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Recently KPMG LLP, a tax, audit, and advisory firm did a survey of executives in a series of different industries. It’s fascinating to read some of the results as they seem to have a general upward trend. Now, I know there is still a pervading feeling of dread in regards to the economy, but there are times when one must admit that something is going well. From personal experience, I can say that when executives in the upper levels of the corporate infrastructure start predicting improvement, especially when it benefits them more for those encouraging faith in failure to reach an audience, then you can tell that there’s something behind it.

Let’s begin with the financial sector, which was undoubtedly hit hardest by the economic meltdown. As they were the major architects of it, I feel that this is somewhat karmic, but I digress. However, executives in the financial industry are actually predicting that revenue and profitability will improve in 2010. They recognize the importance of job growth, but I happen to agree that that’s not a sector in which we’ll see significant job growth any time soon. They’ll simply have to hope that jobs in other industries will help restore consumer confidence so people will come to them for loans. Feel free to take a look at it.

On the other hand, the technology industry expects to lead the economic recovery. As somebody who considers himself a nerd (I owned a slide rule at one point and know how to use it), I’m actually delighted by their confidence. I feel that if we’re going to stay competitive, technology is where we need to concentrate. The potential for business solutions makes it an invaluable sector of the economy, streamlining and enhancing all other sectors. That they expect job growth within the industry as well is simply a bonus.

KPMG did a wide range of surveys that seemed to point inexorably in one direction: economic recovery. This despite the best efforts of politicians, the economy will continue to grow due to smart policies and the confidence of the public and business leaders.

One of the major problems that has suddenly come to the attention of the general public is that of valuation. I’m not saying that valuation is a bad thing in any respect, but rather that the values of properties and business have been thrust into the public spotlight and now more people are having to consider assets in terms that business people have been thinking in for quite some time.

The real issue, however, is that they’re picking up the same bad habits that so many business people already have, specifically that things like valuation are only to be done when absolutely necessary, usually when selling the company or asking for a loan. However, why on Earth wouldn’t you want to know the value of your company at other times?

Just to take one example, what if you, as the business owner, want to start preparing for a transfer of power, either to family members or some specific person/group? How can you do that accurately without knowing the value of the company? If something should happen to you, not knowing the current value of your company will increase the amount that it will cost both in terms of taxes and the legal fees involved in sorting out exactly who gets what and in what proportion.

The fact of the matter is, it’s important to occasionally value your company even if you aren’t asking for money or trying to sell it. The only way that you can understand how your business is growing is to have a general idea of where it is now as compared to before, and estimation might be enough for some circumstances, but having a solid foundation with which to work gives you the chance to plan a cohesive strategy for the future of your company. It also makes it easier for your company to live on past you.

In what seems to be a continuing series on how to innovate from within your company, I’d like to talk a little bit about what you can do with the things you’ve found. Sure, that unmarketable gizmo looks a little different now than it did when you originally put it on a shelf, but you still don’t know what to do with it. Maybe, instead of looking outward, look to your left and your right. It’s not only the mass of consumers that can benefit from your work. Other companies can make customers just as easily as any singular person.

Now that you’ve found something to work with, ask yourself, “Is there anybody with a problem that this can solve?” This is not an easy question to ask: by definition it’s not always easy to know what another company’s problems are. However, like with any other product, finding the niche for it to fit into will make it potentially valuable. Marketing your failed product or service around with a smart sales force actually might reveal where those problems are and put you in a position to take advantage of being the first to offer a solution.

Take some time to also consider what five other companies might want your product, either to use or to sell. Do some roleplaying and put yourself in the shoes of people like you, both competitors and non-competitors alike. How might a competitor approach the product differently? How do they generally approach things differently from you? What might somebody in another industry do with this type of service?

By thinking outside of your own company, you’ll find new markets to tap. Commerce doesn’t flow in a straight line from you to the customer. It branches along many roads of which you are a single hub. Consider your connections to the rest of the people in the corporate world and how what doesn’t work for you might be something they want or need.

Companies should always be looking for new ways to innovate. New products, new ideas, new concepts and approaches mean that business moves forward and the market benefits from increased cash flow and better service. It’s an elegant system that rests solely on a company’s willingness to continue to try new things. What’s interesting, however, is that the newest ideas are often hiding inside your business and can be exactly what you need in order to innovate effectively.

Instead of trying to pump money into brand new projects or find tiny changes that can be made without actually releasing anything significantly new, trying looking at what you have available with a new perspective. Start in your R&D department and see what sorts of projects or efforts were started but you found them to be unmarketable at the time. What’s changed between then and now? Maybe there’s a way to bring them out now that didn’t exist previously.

Next, take a look at your distribution networks. Is there a way to improve them? It’s not just about shopping around for new companies to move your product, it’s also about seeing where people want to go and evaluating if that place will be a good market for what you have to sell. Often if companies are already traveling someplace, they’ll have better deals on the transport.

Finally, take a look at your research. All of those studies that you commissioned, all of the tests you ran, labs you contracted to, have given you valuable information. I don’t mean valuable just in terms of being able to tell you what you need to know about your product, but valuable to others who may have a similar market area that they’re working in. They can commission their own reports or they can buy yours which is equally good data and probably cheaper. There’s no reason to let that information sit and collect dust when you can pass it along to another company and make back part of what you spent on it originally.

There are plenty of ways to innovate and find new sources of cash flow while also making your business more efficient, but they require you to take a look at your business with a fresh perspective. Re-examine the things that you once rejected with new eyes and you might find a hidden gem that was just waiting for you to use.

They’ve been around for several years. Back in 2004 there was a minor craze for ebooks, before that in 2001, and even as far back as 1996 the concept has been floated as a new and exciting enterprise for the digital age. Each time the hype died back down shortly after as obstacles like an ironic public unwillingness to read books on their computers and lack of intuitive measures in e-readers made it infeasible as a format and insoluble as a business. Combine that with the lack of interest in publishing companies to produce high quality ebooks of popular novels, and you have a lot of hype that amounts to very little in terms of an actual industry.

Recently, an ebook distributor called LibreDigital got $15 million in venture capital for second round financing from several different firms. Considering the incredible difficulty in getting funding for business in the floundering world economy, especially from venture capitalists, this speaks volumes for the viability of this company. One must wonder exactly what it is about it that attracted a class of businessmen and women known for very careful investment to this particular company.

My guess would be that many of the hurdles that prevented the ebook fad from taking hold previously are being overcome by expanding technology. 2009 has seen the release of nine new ebook readers (compared to seven total from 2006-2008), seven of which were released between June and now. These portable devices allow for the storage of gigs of books and easy access to all of them, not to mention ease of reading. The advent of devices such as this which are also small and light enough to carry on an airplane (though not for long the way airlines are limiting luggage), mean that ebooks may actually become a profitable enterprise this time around.

There is an old saying in law enforcement: “Follow the money.” This also applies to business. Business trends are often set by what is invested in them, filtering up from the street only when money is infused into marketing and sales. In this case, the money is going into R&D and I suspect soon actual advertising. Either way, watch the ebook business over the rest of the year, especially during the holiday season, for a huge expansion.

Anyone who reads this blog knows that I respect the advance of technology in business. I respect efficiency and I respect cleverness. However, I value responsibility above all of these, and I feel that business has been moving further and further from that.

The newest perpetrator in irresponsible behavior is the New York Stock Exchange and they are doing so with their new facility in New Jersey dedicated to fast trading. For those who don’t know what that is, it’s a new way of using computers to perform potentially thousands of trades every second. However, by its very nature this will do nothing but further destabilize an already very unstable market with tiny trades that make trending absolutely impossible.

Fast trading lends itself well to older trading strategies that will become even easier now, specifically sculpting, which can be incredibly dangerous in an unstable market.

Sculpting is where traders buy and sell incredibly quickly, usually for a profit of only a few cents per share, gaining a quick buck while keeping shares of companies in a perpetual state of flux. This can make it difficult or impossible for legitimate traders to actually purchase or sell shares of a company, preventing the price from settling from one second to the next and unnaturally altering the value of the stock.

The new NYSE hub will contribute to the instability that this kind of trading brings to the market. It has the potential to take an already shaky market still trying to get back on its feet after the crisis less than a year ago and further shudder it to pieces the same way that program trading contributed to the ’87 crash by mindlessly selling at the wrong times, exacerbating the problem. In this case, the problem is quick-money traders looking to manipulate the market in tiny ways that add up very quickly, and a fast trading hub in New Jersey will do nothing but make it possible for this irresponsible behavior to continue.

During economic crises, it’s tempting to grasp at any line one is thrown. This is especially true of business owners and prospective business owners who might not find banks and traditional finance options very tractable in regards to their specific business. Please see my blog entry on banks, Big Banks Ignore Bailout Promises for more of my opinions on that. However, as a result they tend to fall for the same things any other consumer does on a regular basis: clever marketing and a sales pitch. I refer here to so-called “angel investors.”

I do consider myself a bit of a moderate, perhaps even a peacekeeper, so I’ll hedge myself by saying that not all angel investors are this way. However, there are enough that take advantage of the visceral reaction that people have to the word “angel” to make it seem as if they are somehow doing a company a favor by investing in them, meanwhile requiring that monetary goals be met that tend to lead to negative amortization. It’s really no different than the sub-prime lending practices that seem to have been at the root of the global economic crisis to begin with, only instead of making home foreclosure an inevitability, this makes business closure, sale, or takeover a likelihood.

The trick to avoiding getting involved with one of these criminals is first to not panic. The moment you begin to believe that your business is going under is about the same time that any loan shark (another loaded word that more accurately describes some of these rogues) can come in and offer you terms that  will still leave you ruined in the end. The next step is to carefully consider all aspects of any potential loan, be it from a bank, venture capitalist, or angel investor. Have your lawyer and financial advisor look over the paperwork before you sign. Most importantly, do some research on your angel, make sure they are who they say they are and talk to some of the other people they’ve invested with. If most of the businesses they’ve invested in are no longer around, there’s a good chance they pulled their support when it was crucial or took over the company and sold it off as part of the deal.

Not everyone who is willing to loan you capital is your friend. It’s easy to believe that the way things are now, but it’s desperation that so many people like this feed on. Fortunately, you’re too smart to fall for that, and will be sure that the angel who comes to the aid of your company is not really a demon looking for a 20x-30x return on their investment in five years or control of the company.

Affiliate programs are not a new idea. They’ve gained a form of rebirth lately due to the ease with which the internet lends itself to their use, but in the end the idea of rewarding somebody for bringing business to you is as old as business itself. I can easily imagine merchants in ancient Egypt or Greece paying others to support their businesses. It’s neither revolutionary nor particularly risky in most cases as all you have to do is run your business and hope people follow it to your Seller.

While there is money to be made in affiliate marketing, keep in mind that there are pitfalls that you have to watch out for as well. It’s easy to get involved in the excitement of a new business, invest yourself and your time into it, and see small or no returns on your efforts, so pay careful attention to what you’re looking at and how you approach it.

First of all, any article, blog entry, or casual mention of “affiliate marketing” will probably get several comments inviting the author to join their program, that many of them are scams or sound too good to be true, but this one is different and worth trying for a small investment. Let me say now, I’m not interested in joining your affiliate, so please keep any comments to a discussion of the article.

That being said, they are right that a lot of affiliate programs sound too good to be true. They promise quick returns for minimal effort, simply putting a banner ad on your website or posting it on a social networking place. These will often be accompanied by testimonials that prove that with hardly any work you can make remarkable amounts of money. Even if this is true of some people, the odds are heavily against you, and the more a company tries to assure you of the safety of their investment, the less trustworthy they likely are.

It’s also worth noting that affiliate programs are a form of work. You are working for another company to advertise their product, service, website, etc. If you get a job in an office, do you pay your employer for the privilege of working there? Then why should you pay for the honor of being an affiliate to another company? If they’re asking you for an investment of your capital in order to work for them, consider that perhaps they’re not making enough on the click-throughs to otherwise make a profit, so why would you?

The truth is no matter what you become an affiliate for, it’s going to involve hard work like any business. It’s a marketing technique like any other, and the company you’re working for will expect you to spread the word about their company by any effective means. It may be traditional methods like email marketing, SEO, or even display marketing. It might be in the form of reviews or clever blog entries. But the point is that there is no easy money to be had, and it will require effort on your part.

Unlike other men of my ilk, businessmen from an earlier time, I’m not usually afraid of regulation. The issue, I suppose, is that I’ve worked with businessmen before, and am fully aware of the tricks, loopholes, and workarounds that people who have been entrenched in the corporate world for long enough will employ to raise profits, often at the expense of employees, consumers, and even share holders. My experience has taught me to be weary of human nature and those who repeat over and over that they should be trusted. I heard the analogy once that compared a perfectly unregulated market to perfectly unregulated streets. We’re all good drivers, right? So why do we need traffic lights and speed limits?

However, even I have to admit that there are times when things go much too far. I’m referring here to China.

Now, while I’m grateful to the giant communist nation for providing the United States with loan after loan for years now, I find it hard to assimilate the concept of financial growth with a heavily state-regulated market. I think one of the most obvious examples of this is the recent one-year hiatus on IPOs imposed by China that ended earlier this month.

I think it’s incredibly wise to allow more IPOs as it’s a valuable tool to improve capital allocation and promote individual business within a country in which the majority of its citizenry lives below the poverty line. However, the overly cautious way by which the state approves IPOs continues to choke their potential to grow and hurts the ability of business owners to develop new products and improve services throughout the country.

Part of the problem is that most IPOs are granted to State-Operated Enterprises (SOEs), who are also often given more capital from the Chinese government in order to keep them both afloat and ahead of the game. Couple that with a tendency of the Chinese government to take steps to ensure an unerringly stable market based on manipulation of capital, and you have general low performance for purely private enterprises and a market with strength based on the ability of the government to keep it from fluctuating.

While it is a good thing that IPOs are once again being allowed in China, they are so heavily regulated that even after a year with none, we are unlikely to see a lot of IPOs in 2009, and the ones we do see are likely to be owned at least in part by the Chinese government and given a manufactured leg up which makes it impossible to gauge their real worth. When people ask me about regulation, “But where does it end?” my answer can now be to point to China and say, “Before it starts to look like that.”

Unsurprisingly, many of the big banks that accepted bailout money are still refusing to actually lend it to small businesses. Maybe this makes me sound like a pessimist, but I never really expected that when the last administration passed this legislation that companies that have shown themselves to be greedy, ineffective, and unconcerned with the wellbeing of their customers and employees would very suddenly change their opinions because they’d been handed free money.  However, I would have hoped that they would have at least lived up to the standard of dignity that businesses used to purport rather than the lowered expectations that the actions of so many large corporations have given to the public.

The ones who really suffer from this, however, are small businesses. While the multi-nationals are able to ride out the storm, it’s the local shops, service providers, cottage industries, and home internet companies that need credit to purchase supplies and pay employees. And it’s these companies that are finding it harder to get credit from banks that are more than willing to liquidate them and take the profit associated with that, claiming that they are unable to take the risks. And this is a good point, since they can’t afford to take financial risks if they spend over $42 million, part of that received from bailouts, on lobbyists to defeat legislation that would allow federal judges to cram down mortgage payments for homeowners (i.e. taxpayers) in need. Please visit http://firedoglake.com/money-spent-on-lobbying-to-defeat-mortgate-cramdown-in-1q-2009/ for a helpful chart based on Q1 lobbying report showing how much was spent in lobbyists and how much a company received in TARP funds.

The irony of this whole situation is that the groups coming to the aid of small business are not exactly the kind one might expect. In fact, I was shocked to see a union, the Service Employees International Union, come out in favor of small businesses being hurt by large banks unwilling to lend to them. In fact, they started a website and hotline (http://www.keepworkinghotline.org/) to collect the stories of companies suffering from this kind of betrayal and use them in lobbying efforts on their behalf. My personal feelings that businesses and unions should be able to find a consistent common ground in the well-being of the employees and quality of work aside, this is rather monumental.

There was a time when large businesses still had integrity, and I find it disappointing in the extreme to see them fall, industry by industry, on a daily basis. I believe in the small businessman and think they deserve every opportunity to make something wonderful with their company. Denying them in favor of higher profits and support for the lobbying industry will ultimately hurt business across the board, but I fear that the long-term planners have long since become endangered in the business community.