‘dot brands’ are the next big thing in domains names yet very few businesses know what they are about. Learn the ins and out in this podcast.

In episode forty of the podcast I chat to Shaun LeCornu from Slam Strategy about some big changes happening in the domain name space that many businesses owners aren’t aware of. Shaun is passionate about this subject and has lots of great information and insights to share.

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We cover

• What is a ‘gTLD’?
• What is this ‘dotbrand’ thing that we’ve been hearing a bit about?
• At $185k + $25k/year, these new gtlds are not cheap. What are some of the ways that brands are going to get their money’s worth?
• Those prices will put this option out of reach for most small businesses, but what are some of the effects that these domains could have on the wider online business world?
• Will smaller businesses get an opportunity to get involved with things like a .adelaide domain?
• What will be the SEO impact?

Links

• Shaun’s website
• Shaun’s Twitter Profile
• Shaun’s Facebook Profile
• Shaun on Google +
• Slam Strategy on Google +
• Shaun’s LinkedIn Profile
• Slam Strategy’s gTLD information website

Video

Nick: Good day everyone. My name is Nick Morris and welcome back to the Web Marketing Adelaide podcast. Today, we are talking about the dot brand revolution. We’ve got a special guest with us, Shaun Le Cornu from Slam Strategy. Good day, Shaun. Welcome to the show.

Shaun: Good day Nick. Good day everybody. How are you?

Nick: Good , thanks. How are you doing?

Shaun: Busy, very busy.

Nick: It’s always the way especially in this space, as we were just talking before the show. It’s very fast moving and always lots going on but let’s lunge into the – before we get into the topic for today, how about you just tell us a little bit about yourself and about your business, Slam Strategy?

Shaun: My name is Shaun Le Cornu. I’m the CEO of Slam Strategy and the Founder. I’ve been in this industry since 1998. I was formerly working for my family’s business, which, if you are South Australian, you would know it quite well, look on your furniture. And I was with them for 20 odd years and developed an online strategy for the company and we generated about $7,000,000 a year from that, which was great. I got to play with some very cool and fun internet tools while working for them, which has now put me into the fortunate position of being able to gain lots of experience. So, then the company sells the business and then I started up Slam Strategy and now I provide internet strategy solutions for businesses based on that knowledge that I’ve gained from that 20 years.

Nick: Awesome, great. Good introduction. So, the topic for today as I said, is dot brand revolution and I think a lot of business owners perhaps may have been vaguely aware of this new thing with top level domains in the news but they probably don’t really have a good idea about it. So, that’s what we are talking about today, what it’s all about and how’s it gonna impact business owners and you’ve got 6 points on your white board there and I think it’s best if we perhaps go through each of those points, so we can get a real sense of what it’s all about. So, what was your first point you got up there Shaun?

Shaun: What is the first one I’ve got there? To give a bit of background, we all know, if you don’t know what a domain or top level domain is, that is .com .gov .net. They are considered top level domains. There’s also a country code top level domains like .com.au and those sort of things, so there is roughly 22 top level domains that have been in industry for quite a while and these were set up by a company called I Can, which the stewards of the internet established by the U.S. Government. Yes, the internet is run by the U.S. Government, that’s right and I Can, which is the Internet Corporation For Assigned Names And Numbers, they have been working on a plan to develop the whole internet for a long, long time now. They started it out with the .com’s that we know then .net and now, I think it was June 2011, they released the successful program to allow businesses into these two to own their own slice of the internet. So, what that means, is, especially in terms of businesses, is that you are now going to be able to own your own trademark on the internet, so that’s what a top level domain is. I think that pretty much explains it. Do you want anymore, data you’d like on that, do you think, for the business?

Nick: No, I think that intros it pretty well. We’re sort of clear on that. We are talking about, as you said that .coms and that the dot something happens at the end of your domain.

Shaun: Yeah, for instance it might be dot nike, it might be dot Ferrari, it might be dot Toshiba.

Nick: Absolutely. It’s obviously got to make a pretty big difference to what people are used to, where, you know, where, in Australia we’re often looking to the dot com, dot au’s and more generated dot coms and now, we’re going to be seeing dot brand, which is going to be quite a different space to be in. It could be really interesting to see how it develops.

Shaun: It is gonna be very interesting, especially for the brands because for the first time they’re actually going to be able to control internet policy for their own trademark, whereas, if they were Ferrari.com they would be under the rules and regulations of .com, where under this and what’s most important for any trademark holder, is it, they need to have control of their trademark on the internet that is part of why 60% of the nearly 2,000 applications that went in, were for brand. Now, this isn’t for just any brand to get involved with.

In fact, they created a window for the applications to happen, of which that ended in March 2012, I think it was and that window allowed people to apply but you first of all you had to have a $185,000 just for the application fee and then there is the ongoing cost. So, each one of these is about half a million dollars a part. Now, besides the brands, they are what they call generics and really the top level domains that we are talking to guys about, I really broke it into two main categories and hopefully I’m not gonna lose people in this conversation but this two main categories is what they call an open, top level domains and closed top level domains.

Now, the difference between the two, is that your .com’s are what you’d call an open, meaning that anybody, the general public can apply to own a sub-domain or a second level domain name of that top level domain, so it can be shaunlecornu.com. It could be Ferrari.com but with the closed top level domains, which are basically the vast majority of those are for brands, that is purely for internal purposes. The brands are not going to be selling those domain names. I mean, there’s no point in selling a domain name of a brand, that’s why they’ve structured it and it also enables them to maintain that control.

So, besides the dot Ferraris that you’ll see, there is also going to be top level you know open ones like dot pizza or dot love or dot church, a whole range of domain names that the brands also need to consider because some of these extensions are actually relevant to their industry, for instance if you are a chemist, there’s going to be dot pharmacy. If you are in a fashion industry, there is going to be dot fashion, so you need to understand how that’s going to impact on your business and what you need to do to prepare for that because this is considered to be the greatest change to the internet since the creation of the internet itself. Why? It’s debatable because on the one side, you’ve got – that’s another one of our topics up there. Why is that on one side, you’ve got a whole pile of the people saying, why do we need them? We’ve got .com, we’ve got .gov. We’ve got all of those things out here, why do we need all these other extensions? This is just a ploy by big business to capitalize on the market and to further sink their teeth into making more money and I can understand that.

With my background being in retail and franchise and internet strategy, I can say that there is also a huge amount of opportunity here and part of that reason is that, as a consumer, when I type something into the internet, I am looking for something and that word that I type in, I’m expecting relevant results to come back that are going to satisfy whatever my search query is about. So, I am trying to look for groofing I suppose, so if I’m looking for pizza, I’m looking for something to do with pizza, so the natural thought process for me would be that if a company has a dot pizza, then they’re one, they’re up to date with what is happening in online space. So, they’re more likely to be able to satisfy my request for an online question but they are also in the right genre.

Take Eagle Boys for an instance, now if you don’t know who Eagle Boys pizza is, who’s Eagle Boys? If I came up with a search result for a split second there, my subconscious is not necessarily going to identify Eagle Boys as being a relevant search term, where as Pizza Haven, dot pizza for instance, automatically straight away in that split second, I’m gonna be able to identify with that company. When you’re talking about things on the internet, we are talking about percentages, 1%, 2%. There is so much information that’s out there and you’d know this yourself you are an internet man, you can be out by an inch and be out by a mile in the internet space and so that’s why this top level domains names is gonna be so important and you’d know this yourself, you’re an internet man, you can be out by an inch , and be out by a mile in the internet space and so that’s why, these top level domain names are going to be so important. And you know for a brand, this is gonna be the most absolute cheapest, cost effective way for them to be able to gain branding exposure.

If you are an Australian brand or a global brand for instance and it doesn’t have to be that but let’s say you are one of those, think of those what medium you have available to you in order to build your brand. The first thing that comes to mind, is the internet, so being able to brand yourself on the internet as a dot brand gives you that percentage of extra brand recognition and control that you didn’t have before. I can think of a brand comes to mind that I won’t I mentioned at the moment, I can think of a brand that they have their franchise company, they have, I think it’s about 1,300 franchise stores in about 30 countries around the world. Now, each of those franchise stores they have a website, each of those websites has a different domain name. There is no consistency with that domain name structure and the brand is freaking out because they don’t know how to control this whole internet space. Now, if they, all of those franchises were under their brand, so it might be store and Guanelle, whatever it is dot brand, if that franchise closes or if something changes, they have complete control over that where as, at the moment, they don’t even know what domain names these franchises have got, they’re using , so these brands, this franchises could go rouge and they can bad mouth. There are examples of franchises that have done that. I’m not saying that‘s the whole motivation for doing this but a brand needs to maintain their control.

Nick: It’s interesting. It definitely seems like it’s gonna be really targeted towards people obviously, as you say, trying to control their brand and how their brand’s viewed in the marketplace and specifically the franchise thing where, as is it now, as you say, there’s lots of independent franchises with their different websites and so there’s very little control going on. I definitely can see how having that control with your dot brand there.

Shaun: Really what on, I wouldn’t say the elephant in the room but really, the thing that this is all really based around on the internet is Google. Fundamentally, between 85 and 90% of all search online is done using Google and that is changing as some of the other platforms like Bing and Get Up speed but by far, the strongest platform is Google. So, all of this is irrelevant unless Google happens to be doing something and they are. In fact, they have patented the algorithm to include the ranking for top level domain names, previously there was the perception that a dot com would be more likely to show up higher in the search results than say a dot net or dot moby and on that basis a dot com .au was more likely to show up than a dot com because a com.au is for Australia.

Well, that’s changing and the impact that is going to have includes Google Adwords and a whole and obviously, search engine optimization, so businesses need to be aware about that because obviously, there are millions of dollars that’s invested into coming up on those search results and if you’re not on the front page of Google as any search engine person will tell you, you are invisible basically because most people will be in that space. Now, actually on that note with dot com.au, cities have also applied for their top level domain, so there’s going to be a dot New York and more importantly for Australia is it, there’s going to be a dot Sydney and a dot Melbourne. Now, if I’m looking for a hotel in Sydney, then somebody who has www.getawayhotels.sydney, it is going to come up higher in the search results than a what a dot com.au for a hotelsydney.com than a dot com.au is going to, purely because they are basing it on the fact that a dot Sydney is more likely to be relevant to a Sydney search than a dot com.au is to be to a Sydney search.

There is still a argument and debate over that because they say, well and your optimization people out there would say well, it’s all about relevance. Google said it’s all about what’s the most relevant site and that what’s comes up in search results and my argument and this is irrelevant of what Google does or doesn’t say is if you have two websites that are absolutely identical in every respect, the content’s the same, the content’s updated at the same time but the only thing that’s different between those two websites is the domain name. The more relevant domain name will appear higher in those search results and that’s the way Google wants it to be and Google themselves have applied for over 100 top level domain names, so that says something.

Nick: Obviously I care about it there. Being an SEO myself, the SEOs is gonna impact this year’s because [Audio breaks 00:18:18] very interesting for me and it would be interesting to see once they get on to the marketplace and start being used, how it impacts that, what Google’s going to be doing with that and also it’s interesting that…

Shaun: It’s actually up on my Facebook site. There is actually an article from Matt Cupps, who is, he’s the man and I refer to an article that he’s done regarding this exact topic so check that out.

Nick: Awesome, I’ll link to that on the show for this episode from the website, if anyone wants to check that one out. Yeah, so obviously Google are taking note as you’ve said. They’ve patented a process for including this in their algorithm and also applying for their own things themselves and also, it’s interesting to know that there’s been a bit of a progression lately within SEO anyway, towards more of a branded approach, giving more way to brands on the internet, as opposed to say, keywords rich domains or exact match domains it’s known as. I can see the dot brands certainly impacting that and also we aren’t talking about dot Sydney, that’s basically a brand in itself.

Shaun: That’s right.

Nick: I can see how this fits in an overall picture as well. Let’s sort of change tact a little bit and think about how, obviously most businesses or most smaller to medium sized businesses are not going to able to afford the $180,000 or so or even up to half million for the whole process as you mentioned, to get one of this domains but we were talking about these ones like the dot city ones. How can the smaller businesses like the hotels for instance be taking advantage of these? Are they gonna be, is it going to be a city sort of an organization that’s looking after those and distribute them to people who want them? How is it gonna work?

Shaun: It will be the same process as what happens now for you to purchase dot com.au, so you go to a registrar like Go Daddy or Melvin IT or any of the other registrars out there and you’ll apply for a domain name. They will have a list of all of the domain names available and you just type in what it is that you’re after and you go through the normal process and that fundamentally won’t change. So, what there will be though, will be far more choice. The argument that there’s already 22 and some of them, many of them are not full at all but the thinking for me is that the choice doesn’t go far enough. It’s one thing to have 22 top level domains to choose from and its quite another to have 1000 domain names to choose from.

There is even Google applied for dot LOL, that’s a strange one. There’s even dot socks, so you can imagine what this is going to create and the idea from I Can, was to create diversity, it was to create thought, it was to create creativity in the internet space that they believed was not there and a lot of the negativity is definitely coming from the domainers, people who have bought up lots of dot coms that they then put on sale for a profit and the last thing they want to see is dot com becoming less relevant because that’s obviously gonna affect their cash flow.

Nick: Yeah, that’s good that you mentioned that, a question that just occurred to me, what these domainers think of this change. I wonder if do you think it’s actually gonna have a massive impact on their business model or do you think it would maybe a slow…?

Shaun: Look, yeah. I’m an optimist, so I’m progressive for change and I would like to see more diversity and part of what I’m doing out there as a passionate person for this is trying to speed up that process. The official word from people in the industry is that it is going to take a long time for this things to take effect and part of that is because if you are ranking your dot com or dot com.au and then suddenly you change the domain name, well that’s gonna affect your rankings so people are going to be hesitant to be changing that so there will be a transition phase for those who are looking at transitioning but they believe that the vast majority of purchases will be new people who are just looking for their first domain or they are looking for new domain name for whatever reasons.

That’s gonna be something that happens over time because largely 95% of the population are not even aware that this whole thing is happening. It doesn’t affect their daily lives at the moment but as soon as they see those rankings get affected, they gonna start asking some questions to why that is happening. I really believe that the success of the entire domain name industry for these new top level domains is going to be largely up to the brands who have gone and purchased who are purchasing their own trademark as a top level domain and the reason behind that is because well, first of all, they’ve invested half a million dollars plus at least $50,000 a year to maintain it, so there’s an ongoing investment there. So, any brand, any business, the objective is whatever you invest in, you want a return on that investment. So, these brands are not gonna be any different.

Initially many of them purchase these top level domains from a security point of view in a defensive registration because they wanted to make sure that lets say if United Airlines for instance, they wanted to try and secure their dot united in case one of their opposition or another trademark did. This inherent issues and all of that if United were going to the political side of registering of top level domain names but there are those brands out there that would hate to see their global trademark that they’ve invested millions and millions of dollars in suddenly be owned by another entity that they have absolutely no control over. So, many of them invested just because they felt they had to but the advantage that they got is that they also have huge databases of existing clients, existing customers so for them it’s a matter of educating the customers about you know “Hey we’ve got a new domain name.”

You’ll see going down on a bus a big sign talking about Loreal or Tiffany or even IFL or INZEB, to bring something home. IFL has applied for their own top level domain name, so is Channel 7. They have applied for their own top level domain name. So, you’re going to start to see these domain names now appearing in advertising material that they’re using to their customers and also to show a point of difference between them and their competition . So, the open domain names like dot LOL and dot pizza, they don’t have that database with which they can educate people. So they are largely looking at people just to start asking questions and educating themselves. Where as the brands, they’ve have got you know everybody. You know everybody is a fan of a brand somewhere along the line.

Once they start getting involved with their advertising and promotion and their education process about, hey we’ve got a dot Tiffany and anything that happens under dot tiffany is a real dot, you know it’s a real product. Nike for instance, how many people want to buy a pair of authentic Nike shoes? Well, part of the program that Nike and all brands are going to use is, if it doesn’t end in our brands, then it’s not us and that’s a way of being able to identify a real website that has the legitimate product from someone whose doing copies and it’s sub-quality product.

Nick: Great. Yeah. Fantastic. Let’s just talk a little bit about timing. So where are we at now in terms of timing. How long until we might start seeing these top level domains out there?

Shaun: That would be the win. Okay, so these top level domain names are now going through the approval process and there’s various stages that they have to go through, in order to get approval. In fact, if you go to www.gtod.net.au that is the web site that we’ve set up that is dedicated specifically to top level domain names. Understanding the process, how to apply the agreements and everything that’s there, you’ll find it on that site. There is some information that needs to be updated on there, because the space is constantly changing but if any of the readers want to get some more information about it, it’s there.

If any of them want to apply, they can’t at the moment. They haven’t done a second round, although they say they will be but we are expecting that in the third quarter of this year, that they would start getting approved and you’ll start seeing that advertising starting to happen and it’s gonna be very, very, very interesting. Huge opportunities for those people who get involved early, whether it be, an example is virgin when xxx was listed Virgin, Richard Brandson went and defensively registered www.virgin.xxx because he didn’t want that to affect his business and his trademark.

Businesses who haven’t applied and don’t have these top level domains, they need to be thinking about what ones can they apply for that they can use to add value to their business but what ones should they be registering as well to defensively register against somebody who might purchase it to use it for their own purpose that could be negative to their business. So, there is a few things there that they can look at and there is, I Can has set up a trademark clearing house, which is where brands can go to, to apply before these domain names are released to the public, they can apply to have defensive registrations before hand of these top level domain names and secure that space for them, so yeah interesting.

Nick: I Can, have they given an indication as to when there might be another round? I thought I heard a 5 year?

Shaun: Basically, they’ve said look, we can only process 500 applications a year maximum and though that could change they haven’t said it would, so if there is 15,000 applications, assuming that there’s no problem, there’s no contentions, there’s no political issues, that would take 3 years Now, if there is problems then that could take longer because for instance for dot app, there were, I believe 11 companies that applied to register dot app.

They have to go through a process of first of all being approved by I Can but then those that did get approval, they then have to either negotiate amongst themselves and if unsuccessful in that negotiation, they then have to go to an auction and then that will come down to he who has the most money wins. One company by the name of Donuts, they registered for 307, I believe top level domain names, all open, all for people to purchase from but they’re in contention with many companies including Amazon and others who have also applied for some of these.

Nick: Interesting. So, there could be quite a process before we see another round later on the other track?

Shaun: 3 to 5 years I think it’s safe.

Nick: I was thinking along the lines of when might we see a dot adelaide coming out there. Who would be responsible for actually doing the application for Adelaide? Would it be Adelaide, the city of Adelaide or…?

Shaun: It would probably the council would approve it or say for instance, I will accompany does, our company helps organizations to apply for top level domain names and I could apply for a top level domain name myself. When you get involved with something like a domain name that involves Government, you need to have approval from the Government in order to do that and it would be more of something that you worked in conjunction and when the applications were open, I’m kicking myself from the foot now for not contacting the Adelaide City Councilor about applying for it.

Now that I know that Sydney and Melbourne – because the thing is when nobody knew who was applying for what. Some had come out and publicly said hey look you know we are registering dot Toshiba or whatever it might be but many kept it quiet and you know it was only through walking the hallways that you would find out about some of these things.

Nick: Yeah, I guess that I’m also contributed to the defensive position thing you were talking about before, if no one really knew who was registering what, there would been a lot of, we better get this before someone else might be thinking of getting it.

Shaun: Well, yes they don’t the money is out.

Nick: And yeah then I’ve got, on top of the perhaps 3 to 5 year period until they can actually catch up so doubly bad if I get on top of it. That pretty much brings me to the end of the questions I have on this topic.

Thanks very much for joining us on the show Shaun. You are probably the best person to talk to this about this topic. Obviously, you have quite a lot of knowledge and passion for it so it’s really good that we’ve come to you for this particular topic. Where can people – sorry go on.

Shaun: I just got to say there is one more interesting thing that I did want to tell the viewers about which I think it’s gonna be very relevant and especially in terms of the brands, is that now that the brands are going to own their own trademark, there is the possibility that they are going to offer to their customers, a personalized web space experience for their customer. So, it could be shaunlecornu.ferari, shaunlecornu.tiffany, shaunlecornu.inz and they would then provide a tailored web space.

If you do internet banking for instance, your internet banking profile would be tailored around what you do on the internet more so than it is now. How that’s all gonna transpire exactly, the brands aren’t really aware of. They don’t know how exactly how they’re going to use that but that is something definitely that if you are a fan of a brand, that you will, for an instance IFL you may be able to go and have your name dot IFL and that may entitle you to certain benefits that you would only get as a dot IFL member.

Nick: Yeah, the more we talk about the topic you just, there are so many more avenues that you open up and it’s only gonna get more, I guess, after you get in there. I mean just on the air, the final point. I guess all the teams are gonna want their team names dot IFL that fans with a sub domain than with perhaps fan club name to IFL. So many possibilities but I think we’ll leave I tthere for today. I’ll put the links that you mentioned both, the [Inaudible 0038:52] so was it GTLD.net.au for your website?

Shaun: GTLD.net.au. If anyone would like to contact us on our other website , it’s www.slamstrategy.com.au or they can also find us on Facebook, Slam Strategy, twitter, Slam Strategy, You tube, Slam strategy and also Linked In, so more than happy to chat to anybody.

Nick: Awesome. You’ve obviously got your branding, your own branding there in line with the consistency there. I’ll have all the links in the show night for this episode at webmarketingadlaide.au and thanks again Shaun for joining us on this episode.

Shaun: Thank you.

Talking through the Idea Inception, Development, Founders & More for Syndeo.co with founder Stuart Austin

This week we have another interview from our Adelaide Entrepreneurs series. Get all the info on the guest and topic over here.

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Get the data and forecasts you need to hit the ground running with your new business idea

In this episode I interview Pratib Parthiban from Silverwhale about financial projections for new business ideas. We drill down on why its important to get a grasp of the numbers when you are planning on launching a new business and how Silverwhale’s forecasting services work.

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We cover

• Why its important to do projections for a new business idea
• What are some of the tools you use to do projections
• What inputs do you need
• Where can people get those inputs from
• What if a projection doesn’t turn out to be accurate
• How should projections affect day to day decision making

Links

• Pratib’s website
  
• Pratib’s twitter account
• Pratib’s Facebook page
• $100 Startup (Book)

Video

Transcript

Nick: Welcome back everyone to the Web Marketing Adelaide Podcast. I’m your host Nick Morris and today we’re talking with Pratib from Silverwhale about Forecasting Your New Business Idea. Good day Pratib, how are you doing?

Pratib: Hey, Nick, how are you? Good man.

Nick: Great! Now, before we get stuck into the questions I’ve got here for you on forecasting thing, how about you just tell us a little bit about yourself and about what you do?

Pratib: Yeah, my name is Pratib. Basically, I’m the Director of the Silverwhale Private Limited, and what we do in Silverwhale is basically to provide financial projection for a new business idea of projects and that’s what we do. Sometimes we also perform some additional research to make sure that the assumptions and the fundamentals that we use in the projections are accurate.

Most of the times, they research will be done by the business idea owner and usually we’ll back that research up using financial figures and that’s what we’ll do. And most of the time, customers or clients try to do a financial projection to see the viability or how much the value for the business idea that they can get from investors and also for like just for decision making purposes. Yeah, that’s how we are trying to like help, a lot of start-ups and encourage start-ups to do financial projections before actually embark in their adventurous journey.

Nick: Great, great! Do you tend to work with a particular type of business or is it fairly across the board or…?

Pratib: So far, I don’t really specialize in anything because for me every business idea is very unique by its own. It’s just very hard to generalize everything and so, it just creates a big opportunity for me to learn different models and just to learn how the business operates. I can learn about different industries as well by just not focusing on certain industry, so that’s kind of like, been my focus since I started the business.

Nick: Awesome, awesome! Let’ get started on the topic. I’ve got a bunch of questions here to ask so let’s just stuck into them. The first one I’ve got here, you’ve kind of already touched on it briefly in your introduction there but the question is, why is it important to do financial projections when you are having your business idea?

Pratib: I think that is a very good question to me because most of the businesses should know the answers for this and I would like to steal some business tips from Sir Richard Branson. One of the things that he used to propose is that, in any of his adventures he always plan on what to d. If he hit the water, how to survive, if it’s not turning up as how he plans to turn up, and I think I kind of summarized the need for financial projection because with financial projections, you can b basically assist you in decision making, gives you different scenarios but too, to give you different scenarios on what to do when something goes wrong.

Let’s say for example, one of your material cost goes up and you can basically see with just like in 2 seconds what’s the impact gonna be on your profit and loss. Based on that, you can make some fair judgment on what to do next, should I increase the customer or should I try to negotiate and get a better deal from the supplier or you might realize that the impact is not that much on your profit and loss and you might think that you know that’s fine. I can basically like go on with this and obviously for decision making, that’s the main reason why we need financial projection. For me, I think if someone asks me the need for financial projection, I always tell them the three big reasons.

One is for decision making, second is to complete their business plan and third for seeking investment. On the second point, there’s two side of argument, do we really need business plan or can we just go on with the project idea? For me, I try to think that it need business plan but it does not have to be a 60 pages document. It can be very short and concise, it’s a road map, it’s a guideline to tell you how you’re gonna run your business. You have to make sure that the business plan covers all the fundamentals of a business and business plan helps you to like identify what other aspects are missing from your business. That’s where financial projection comes in.

It basically supports all the assumption, the pricing model, the business model that you’ve created for your business idea and that’s the reason why for complete your business plan, you need financial projections. And the third main reason is for seeking investment and lot of investors are particularly very interested with return on investment and with financial projection, it helps you to identify the return on investments for your business idea. So, running business it’s very easy. Usually, investors use multiply of earnings, lets say for example, my business is earning $100,000 a year at this point of time. Initially, investors will just use a multiply of 5 or 6 or 7 and then that’s the value of the business they will be willing to pay for. For a start-up business, it’s very hard to tell them how much you’ll be earning in 4 to 5 years down the road if you don’t have a financial projection. That’s where financial projection comes into the picture. It does not have to be like full in detail like exactly of how much a pen in your business is gonna cost, how much a ruler is gonna cost but it has to cover stationery expenses. It has to cover electric expenses and it has to be valid and logical sequence of number and that’s what financial projection is all about. It’s just some inputs and outputs, it’s not very complex, so I think those are the three reasons why we need financial projections.

Nick: Great yeah! It’s something that probably a lot of people, including myself, when I started my business probably I don’t really think about that. I got this idea and might not have all of the inputs and the outputs, sort of in their heads and they sort of just jump into the start-up of their business idea then later down the track, they find out, oh you know, maybe I should have planned this better. So, I think getting this kind of information now, I can see the difference is a good step, a good learning process for people thinking of starting a business, you know, starting a business or start-up in the early stages. It seems to really make sense. What are some of the tools that you use to do the productions or to run it?

Pratib: For me, I’m personally very happy with Microsoft Excel, and I’ve been an Excel user for the past 6, 7 years, so I think the main reason why I prefer to use – there are sophisticated financial models of there but for a layman and for a lot of other business owners out there, who are very, they are very specialized in their own area, in their own product but to [Inaudible 00:07:16] my message to them, is to commit everyday and they can also work on Microsoft Excel by themselves. They don’t have to get a specialized knowledge to use the financial projections because when I build a financial projection, I want the user to use it on a daily basis.

I want them to go on and make some mistakes, make some changes, learn how the whole projection works and for that reason Microsoft Excel is a very good tool. There are a lot of forums on the internet that teaches a lot of skills, a lot of tips on how to improvise your financial models. So, in that sense I use Microsoft Excel. The second tool that I use is definitely the internet. It’s a very good place to do your research and usually what I’ve tried to do is, if I say I’m building a financial projection for a restaurant for example, I tried to contact restaurant owners and ask them what are their expenses? What are the things you have to include in your monthly budget? So, that gives me some idea on like what are the things that I have to include in my own financial projection. One of the good website sometimes I use is cora.com, I’m not sure if you have heard about it? I basically I guess…

Nick: Cora?

Pratib: Yeah. Is basically like a lot of things that you can learn from that like how to do your financial projections and they always recommend top down and bottom up approach. So, top down from a sales perspective like how many percentage of the target market you want to target? How many percentage you can convert that for your sales, for your business? Whereas, bottom up approach comes from a cost perspective like how much your product gonna cost upward. How much is that gonna be, like cost per percent, how much is that gonna be? You have to include bottom up and top down approach when building a financial projection and Excel is a very good tool for that. So, I’m very happy with Excel.

Nick: Great, Great! I like what you mentioned there about, you want the business owners to use it every day, so obviously you’ve developed your delivering sign to them that they are gonna continue using it as you say as opposed to like just to graph thing and here’s the projection that I can as in the beginning like plug in a new cost over parts or particular supply that they have an update on what they do or whatever?

Pratib: Yes! I think that’s the main function, main feature of the projection that we build in Silverwhale. What we do is, we try to make sure the financial projection models is as dynamic as possible, so anyone can go in and change the assumption. Whatever number you can put in and it should produce the output that it should produce based on the formula that we have built at the back of the model. We try to make it as user friendly as possible because we can’t be there on a day to day basis to tell them that this is the things that you can change but just making them as user friendly is good. It helps the business owners to make daily decisions and even before we pass the complete projection model back to the client, we make sure that they understand how to use it in and out.

So, that kind of like help them as well and sometimes they try to come back to us and tell us that you know what I tried to include 3 other cross element but it’s not allowing me to do it. Can you help me to teach and we’d be more than happy to just assist them, just to coach them throughout the journey and do our best for them to like be a very compatible user with the financial model that they have.

Nick: Sounds good. What are some of the inputs that you need. You mentioned that you do some research and you actually reach out to businesses already in that industry just seems like a really good idea but what are some of the general inputs that people, pretty much every business I guess, would need to put in?

Pratib: It really depends on the complexity of the business. Some business is very simple, very simple model to follow. Some follows are, I want to say completely more like challenging model, so in that sense, it really depends on the complexity of the business but to give you some info, you can probably use a lot of accounting input, like for example, you have your financial statement, you can look at a sample of financial statement for your business. Let’s say, lets come back to the restaurant example, over the internet, you can try to find out a lot of like financial statements for restaurants and based on that, you’ll have some input on a lot of things that you have to look out for.

Those are the inputs that we will use in our projection. What we do, is usually we sit down with a client, try to understand all the business assumptions and for me, in a financial model, assumption is the most important part. If you can get your assumption as accurate as possible, then your financial model should reflect as close to reality. So, in that sense for me, the assumption is the biggest part. I would definitely recommend clients to spend more time on coming up with your own assumption or their own business assumptions. Sometimes what happens is that most of the times like clients kind of like always estimate their sales figures, obviously because that’s their own idea for huge confidence for the business and so then that’s where I come in.

I try to challenge that idea, I try to like put on my black hat and tell them that you know what, are you very sure that you can get 10 to 20%, when research have shown that a new start-up can only get 10% of the total after 12 established market. So, anything more that 10% can be seen as over estimation but in some idea, the idea can be really good but 20% is such a good ideal target. So, the assumption is the biggest input that everyone has to get, right. On the assumption right, one of the assumptions that I think every businesses should consider is that, how long can they take to get the number of customers that they need to break even in their business. So, most of the times businesses have a great idea on, okay, I need 10 to 20 customers to keep this business going month to month basis but do they know how long it will take to get the 10 to 20 customers? So, that is a very important piece and also cost per customer. They have to know exactly how much they have to spend to get one customer in the door and that is another input that they have to consider and anything that related to product, any cost that relates to product has to be considered for marketing expenses. It’s very important we kind of under estimate marketing expenses a lot of times. So, that is like experiences and talking to your business mentor, your business coach that can help you to say that you know what, I think your marketing expense is too low for your kind of this business. You might want to increase your marketing expenses. So those are the inputs that you always look out for.

Nick: Yeah, that’s really interesting. Some of those things I would have thought, will be difficult to grasp early on at the start of the business or beforehand, such as the cost per customer. What are some of the ways, is it just from sort of just talking to other businesses and doing research? Can you get failure here with this numbers or is it more something that you sort of get it as accurate as you can and then you can refine over time?

Pratib: I think your last sentence is very accurate like you should get it as close as possible and then refine it over time, because I believe cost per customer should decrease over time because your brand is already out there, so you don’t have to incur much as cost when you started but you can talk to your competitors. Some competitors are very helpful, like you’ll be very surprised when some customers call their competitors, you can be very honest with them you know. I want to try and open a business such as this, how much, you know like what are the things that you consider and how much do you spend to get your customer?

Sometimes you have to do some mystery shopping, you have to act like you are coming from a research company and stuff and it is totally legal to do that. You’re not lying or cheating, you’re just gathering some research for your own business idea, which is totally fine. You can also do some questionnaires and talking with your real customers. Go to them, tell them this is what you’re planning to sell, how much are will you willing to pay it for? And questions that you can ask is, where do you find this kind of business to help you out? How do you find this business to help you out, and they will give you some ideas on what are the advertisement mediums or tools that you can use and from there, you can get a fairly rough idea on how much cost is gonna take you to get that customer like in your door.

Nick: Absolutely yeah. I think as you say some people might be a little bit apprehensive about sort of calling their competitors. If they are willing to help, that’s great, and if they’re not, you might have sort of get your hands dirty a little bit and do some mystery shopping but it’s important information you need for, it makes sure this business idea you know has the ability to get off ground. Something that sort of just came to me, does your consulting or does your financial projection process, does it you were able to advice how much sort of start-up capital people who need for business or is that sort of a simple thing?

Pratib: That’s a very good question. Based on the projection, based on the business model, we are very good in a very good position to advice them, this is how much capital they need. We can definitely do that because we always try to maintain cash flow positive for their business, so in that sense, we try to identify, we try to estimate the capital up front before they start the business but the thing is, it also depends on how much they’re willing to spend as well. Let’s say, they say, I only have ten thousand as my capital then we have to work with that. You have to tell them that you know what, you might want to like get more capital or you might want to like decrease the cost per product.

You can do these kinds of things to decrease the cost per product. So, that kind of play around with your own capital, buy yeah you’re definitely. Based on the financial projection, we can definitely advice them how much capital they need, but that’s not gonna be the final figure because when you really start the business they could be additional cost that being incurred or you might realize that you know the capital has been over estimated. You have more money in your bank, which is always good. So, in that sense it really depends on how you are running the business once you’ve launched your business.

Nick: Yeah, it occurred to me when I was talking to with Trevor Glenn a few weeks ago in an episode about Lane start-up methodologies, it occurred to me that this sort of approach where you have this forecasting document, your Excel spreadsheet, which is able to be, with the inputs and assumptions that are able to be changed, it seems to fit well with the Lane start-up approach.

Pratib: Yeah, I mean very good point. I’m a very big fan of Lane methodologies. I’ve been to their trainings and all those things and one of the book that I would recommend to all start-ups to read is the Hundred Dollar Start-up.

Nick: Ok, I’ve heard of that but…

Pratib: It’s something pretty similar to Four Hour Week book and it kind of gives you different ideas on how you can launch your business with a very limited capital and which is always good. What I try to propose to customers is that you should always launch your business with your own money. Try to sell few products with your own money and once you have an established track record of sales and then go to investors and then fish to investors because then you have more demand power. Investors will not be telling you how much your business earns, perhaps you can tell them that hey, I’ve managed to sell 10 to 15 product in just one month, which is gonna be a big hit and you should invest in this.

It just gives you a more buying power when it comes to speaking and negotiating with investors. So that’s my proposal like obviously it really, some businesses need huge capital at start, manufacturing organization is a perfect example. They need a huge capital to lease the machineries, to buy, the plant and factories and all those things. So, in that sense the lean start-up, lean methodology can still help them to minimize the cost but obviously the capital as one be as small as the business models out there.

Nick: Yeah, yeah. That make sense but certainly, for the smaller business that haven’t got that message, cost behind and that’s something they should be looking into and Hundred Dollars start-up. I’ve heard that I recommended by – it’s on my list of books to read. I’ll put a the link in the show notes. Anyway I’m just gonna check it out. Okay, next question I’ve got here is perhaps a little tricky one. What happens if a projection doesn’t turn out to be accurate or sort of starts to go off the direction of the business, sort of diverge from the projection?

Pratib: To be honest, most of the times, I think all the times, the projection will not be as accurate as the real life but I think this is where we have to understand the use of financial projections. Financial projections is a dynamic road map. It tells you where to go and how to get there. Though you are actually travelling on the road map, you might find that a, I might use route a, shorter, it’s nearer and it’s costs free for me. So those are the things that you might want to consider when someone’s doing the financial projection. It does not have to be a 100% accurate and if it’s 100% accurate, then I think there’s something wrong with the financial projection because of the way they are doing the business because you want to prove the financial projection wrong.

You want to prove in the sense that you want to tell them, hey I can make more money than what I’ve already projected or I can reduce the cost compared to the one that I’ve already estimated before I launched the business, which is very good but a dynamic projection helps you to do all these changes when you are doing the business. To get it as close to real life, I think there’s two different research you can do, one is try to get some data from primary research and secondary research. Primary research is where you can do like speaking to your customers, speaking to competitors, speaking to business mentors. You can also – of the two different start-up we find what did was basically then approach our customers, give them a questionnaire and ask them to answer a few set of questions and they are happy to do it. There was nothing for them to do – you didn’t have to give them any complimentary gift or anything.

They were more than happy to help us out and that gave us a very, very useful information because that’s coming straight from the customer and I think that’s a very good way of gathering some information, whether your product has a demand on the market before it actually go into it. If they set demand, you can ask them a lot of questions like how much are you willing to pay for this kind of services? How much are you willing to pay for this product, and that gives you a rough idea on your pricing model as well.

Secondary research is where you try to get into industry wise data or research. There are a lot of research being done in a lot of industries so you can go into there you can type into that universities usually have a lot of research papers on a lot of businesses entrepreneurship. So, you can always access this report and try to get more information on it and yeah so with primary and secondary way of research data, you can definitely build a financial model that is close enough to help you to predict or estimate the money or the expenses that you’re gonna incur in the future.

Nick: Great that’s good. Let me see if I can try and summarize it a little bit, make sure I’m understanding correctly. Sounds like the forecasting sort of product that you are providing specifically is like I said, the Excel spreadsheet and that’s a lot about the accuracy or the results of the forecast depend on the assumptions and the inputs you’re putting into that spreadsheet and in order to make a better forecast, you need to make sure your inputs and assumptions are accurate but updated if they need to be and you mentioned some of the ways you can do that with your primary and secondary research and also change in over time. So, you have to keep in mind is that it’s a road map, it’s not necessarily, exactly what’s gonna happen. It’s more about garnering more information, decisions and you should also keep in mind that you should be always break the forecasting in that you want to make more sales, you don’t want a limit to….

Pratib: Another one thing that I can also help you to understand how important financial projection is that let’s say for example there is a short supply in your materials and you have to enter some cost to get material from a different supplier and that’s gonna impact your costing but you might decide that you’re not gonna do anything with your costing, all you might decide that, you know what, I need to get more customers in for this month to get the same level of profit. But how do we decide how many customers do we get?

It’s a very hard thing. If you have a financial projection, then it’s very hard to tell you that hey, guess what, you just need another 3 more customers. So, it’s quite easy for you to find 3 more customers to power the additional cost. So, those are the things that can help you if you have a proper financial projection and not only that. I think one of the most important thing for a business is to always maintain cash flow positives.

A business can be earning $1,000,000 per annum but if its cash flow is negative then it’s gonna be very hard to pay suppliers, pay expenses or even emergency fund. So, financial projection helps you to maintain cash flow positive. It helps you to tell that these are the cost that you need to cover, the minimum cost you need to cover to maintain cash flow positive. So, that’s where financial projection helps a lot as well.

Nick: Yeah, definitely cash flow. It could be a tricky one for sure that’s the thing I’ve sort of noticed when I was starting my business with almost no idea what was I was doing.

Pratib: And I think all I was on the same boat, I guess like a was stuck in all of this.

Nick: Yeah, definitely. So, if you my listeners or people watching this video are in a position where they’re about to start a business, then get on top of your financial forecasting, could definitely be something to help you out along the way. The last question that I’ve got here, which you’ve kind of really covered to some degree but it, how can or should projections affect the day to day decision making of business owners. Could you give us some examples? You mentioned the supplier thing, kind of different suppliers. Are there any other examples that you can think of?

Pratib: I think another good example is that one my own experience, what happened was that one of the business project idea was a seasonal idea. So, in Summer, it is a hot product, in Winter, it’s not a very hot product, so, how do you do a financial projections for that? So in that sense the sales projection for Summer will be very high. You’ll be very optimistic in Winter. You will be very conservative, projection. So, that was a very good project because it really challenged me to think that okay, so what is the minimum level of customers that you have to get in Winter to keep your business going? In Summer, you can go out, get as much customers as you need whilst in Winter, these are the minimum level of customers that you have to get to operate the business because obviously in business they are fixed cost and a variable cost. As long as you’re covering your fixed cost, you should be happy or the business was quite okay to cover the fixed cost in Winter.

So, the financial projection was there to help them to identify the number of customers they have to get just to cover the fixed cost, whereas, in Summer, when the variable cost increases with the number of products that they sell, so, in that sense, it was quite alright to get more customers in but in Summer, so in Winter, they managed to identify that alright, that’s cool we just have to get 3 to 5 more customers just to cover the fixed cost. So, that’s another example on how financial projection helps seasonal business. So that’s one I example. Another example is I’m trying to think – I was thinking before this meeting, I’m just trying to figure out what idea was, written on investment.

I think what happened was that this business was seeking investment of, if I’m not mistaken $10,000 from 2 investors, and 2 investors had different return on investment and obviously, as you might have found a return on investment is basically what they are getting from money that is invested in the business and you have to make sure that the businesses that was seeking the investment are comfortable with the rate of return that the investors are seeking for. So, doing a financial projection helped them to tell them that if you are taking $10,000 you’re safe or your base return on investment should only be 5%. If investors are looking for 7%, then it has to be a best case scenario. So, a business can put a confidence, how do I put it, like confidence probability on how many times in a month they’ll reach a best case scenario. If it’s less than 50%, then I So, that’s how financial projection can help them to identify which investment proposal is best for their business.

Nick: It’s good that you’ve discussed investment as well which is something I have no idea about. So, it’s always good to get some different areas of expertise for different types of businesses that perhaps seeking an investment. That’s pretty much all I’ve got much on my questions. It’s been quite an interesting interview and I think there’ll be lots of stuff here for people thinking of starting a small business or in the early stages of start-up a more of start-up type business. Thanks very much for coming in and talking to me Pratib. It’s been…

Pratib: Big thanks for having me. I think this is such a good opportunity and the project that you are doing – I’ve been spending like 1 day just looking through all the videos that you have published before this. So, it’s been a really good, very good project, keep it up!

Nick: Thanks for that and if they want to find out more about you and about your business where can they do that?

Pratib: I have my own website which is www.silverwhale.com.au so that’s where you can get more details of the business and you can call. I don’t really charge for initial consultation. So, if you go to an Accountant, they can do the financial projection for you but I think they’re gonna charge like $150 to $300 an hour just to talk with you on your business idea but for me I take that opportunity to learn about your business model. I learned a lot of things when I talk with entrepreneurs like you. I’ve learned about other things that I’ve been missing out in my business. I get like a lot of ideas by just speaking with you, so in that sense there is always gonna be like a learning opportunity for me. So, in that sense, I’m more than happy to sit down with [Audio breaks 00:31:31] any type of normal consultation with them.

Nick: Yeah, we just lost you for 2 seconds there. You said sit down with…

Pratib: Yeah I’m more than happy to have an initial consultation for cost free with any start-up entrepreneurs or business owners because at this time are very good opportunities for them to learn how financial projection can help them and also they for me to learn about the business idea because speaking with entrepreneurs help me with all my business thinking and stuff. So, it is a very good opportunity as well. So, all I’m saying is feel free to contact me you know, costs free stuff. The only way you can find out is by trying so, there are a lot of books out there for you to identify the importance of financial projection and modeling. So, feel free to check them out, yeah and hopefully good luck with all your business adventures.

Nick: Great yeah. Thanks for that and that sounds like, as you say, there’s nothing to lose from anyone who contacted you if they are thinking about getting a financial projection. So, definitely I’ll put some links in the show notes for this episode on our website www.webmarketingadelaide.com.au we’ll have links there to Pratib’s website and those would be the video obviously from this episode and the audio up there as well. Thanks very much again for joining us on this show.

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