow the local startup scene.

In 2002, with the support of both State and Federal Government, the BSI investor forum was created, which connected entrepreneurs and capital.

BSI was privileged to be a part of

ABOUT THE AUTHOR Ivan is a Chartered Accountant who founded Business Strategies International (BSI), which has enabled him to pursue his passion of helping innovative people and companies grow, through educating and connecting them to the best and brightest service providers. mobile: 0413 339 888 email: ikaye@bsi.com.au

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How Happiness Can Create a Quantum Leap in Business Growth r

by Kristina Mills

HAPPINESS BREEDS SUCCESS

W

hen we peel back the layers, what most people want in their lives is to be happy. It stands to reason then that the companies that make it their mission to spread happiness enjoy greater customer loyalty and often build a cult-like following.

The online shoe store, Zappos, is a great example of that. Their focus

isn’t on selling shoes but selling happiness. According to an article in Forbes.com, their ‘selling of happiness’ focus delivered Zappos Founder, Tony Hseih, a $1.2 billion pay cheque when he sold the company to Amazon in 2009.

A look at Zappos’ core values on their website at www.zappos.com and it’s easy to see what makes them different. Here’s an excerpt:

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“As we grow as a company, it has become more and more important to explicitly define the core values from which we develop our culture, our brand, and our business strategies.”

“As we grow as a company, it has become more and more important to explicitly define the core values from which we develop our culture, our brand, and our business strategies.

These are the ten core values that we live by: 1. Deliver WOW through Service 2. Embrace and Drive Change 3. Create Fun and a Little Weirdness 4. Be Adventurous, Creative, and Open-Minded 5. Pursue Growth and Learning 6. Build Open and Honest Relationships with Communication 7. Build a Positive Team and Family Spirit 8. Do More with Less 9. Be Passionate and Determined 10. Be Humble”

When you drill down further into point #3 “Create Fun And A Little Weirdness” Zappos says “We want the company to have a unique and memorable personality. One of the side effects of encouraging weirdness is that it encourages people to think outside the box and be more innovative.”

Zappos’ culture statement is reflected in everything they do.

In fact, their focus on delivering happiness was such a hit with their customers that Zappos founder, Tony Hseih, wrote a best-selling book which has become a musthave item in corporate libraries. At launch customers lined up at book stores, waiting for hours to get a personally signed copy from Hseih.

To inject fun into the ‘waiting experience’, Hsei arranged it so that the people waiting in line were given name tags and asked to write one weird thing that makes them happy.

It turned out to be a great icebreaker that encouraged people to mingle.

This activity was a great example of them ‘living’ their value of ‘looking to create a little fun and weirdness in everything we do’.

A company’s ability to deliver fun and happiness hinges on creating the right culture and having a passionate team of people who are inspired by that culture.

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Designed by freepik.com

EMOTIONAL INTELLIGENCE PRODUCTIVITY BOOST It’s no secret that one key to greater profits is ensuring team members are happy, focused and productive.

A key is teaching teams mindfulness practices. It not only makes everyone feel good but has a positive impact on the bottom line through increased productivity and customer retention.

Google has taken this to a new level by developing their ‘Search Inside Yourself’ program which has since morphed into a best-selling book.

It all started when a group of

Google’s engineers decided to work on a project that became known as ‘Search Inside Yourself’, which is a mindfulness-based Emotional Intelligence program that they developed in conjunction with Daniel Goelman, author of the book, ‘Emotional Intelligence’.

‘Search Inside Yourself’ has operated at Google headquarters since 2007. It teaches people a practical real world form of meditation which enhances their emotional intelligence. It trains a person’s attention, increases their self-knowledge and self-mastery, and helps them develop strong

mental habits.

Mindfulness plays a key role in the process. It involves keeping awareness and attention focused on the present moment and what’s occurring with thoughts, body, and in the environment at any given moment. As people do that, they acknowledge any feelings or thoughts that come up, without judgement. The process of nonjudgment and awareness is intended to injects more kindness, harmony, and peace into a person’s life. It also helps break self-sabotage patterns, reduces stress and increases intuition.

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Here are the six steps to profit from happiness:

1. Re-evaluate mission, your vision, your purpose and your values Getting clear on vision, why people love what they do, and how they can make an even bigger difference in the lives of customers, is the starting point in creating an inspirational culture and an iconic brand.

The more inspiring it is, and the more it is reflected in everything companies do, the more ‘heart’ is injected into business. The more heart injected into business, the greater the customer loyalty and referrals.

2. Create a smile at each touch point Touch points are the points where consumers interact with a company’s brand throughout the customer journey. Identify ways the company can create a ‘smile’ at every touch point. Take a leaf out of Zappos’ book and get really creative. Amp it up. The more memorable the company can make the experience, the more of an effect it will have on customer loyalty.

3. Create open lines of communications Customers have questions. They also want to be acknowledged so company should be as accessible as possible via social media, via instant chat facilities on your website and by responding to requests rapidly.

4. Actively engage and inspire customers on social media Two of the keys to maximising engagement on social media are frequency of posting and also featuring posts that enroll followers in the conversation.

People love to be acknowledged and heard. The more companies do that on social media, the more engaged followers will be.

Mix it up with inspirational messages or photos, conversation starter questions, promotional messages, and articles.

5. Give Back If companies support a cause or a charity, great. If not they should consider doing that. Apart from the obvious impact of making a difference, it’s a great way to show the team and customers that they’re playing a role in helping the community.

6. Invest in the emotional intelligence of the team Start with profiling the team using psychometric profiling solutions like DISC. One of the biggest reasons for poor morale in an organisation is a poor fit between personality type and job role. Next – look at programs to help develop the team emotionally, physically and mentally like Google’s ‘Search Inside Yourself’ program.

ABOUT THE AUTHOR Kristina Mills is a digital marketing consultant, copywriter, intuitive business strategist and author of Invisible Genius: The Intuition Secrets of the World’s Greatest Leaders and How to Profit from Them. She focuses on helping ‘crazy’, big-hearted visionaries make a difference in the world by helping them fire-up the results they generate from their marketing.

For more information visit: www.kristinamills.com

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ELECTRONIC COMMERCE

BRANDING

MARKET R

SEARCH OPT

Five Simple Ways for SME’s to Build their Brand r

by Glen Carlson

OFFICE WORK Designed by freepik.com

TIME MAN

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“When it comes to brand reputation the only truth that matters is the result.”

DEFINING BRAND

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he word ‘brand’ is one of the most misunderstood in marketing.

The perception can be that brand is something businesses only work on once they are profitable and can afford to pay an agency to make the company look attractive. This thinking can be a factor in limiting the potential for SMEs. Not only should a brand cost next to nothing to develop, if done right, it can become one of the most powerful tools in engineering a flood of inbound opportunities and developing a highly profitable enterprise.

Many aspiring entrepreneurs make the mistake of associating the word “brand” with creative expression, that is, the look and feel of a business. While the aesthetic aspects of a brand can be important, they are just the tip of the iceberg, and can be over stated.

Fundamentally, a brand is the reputation of the business. Encarta describes brand as: “The views that are generally held about somebody or something.” A company’s brand is therefore what it is known for.

WHO DETERMINES BRAND? Owners don’t get to decide what

they or their business will be known for, their customers, or the market do. Accepting this reality it becomes possible to carefully reverse engineer a customer experience that allows owners to shape company reputation and therefore brand, into what they want it to represent.

Big corporations spend large amounts on advertising to craft their image. Yet in an age of choice, abundance, mass digital publishing and social media, the influence of advertising and similar activities is limited, especially if they lack alignment with reality or customer viewpoints.

If 1,000 people were asked to describe the biggest fast food chain in the world, the sum of those responses would more closely equal the real essence of that brand than what the brand says about itself.

HOW CAN SMES INFLUENCE BRAND? If multibillion dollar conglomerates can have only limited influence over their reputations by investing millions in Madison Avenue agencies, what hope do small business owners have in trying to establish a brand reputation?

In the early days, instead of investing in advertising, the team at Apple

went about creating quality products they were personally proud of.

They then let their breakthroughs in technology, and their customers’ experience of those products define their brand.

Today, in a post Steve Jobs era, the Apple brand is still widely regarded as designing beautiful, intuitive technology. Apple advertising is simply a reflection of the core values in the business, and design of the products an authentic expression of Apple as an organisation.

An SME can ask the question “What are we known for? What would someone say about our company if asked? The sum of all those answers would equate to the SME’s brand.

The same question could be asked about the products. What would people say about the company’s products? Again, the sum of these answers would equate to company’s product branding.

The degree to which prospects, customers and the wider marketplace describe the company, its brand, products and services in a similar way as the company is the degree to which the SME has brand integrity and identity.

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Five Ways to Build an Influential Brand on a Small Business Budget

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Create a Remarkable Pitch A good pitch captures attention and clearly communicates the unique value of what a company does. A great pitch goes further - it compels people to talk about companies to their friends and associates.

A business owner must be able to explain what they do, in less than 140 characters, in a way that is clear and concise enough for others to not only understand, but also to be able to pitch on the company’s behalf.

This is the first and most critical step in branding.

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Publish Great Content

The second way to expand brand is by publishing quality original content, on blogs or in articles published by third parties, around a very specific theme that the business wants to become known for.

For example, Seth Godin is known as a marketing guru because he prolifically publishes on the topic of marketing. Jamie Oliver publishes content around simple food recipes. John F Kennedy wrote a powerful book called ‘Profiles in Courage’ which is a Pulitzer Prize winning collection of short biographies describing acts of bravery and integrity of other US politicians.

SME’s should think deeply about what they want to be known for, then start writing and publishing those ideas and philosophies. If they do not have the professional writing skills themselves it is easy and inexpensive to hire a journalist or professional corporate writer to assist with this task.

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Create Valuable Products One of the most visceral ways to create a strong brand reputation is to surprise and delight customers by creating well thought out and expertly delivered products and services.

A product or service doesn’t just produce an outcome for customers, it generates an often lasting feeling or emotion in them as well. The more consideration put into how the design and execution of a product elicits a feeling, the more powerful and valuable the brand will become.

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Raise the Owner’s Profile

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Some business owners make the mistake of thinking a personal profile has to be all about “them” and therefore avoid this vital step for fear of being seen as a ‘self-promoter’. However building a profile online and in the media isn’t about feeding ego, it’s about sharing an interesting story, message and pitch with more people.

Jamie Oliver has a strong brand and a high profile, but it’s not about him. His profile is built almost entirely around the ideas he represents passion and joy for simple healthy food. He’s humble and authentic and as a result people love him and buy his books and eat at his restaurants.

Build Well Aligned Partnerships The brands businesses associate with affect their own brands.

Actively forging joint ventures and alliances with other influential brands that already have the respect and trust of their target markets helps SMEs establish their own brand. Reputation rubs off. As this can work in reverse business partner selection is critical.

CONCLUSION If founders and business owners focus time, money and energy on the preceding five strategies, not only can they increase revenue but also act as force multipliers in positioning themselves and their businesses as well known and respected brands of influence in their industry.

ABOUT THE AUTHOR Glen Carlson is a successful entrepreneur, speaker and cofounder of international training company Key Person of Influence, which operate in the UK, USA, Singapore and Australia it was dubbed “The World’s Leading Personal Growth Accelerator” by the Huffington Post.

Best known for his expertise in the small business space, Glen has worked with more than 2000 entrepreneurs ranging from startups to CEO’s of billion dollar brands enabling them to become more valuable, visible and connected in their industries.

ISSUE NO.2 JULY 2015

Connecting the Dots with Research r

Designed by freepik.com

by Roma Hippolite

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IS GUT FEEL ENOUGH?

M

arketers need to do more than rely on “gut feel” when developing marketing plans. While intuition has often played a valuable part in the past, new skills are needed in the digital age of big data, cloud storage, and mobile technology.

In 2010 Eric Schmidt, then CEO of Google, said “Every two days now we create as much information as we did from the dawn of civilization up until 2003.” Similarly, in 2013 IBM claimed “We create 2.5 exabytes that’s 2.5 billion gigabytes (GB) of data every day”.

This is far too much data for businesses to ‘trust their gut’. With all this data literally at their fingertips marketing managers can use the information to enhance their sales offering, even personalising their sales pitch. If they don’t someone else will.

ANALYTICS John Kennedy (VP Marketing at IBM) writing in the June 2013 issue of Forbes gave this example: “Consider the Cincinnati Zoo, which is using data and analytics to understand and respond in real time to the interests of its more than one million annual visitors. By combing through

past information about where visitors spent time, whether it’s the animals or exhibits they like to visit, or even the foods that a member prefers, the zoo can offer tailored promotions to individuals via their cell phones as soon as they enter the gates, ensuring that every visit can be personalized.”

The new skills marketing managers need include the ability to quickly gather the data; it sift through to pick the ‘wheat from the chaff’ and recognise the segmented trends.

The final step is to use those trends to connect with individual customers in a way that they feel they are being valued and listened to, not sold to.

The Role of Research

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The key skill is to quickly convert the data to usable information. Market research companies recognised this as an emerging trend before 2013 and have suggested ways in which marketing managers can gather useful information quickly. Julie Gunn (VP Customer Service, Vision Critical) suggested five ways to help market research catch up to the business include:

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Downsize the questions.

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Research doesn’t have to be big and cumbersome. Asking quick questions can get big answers. For example, asking customers to write a letter to the CEO yields big themes which can ladder up the organisation very quickly.

Run an omnibus survey.

A quick scan around the office could easily come up with ten questions. Make it a fun and light experience with a bunch of questions to ask on different topics. Top lines get delivered within a couple of days of fieldwork starting.

Test theories before going bigger.

Before investing in time consuming and expensive custom projects, explore hypotheses with customers or prospects.

Companies may find they don’t need to do all six rounds of focus groups or the global, multi-language survey when their insight community tells the company their new product concept needs some more work first.

Use an iterative process.

Instead of just doing disaster checks prior to launch, get ahead of the game and access the voice of customer via an insight community throughout the development process.

Walk the fast talk – just go do it.

When companies have access to customers 24-7, they can reach out to them more often and easily. The window in an online, pre-profiled insight community is near instantaneous.

ISSUE NO.2 JULY 2015

NEW RESEARCH TECHNIQUES One way marketing managers can quickly access information is by utilising mobile research.

Mobile research has become an accepted technique that differs from conventional information gathering which is basically “one and done” surveys, or interrogations.

A ‘conversation’ with mobile customers one day can provide results the next. There are several companies specialising in this form of information gathering.

Another methodology which is now firmly embedded in progressive companies is to be social media savvy. This is not just what and how often companies post to Facebook.

This is about listening to what customers and target segments are saying about the company, its competitors, the products and services the company provides, and even non-related posts that help form personal demographics and preferences. Having social media experts in-house is becoming more and more necessary to listen, and to post.

RESEARCH BROKING A specific trend in data collection which will be of interest to marketing

managers is market research brokering.

Jonathon Dodd of Research Solutions said in New Zealand’s “National Business Review” in May 2007 “Sectors which offer the following five combination of factors lend themselves to brokering: »» Products that are complicated and subject to enormous variations and fine print; »» A high degree of customer anxiety or nervousness about making the best decisions; »» A wide range of competing providers, all with self-interested advice; »» Where the identification and evaluation of the offers available is highly labourious; »» With significant sums of money or risk.”

These factors certainly describe the Australian market research sector today. With nearly 1,000 market research companies in Australia alone, each with one or more methodologies that they are expert in, it is little wonder that more marketing managers are turning to market research brokering companies to find the best

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researcher.

In an earlier article Dodd said “Research broker companies have a wide knowledge of the various research companies’ strengths and weaknesses, and can help clients write a brief to be sent to a shortlist of research companies they recommend to be the most suitable for the job at hand.”

In the GRIT Q1-Q2 2014 Report “Adoption of New Research Methods” the authors report that the top methodologies used for market research are mobile surveys (64% and increasing), Online Communities (56% an increasing) and Social Media Analytics (46% and increasing).

SUMMARY Gut feel is no longer enough for marketing managers. Moving beyond gut feel requires professional market research. In order to evaluate the wide range of research options available today - including many innovative technology driven techniques, a new type of company is emerging, the research broker.

Such brokers help companies make the right connection between the research required and the expert in that particular type of research, not to mention the quality of the output.

ABOUT THE AUTHOR Based in Melbourne Roma Hippolite, MNZM, is the Managing Director of The Research Broker International, the world’s first and largest research broker. He previously worked in the pharmaceutical industry and more recently as a board member for primary and secondary health services both government and NGO.

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SPARK MAGAZINE

Personal Business Coaches…What are They and Why do You Need One? r

by Ron Issko

“I never cease to be amazed at the power of the coaching process to draw out the skills or talent that was previously hidden within an individual, and which invariably finds a way to solve a problem previously thought unsolvable.”

John Russell Deputy Chairman, The Shakespeare Birthplace Trust, and former Managing Director Harley-Davidson Europe

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ISSUE NO.2 JULY 2015

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BENEFITS FROM HAVING A COACH

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hile some organisations provide coaches to high performers to fast track their progression, and assist with retention, others do so to give basic workplace skills to less experienced employees.

Engaging a personal business coach may help in a wide range of areas including: »» Having a clearer strategic perspective. »» Improving communication and engagement skills. »» Improving relationships with others. »» Improving team cohesion. »» Increasing the ability to cope with stress. »» Improving the ability to deliver and receive feedback. »» Improving motivation. »» Attaining a better work/life balance.

WHAT IS COACHING? One way to define and explain coaching is to highlight the distinctions between coaching and other roles as listed below: »» Leading sets direction for others to follow. »» Managing is implementing to deliver results. »» Mentoring is imparting of experience and wisdom. »» Training is imparting skills and knowledge. »» Counseling is guiding through personal challenges. »» Consulting is providing specific expertise.

“Coaching is a structured conversation with a measurable outcome that is collaborative and in the service of the coaching counterpart. Organisational coaches work with individuals and teams to lift organisational performance, improving engagement and increasing effectiveness.”

According to the Institute of Executive Coaching and Leadership the definition of coaching is: “A structured conversation with a measurable outcome that is collaborative and in the service of the coaching counterpart. Organisation-

enhancing the life experience, skills, performance, capacities or wellbeing of the client. This is achieved through the systematic application of theory and practice to facilitate the attainment of the coachee’s goals in the coachee’s context.”

“Coaching can be understood as a collaborative endeavor between a coach and a client (an individual or a group) for the purpose of enhancing the life experience, skills, performance, capacities or wellbeing of the client. This is achieved through the systematic application of theory and practice to facilitate the attainment of the coachee’s goals in the coachee’s context.” al coaches work with individuals and teams to lift organisational performance, improving engagement and increasing effectiveness.”

According to the Handbook Coaching in Organisations prepared for the Standards Australia Committee, Human Resources and Employment, the definition of coaching is: “Coaching can be understood as a collaborative endeavor between a coach and a client (an individual or a group) for the purpose of

A common theme in the above definitions is that coaching is collaborative in nature i.e. the coach and coachee work together to achieve the coachee’s goal.

A more descriptive explanation is that coaching involves inspiring, motivating and guiding others to achieve their workplace goals in a safe and trusting environment.

It’s not about telling, rather it’s about listening and working together to bring out the best from within.

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GROW TYPES OF COACHING

There are numerous ways in which coaches describe their services and the types of coaching: 1. Leadership coaching 2. Executive coaching 3. Workplace coaching 4. Business coaching 5. Life coaching Often the above descriptions are used interchangeably, however it is common practice to group the first three under the category “organisational coaching”.

Business coaching can fall under two categories, being organisational coaching and consulting services.

When it is aimed at enhancing the performance of individuals within a business it falls under the former category. When it refers to improving the business as an entity, e.g, business planning, marketing strategies and organisational systems, it falls under the latter category.

Life coaching is primarily conducted outside of the business context and typically involves issues such as personal relationships, health and life.

COACHING OUTCOMES The outcomes or goals of coaching are typically divided into the following categories: »» Skills coaching.

»» Performance coaching. »» Developmental coaching. »» Remedial coaching.

Skills coaching aims to develop or improve basic work related skills such as time management, delegation and listening. The purpose of skills coaching is to build capability, rather than achieve particular work targets.

Coaching for performance aims to attain a specific work goal such as sales targets. The coach assists the coache to use existing skills more effectively.

Developmental coaching is aimed at enhancing the coache’s ability to meet current and future challenges more effectively by developing a more complex understanding of the self and others.

Remedial coaching is aimed at the remediation of problematic attitudes or behaviours interfering with the coache’s performance.

Coaching Methodology

A common methodology utilised by coaches is the “GROW” model: 1. Goal – agree on a specific goal or goals to be achieved.

2. Reality – establishing the gap between the current position and the goal.

3. Options – generate suggestions or steps to take to attain the goal.

4. Wrap Up – a commitment to action the steps.

Follow up coaching sessions involve checking on the progress towards the goal, encouraging and inspiring the coache to overcome blockages and insuring the coache remains on course.

WHO MAKES THE BEST COACHES? In a study conducted for the Handbook Coaching in Organisations, coaches were found to typically come from senior and mid level organisational roles, with a bachelor’s degree and to have gained some form of formal coaching qualification.

CONCLUSION

The value of coaching is that it lifts individual and organisational performance in a collaborative and value added manner. The benefits usually well outweigh the costs and it is something equally applicable for SMEs as for large corporates or listed entities.

ABOUT THE AUTHOR Ron Issko, B.Com, is an experienced Business Workplace Coach (IECL) and Certified Financial Planner based in Melbourne. He is passionate about helping people be more successful and happy. Email: ron@issko.com. au mobile: +61 400 709 118

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WHAT’S THE STORY? Any time and in any medium you need to tell your story in a clear, concise, appealing and professional manner

YOUR IDEAL PARTNER IS BSI COMMS

BSI Comms is part of the same family as Spark Magazine and gives you access to some of the best journalists and business writers in Australia.

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Essays in Business r

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by Barbara Barkhausen

How to Develop International Cross-Cultural Competency

International experience is increasingly important in our global market place. International MBA programmes or programmes that offer certain periods abroad can help expand horizons and open up a myriad of job opportunities particularly in developing nations as they have a bigger demand for management knowledge than the established industrial countries.

A

ccording to international business school Hult the markets that have demand and availability for international managers currently are Panama, China, India, Poland, Russia, the UAE and much of Latin America.

Some of these markets have easier visa requirements than others – something which is worthwhile investigating before sending off applications. Often fluency in the native language is extremely helpful as well. One country typical of this is China.

be open-minded towards the new market and its culture and traditions and might have to adjust the skills they require.

Changing countries can sound easier than what it really is as candidates need not just language but cross-cultural competency to be successful in a different environment. Expatriates need to

In an essay on Insead’s Knowledge website Meyer describes, how an acquisitions expert from Nestlé found himself in a challenging situation when he was negotiating a joint venture in China.

To negotiate deals and to work in another country managers need to familiarise themselves with how to build trust between the cultures. According to Erin Meyer, an Insead Affiliate Professor of Organisational Behaviour there is a big difference between cultures when it comes to building trust, and not understanding that can put a business relationship in peril.

“Cognitive trust is based on the confidence you feel in another person’s accomplishments, skills and reliability. This is trust from the head.”

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The initial meetings with the Chinese executives didn’t go according to plan at all. Despite being friendly and transparent and providing all of the details the Chinese wanted, the Chinese business partners stayed impenetrable. After a frustrating week a Chinese business consultant enlightened them how to adjust their approach. They had to slow down, develop a relationship and friendship (something the Chinese call ‘guanxi’) before closing the deal.

Some dinners and lots of socialising later the Chinese opened up and expressed their happiness at the prospect of a long-term relationship.

According to Meyer there are two basic types of trust: cognitive trust

and affective trust. “Cognitive trust is based on the confidence you feel in another person’s accomplishments, skills and reliability. This is trust from the head.” Meyer writes. “Affective trust on the other hand, arises from feelings of emotional closeness, empathy or friendship. This type of trust comes from the heart.”

In cultures that are more “taskbased,” such as the U.S., Denmark, Germany, Australia and the U.K., business people are searching for cognitive trust. Whereas in China, Brazil, Saudi Arabia and Nigeria for example building a relationshipbased trust and therefore a personal bond is paramount.

Managers from task-based

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“Affective trust on the other hand, arises from feelings of emotional closeness, empathy or friendship.

This type of trust comes from the heart.” societies need to understand that they need to invest more time and effort into booking restaurant meals or organising social events to socialise, get to know each other on a personal level and laugh together.

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2I

Ways to Charm a Venture Capitalist

Australian TV programme Shark Tank pairs entrepreneurs with venture capitalists. The youngest entrepreneur to appear on the show was 14 and despite him not being able to convince any of the successful venture capitalists to invest in his company, at least he gained a scholarship from them.

n the end, this scholarship which is supposed to be an exchange of knowledge might be just as useful. A recent article in the Financial Times stated.

“In the early stages of a venture, the founders’ most valuable commodity is not money but information”, the newspaper writes and refers to a theory by Hamid Bouchikhi, a professor of management and entrepreneurship at Essec Business School in France. An investment from a venture capitalist can therefore not only be a financial lifeline but also one of knowledge and business know-how.

When pitching ideas to venture capitalists even those who have good communication skills can sometimes neglect background information and risk undermining their credibility. Therefore deciding what information to share and by when is key to a successful pitch in front of venture capitalists.

Ideally students and budging entrepreneurs find people to pitch their ideas to upfront and use the knowledge of these people to sift out unnecessary points from those the audience wants to hear. It’s a bit like a sales presentation for new customers where it also can pay off talking to existing customers, for example, to see what they felt were important topics to address.

“I have seen some smart guys

who are seeking equity investment deliberately contact two or three funds which are not necessarily in their target group,” says Professor Bouchikini in the Financial Times article. “They do dry runs of their pitch to get a sense of what these people see as important. This will give them the chance to fine-tune their argument, identify informational gaps, and address key partners with the highest impact information about their venture.”

The professor also recommends withholding certain information. For example, larger orders that might come in or a new deal that is about to be signed should not necessarily be mentioned as this maintains the entrepreneur’s credibility, just in case the order doesn’t end up going through. “If the order is signed, this will be a positive surprise for investors and justify their belief in the entrepreneur’s project, after the fact”, Prof Bouchikini told the FT.

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Richard Branson on the Importance of Taking Notes

“In my experience, 99 percent of people in leadership roles don’t take notes.

What’s more, males are less likely to take notes than their female counterparts.”

Richard Branson

R

ichard Branson, the British founder of the Virgin Group, wrote a post on this seemingly trivial topic on his LinkedIn account and explained why it is actually a really important factor for success and personal development. He described how he met with 30 chief executives for a dinner-table conversation about closing the gender gap. “We discussed how men can counteract bias in the workplace by speaking up and championing their female colleagues,” he wrote.

“It was a wonderfully eye-opening discussion, full of valuable insights; yet I was the only person who took notes the entire time – and boy did I take notes, I ran out of white space and had to write over my notes, my hotel notepad, my report and even my name tag!”

During the meeting people observed the note taking and commented that generally women were more likely to be note takers in meetings, because of the often common expectation on them to do support work. Branson explained how he thought that this was disad-

“Mentoring, training and note taking – these are wonderful development areas, which everyone, men and women alike, can greatly benefit from.” vantageous to men. By taking notes they would not only counteract gender bias in the work force, but would also gain a better understanding of what was going on within the business and what needed to be done to make things run more effectively.

“Mentoring, training and note taking – these are wonderful development areas, which everyone, men and women alike, can greatly benefit from.”

According to Branson note taking is one of his favourite pastimes and by writing down his own and other people’s ideas, some of Virgin’s most successful companies were born from such random moments.

“If you don’t write your ideas down, they could leave your head before you even leave the room.”

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Leadership Lessons From Alexander The Great

H

ow has the notion of leadership changed over the years?

Not a lot, says Manfred Kets de Vries, Professor of Leadership Development and Organisational Change at international business school Insead.

Vries has examined what makes a paragon of leadership, someone who will almost magically take control of a situation and lead a group of people into safety or success. He cites the legendary warrior Alexander the Great that reached an almost divine status in his lifetime despite dying in his early thirties. He is credited with changing the history of civilisation and shaping the present world as we know it.

1. HAVE A COMPELLING VISION Alexander’s actions demonstrate what can be accomplished when a person is totally focused—when he or she has clarity coupled with a ‘magnificent obsession’. He spoke with dramatic gestures and great rhetorical skills and appealed to the collective imagination of his people.

2. BE UNSURPASSED IN EXECUTION Alexander not only had a compelling vision, he also knew how to make that vision become reality. By maintaining an excellent information system, he was able to interpret his opponent’s motives and was a master at coordinating all parts of his military machine. He knew the true value of the statement “One is either quick or one is dead!”

According to Vries the qualities that made Alexander stand out from a young age were being magnanimous toward defeated enemies and extremely loyal toward his friends. As a general, he led by example, leading from the front.

3. CREATE A WELL-ROUNDED EXECUTIVE TEAM Alexander also knew how to build a committed team around him and operated in a way that allowed his commanders to build on each other’s strengths.

Dissecting Alexander’s reign the Insead professor found that a number of important leadership lessons are still valid for today’s MBA students that strive to one day become visionary business leaders.

4. WALK THE TALK Alexander set the example of excellence with his leadership style; he led his troops quite literally from the front. When his troops went hungry or thirsty, he went hungry

and thirsty; when their horses died beneath them and they had to walk, he did the same.

5. ENCOURAGE INNOVATION Alexander realised the competitive advantage of strategic innovation, his war machine was the most advanced of its time.

6. FOSTER GROUP IDENTIFICATION Alexander created a very astute propaganda machine to keep his people engaged. His oratory skills, based on the simple language of his soldiers, had a hypnotic influence on all who heard him. He made extensive use of powerful cultural symbols which elicited strong emotions.

7. ENCOURAGE AND SUPPORT FOLLOWERS Alexander knew how to encourage his people for their excellence in battle in ways that brought out greater excellence. He routinely singled people out for special attention and recalled acts of bravery performed by former and fallen heroes, making it clear that individual contributions would be recognised.

8. INVEST IN TALENT MANAGEMENT Extremely visionary for his time, Alexander spent an extraordinary

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amount of resources on training and developing current as well as future generations.

9. CONSOLIDATE GAINS Paradoxically, three of Alexander’s most valuable lessons were taught not through his strengths but through his weaknesses. Alexander failed to put the right control systems in place to consolidate gains and thus never really savoured the fruit of his accomplishments.

10. SUCCESSION PLANNING Another lesson Alexander taught by omission is the need for a viable succession plan. He was so focused on his own role as king and aspiring deity that he could not bring himself to think of the future when he was gone. As a result, political vultures

tore his vast empire apart after his death.

11. CREATE MECHANISMS OF ORGANISATIONAL GOVERNANCE The final lesson that the case of Alexander illustrates (again by omission) is the paramount importance of countervailing powers. Alexander began his reign as an enlightened ruler, encouraging participation by his ‘companions’—loyal soldiers drawn from the noble families in Macedonia. But like many rulers before him, he became addicted to power. As time passed, Alexander’s behaviour became increasingly domineering and grandiose losing touch with reality.

ABOUT THE AUTHOR Barbara is a Sydney based foreign correspondent, TV and radio producer, writer and author producing all work in English as well as German. She is widely published in Europe - in both German and English, and Australia, on a wide range of business and other topics. Her experience is with some of the very best film and publishing houses in Europe including Bavaria Film, ZDF and Pro7. Barbara is passionate about well researched and written features/reports/books/films and supports literature as well as the environment. She also offers copywriting, ghost writing and corporate writing for business clients.

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Lease Negotiations – Getting a Good Deal at Renewal r

INTRODUCTION

T

he rental paid by commercial tenants is usually amongst the three largest recurring expenses for their businesses. This article discusses five key points to consider when negotiating with a landlord, with a view to minimising rental increases, specifically for office and industrial premises.

Next month there will be a separate article on retail leases as they have different considerations.

RENT REVIEWS Almost all commercial office and industrial leases are subject to market rent reviews at some point.

Usually Australia and New Zealand leases offer an opportunity for the landlord and tenant to try and reach an agreement on the market rent first, and failing that normally provide for an independent assessment of the market rent.

by Peter B Southwick

EXPIRY OPTIONS - WHO BENEFITS? This article’s focus is on lease negotiations upon lease expiry.

Most landlords will grant options giving the tenant a chance to renew the lease, often multiple times, for example a three plus three plus three year term, or a total of nine years if all options are exercised.

Put another way, over a nine year period this lease would “expire” or end three times.

Options for lease renewal are a benefit to the tenant, not the landlord. They grant an absolute right to “perhaps” remain in the property and are a valuable mechanism for ensuring potential longevity in a property, without a definite commitment on the tenant’s part.

The ideal situation for a tenant is lots of short lease renewal options and for a landlord, no options and a long lease term.

So if tenants have options for renewal of their lease, how can they make the most of them and minimise rental increases? Here are five key negotiation points:

“The ideal situation for a tenant is lots of short lease renewal options and for a landlord, no options and a long lease term.”

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3. Find alternative premises before starting negotiations Whilst this may appear to be a time consuming exercise, it can pay high dividends. By looking around at alternative premises tenants will find out several things about the market place.

For example: what is the market rental value of similar premises, what incentives are being offered, are there premises available where the tenant could run their business or does the tenant really need or have to stay put?

1. Read and know your Lease A lease is like the title to a house. It is a vital document that sets out the rules of the tenancy and how tenants must deal with their landlord and issues relating to the tenancy.

However, at the end of a lease everything is up for re-agreement.

For example, the lease may be five plus five years, with a fixed percentage increase, or a market rent review at the end of year five, if the option for renewal is taken up.

2. Realise that the landlord needs the tenant as much as the tenant needs the lease (often more)

There is nothing to say a tenant can’t negotiate the fixed rent increase or the market review as a condition of renewal. A tenant might say to the landlord “I will renew if there is no rental increase, or I will renew if the rent falls in line with the market.”

Generally speaking commercial and industrial property is worth more tenanted than vacant.

Landlords want good tenants to stay. They realise that if a tenant leaves it will cost them money – perhaps in tenancy refurbishment, offering lease incentives (like rent free periods to new tenants) or a prolonged vacancy period which may ensue if you depart. A tenant in situ is valuable to a landlord! Never lose sight of this.

Most options for renewal of a lease require the tenant to give written notice, by a fixed date before the lease expiry. It is vital to keep an eye on these key notice dates. If a tenant doesn’t “exercise the option” the landlord does not have to renew their lease.

If the landlord has debt on the property the lender is always keen to see secure leases in place, protecting their loan on the building.

The landlord is under pressure to keep the building fully occupied and thus needs the tenant to stay put if possible.

If tenants don’t have an alternative to shift to they are not really in a balanced negotiating position.

If tenants are able to find suitable alternative premises it is best to negotiate with the current and potential landlord concurrently.

4. Engage an expert There are a number of tenancy advocate businesses, or people who specialise in assisting tenants. These experts offer a depth of market knowledge which is hard for a lay person to match. They cannot be found at the big real estate agency businesses who have a conflict of interest and make their living from property owners. They simply cannot act impartially and represent tenants.

Confident tenant advocates will often take a part of their fee based upon their success, or the saving they might be able to make for the tenant.

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5. Be patient, polite and hold your cards close Remember that this is a negotiation and like all negotiations a degree of cunning is necessary. Tenants shouldn’t tell landlords what they are up to or how their business is doing – unless it is doing poorly.

Tenants should formulate a plan, set a target occupancy cost and stick to it.

Tenants may want other things out of the negotiation, not just a reduction in rent. For example, carpet replacement or a further period of options to be added to the lease.

Remember at lease expiry everything is up for consideration and discussion.

Stay calm and be patient. Try and treat the negotiation dispassionately.

CONCLUSION Big sums of money are often involved and every dollar saved in rent is a dollar that can be spent on the tenant’s business, or more importantly that can go directly to the business’ bottom line and ultimately to the owners.

By investing some time and effort into the renewal process quite remarkable savings are possible.

ABOUT THE AUTHOR Peter has spent his life in the property industry, including 30 years as a property valuer in Australia and New Zealand. He is an active investor and has a large portfolio of property in Australia and NZ. He is retired but continues to collect rent, buy and sell, and is involved in residential developments in Australia and NZ.

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NEWS July 2015

Are ASIC Experts in SME Culture?

ASIC wants to prosecute company executives and directors for poor corporate culture.

Chairman Greg Medcraft said individual company officers should be penalised in situations where poor business culture leads to poor business performance. “This law states that a company can be held responsible as an accessory for a breach of certain Commonwealth laws by its employees if the company’s culture encouraged or tolerated the breach.

“We believe that this current penalty should now be not only be available under criminal law; more importantly, it should be extended to non-criminal sanctions. Therefore, there should be civil penalties and administrative sanctions that can be applied to both companies and officers as accessories. We think the same offence should be able to be actioned by ASIC in the civil courts just like we are able to now do for other misconduct,” he said.

Is ASIC happy for the same standard - both criminal and civil being applied to their own leadership?

Given the Senate inquiry following the financial planning scandal inside the Commonwealth Bank and

allegations ASIC did not act quickly enough such that thousands of customers lost their life savings and the ASIC treatment of the whistleblower Jeff Morris, not to mention reliance on the bank itself to do the right thing, perhaps those in glass houses would be wise not to throw stones.

And more recently the ABC has reported that in the BBY stockbroker collapse creditors, including employees, are owed at least $40 million. It is estimated $16 million worth of clients’ money is missing. This despite reports ASIC uncovered evidence as far back as December 2014 that BBY was misusing client funds but that the market was left in the dark until the firm collapsed, including one investor, a Mrs Cullen who said: “I contacted ASIC before they went into administration. They said there was nothing really to worry about and referred me to the Financial Ombudsman who then said you’ve got to go into conciliation.”

SME owners will have views on ASIC making decisions about criminal (as in be sent to jail) and civil penalty prosecution based on ASIC’s perception of an SME’s culture.

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Online guide for small business The Australian Securities and Investments Commission (ASIC) has released a new online resource to help small business owners understand their role and responsibilities as company directors.

ASIC’s guide for small business directors provides an overview of directors’ duties under the Corporations Act with a focus on small business directors. It also provides useful information for small businesses looking to change from a sole trader to a company business structure.

The guide covers the following topics: »» What it means to be a company director. »» How to become a company director. »» Directors’ key responsibilities. »» Directors’ liabilities when things go wrong. »» How to resign as a director.

“Small businesses need clear and accessible information so they can make informed decisions about their business structure and meet their responsibilities” said ASIC commissioner, Greg Tanzer.

The guide is part of a suite of resources produced by the Australian Taxation Office, the Department of Industry and Science, and ASIC to help small business owners.

The guide can be accessed here: www. asic.gov.au/sb-directors

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SPARK MAGAZINE

Australia’s Competitiveness Declines Australia has dropped another place in world competitiveness rankings, but even worse for transTasman competition, for the first time in 18 years, New Zealand is ahead of Australia moving up to place 17 from 20.

The US retained the number one spot in the rankings followed by Hong Kong, Singapore and Switzerland.

Worsening domestic economic conditions, rising unemployment and lower international investment have been the biggest contributors to the drop in the overall economic performance ranking.

The 2015 IMD World Competitiveness Scoreboard

Source: http://adminpanel.ceda.com.au/FOLDERS/Service/Files/Documents/26527~OverallRankingBarChart.pdf Note: This article is general in nature only. Always seek independent financial, investment, tax and legal advice.

ISSUE NO.2 JULY 2015

Australia

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