PresellingEthics
The Ethics of Pre-Sales
The Shogun is Always Right
A Note to
Ryan North, Student in Entrepreneurialist Culture:
Very true, Ryan. Pre-selling means you are taking
people's money before providing the service or product and that is a kind of a
trust. It is a grey area. But you pay for your train ticket before boarding the
train. You pay for your restaurant meal after you have eaten it. So it
depends... on leverage. I am sure that if restaurants could ask people to pay
before they consume food and drink, they would.
As you know, I have talked about one of the keys to
generating a successful business is to have a business model which has control
over some type of factor of production. This gives you leverage and the power
to pre-sell. Pre-sales give you cashflow, and cash is power.
We faced this situation when we brought back the
Sens in December 1990 and collected $22m in cash for season tickets in December
1990 for a team that wouldn't play until
The funds collected from pre-sales are 'impressed'
with a trust even if they are not legally placed in a trust.
The funds also appear on your B/S (Balance Sheet) as
a LIABILITY since you have the money but you have yet to perform or provide the
service or product (i.e., playing NHL games).
Disney sells Disney Dollars on a one for one
basis—one USD equals one Disney Dollar. There are hundreds of millions of these
Disney Dollars (like Canadian Tire money, I suppose) in kids’ drawers all over
the world. Disney has to account for these on its B/S as a liability because it
is possible that all those kids (now many of them adults) could suddenly show
up one quarter and demand services from the Company.
Disney Dollars—Asset or Liability?
This shows you the difference between cashflow and
assets/liabilities. Most entrepreneurs are interested in cashflow.
Entrepreneurs tend to manage their businesses pretty much by watching their
bank balance at the beginning and end of each month, the difference being the
cash collected in that month.
Having said all of this, if entrepreneurs were not
allowed by government dictat to
pre-sell, there wouldn't be many startups and certainly almost no bootstrap
startups. Overall, this would be bad for the economy even if there are a few
bad apples out there taking people's money and then folding.
Again, it is a matter of trust and your reputation.
People don’t mind buying from Terry Matthews in a pre-sell phase because they
trust Terry and he has a track record of performing. But remember, Ryan, he and
Mike Cowpland pre-sold Mitel products in their early days together and these
products were pretty much vaporware but, somehow, they came through.
The ethics of entrepreneurship are like history—the winners
write history and they are always right. Most entrepreneurs start with nothing
and take horrible risks. If they win, they are heroes. Look at Fred Smith at
Fed/Ex. He did some things to keep Fed/Ex flying in the early days that nearly
landed him in jail but he is a legend today.
To paraphrase from James Clavell's SHOGUN: "There is no excuse for
revolting against your liege lord... UNLESS
YOU WIN. Yes, that is the only excuse," Lord Toranaga.
Copyright. Dr. Bruce M. Firestone,
Postscript
from Ryan North—You can’ always pre-sell:
Mainline
Airways ordered to stop pretending it flies here
Hawaii Circuit Court Judge Eden Elizabeth Hifo has
signed a temporary restraining order against Mainline Airways, a company in
"It takes more than a Web site to start an
airline," said Mark Recktenwald, director of the state Department of
Commerce and Consumer Affairs, which sought the restraining order effectively
barring the company from pretending it provides air service to the islands.
Mainline Airways has not filed any of the federal
documents that must be submitted by a would-be airline. The company earlier
said it meant to charter the airlift after selling enough tickets, but
Recktenwald said Mainline hasn't satisfied the legal requirements to operate as
a charter tour operator under Hawaii law, either, or even as a travel agent.
The restraining order specifically prohibits
Mainline and CEO Luke Thompson "from selling tickets to consumers and
collecting money before they are authorized to do so by applicable federal and
state laws," Recktenwald's department said in a statement Monday.
Mainland has been offering "introductory fare
discounts" below $100 for flights from
http://www.bizjournals.com/pacific/stories/2003/06/09/daily9.html
RYAN NORTH does some dinosaur comics: http://www.qwantz.com