Archive for the 'Entrepreneurship' Category

Take on the law of numbers with grit and fundamentals

A rabbit was being chased by a hungry fox. Running for his life, he hopped over a turtle as he made haste across a small stream. Tucking himself safely inside his shell — not wanting to become collateral damage in the rabbit’s emergency — the turtle inquired about his anxious neighbor’s prospects, “Hey, Mr. Rabbit. You gonna make it?” To which Mr. Rabbit replied over his shoulder, “I GOTTA make it.”

When small business owners wake up in the morning, they often feel like Mr. Rabbit. But why are so many operating so close to the edge of survival? Why is every challenge or opportunity so momentous? Why are their circumstances so much more dramatic than for their Big Business cousins? The answer is found in the law of numbers. Let’s look at just three key examples:

Customers
Big businesses have lots of customers, so losing one is usually not a big percentage of their customer universe. A small business’s customer universe looks more like a list, on which each name represents a much larger percentage of the total. Losing a sale or customer takes a bigger mathematical bite out of the future viability of any small business.

Employees
When an employee leaves a big business, there are probably three replacements ready to be promoted off the bench to that single assignment. But even if there is a bench on a small business team, it isn’t deep. And since there are more jobs to do in a small business than people to do them, every employee is a key employee who’s difficult to replace.

Capital
Big businesses are blessed with multiple capital options, including the equity and debt (bonds) markets. A small business is the stepchild of the capital markets – sometimes more like an orphan. Other than bank loans and whatever retained earnings that can be held onto after taxes, the best way to describe other capital acquisition options is found in the names of the twin brothers of desperation, Slim and None. And even when outside capital is found, it often comes at a prohibitive premium.

With the law of numbers and perilous percentages against them, translating into limited options, small business owners survive by calling on a special kind of “I GOTTA make it” resolve. But, alas, resolve alone isn’t enough. To overcome the reality of their numbers and operate with less desperation they have to combine their grit with a focus on operating fundamentals that address the exposures. For instance:

  • Customers: Know what each expects from you and deliver that within an inch of their lives. This is part of your special sauce and one of your advantages over a big business.
  • Employees: Hire only those who could one day be promotable off of your bench.
  • Capital: Build and maintain good relationships with at least two banks, and retain earnings like your business’ life depends on it. It does.

During The Second Punic War (218 BC), Hannibal crossed the Alps with 35,000 men and a squadron of elephants. When snow blocked their progress, scouts reported the way forward was impossible. Sensing disaster in the eyes of his men, and realizing that this was a test of his leadership, the great Carthaginian general is said to have uttered those words that small business owners say to themselves, and their people, every day: “We must either find a way – or make one.”

Write this on a rock … Like rabbits and generals, small business owners GOTTA make it with a combination of grit and fundamentals.

Eight questions and four fallacies about business growth

Giant sequoia redwood trees grow very tall. Bradford pear trees, not so much. It’s all in the genes.

But there’s no genetic code for a business. While a Bradford pear can’t decide to compete with a redwood, a business can become whatever its owner makes it. And that last fact creates two questions we go to sleep asking ourselves and wake up trying to answer:

1. Should I grow my business?
2. How big should I grow my business?

In his book, Warp Speed Growth, my friend and Brain Trust member, Peter Meyer, lists four fallacies of growth which every business owner should consider. Here they are, each followed by my comments.

Fallacy 1. You can grow out of organizational problems.

In a state of denial or ignorance, small business owners sometimes think getting bigger will fix management and organizational shortcomings. If a tree is bent, fertilizing it won’t make it grow straighter – only faster in the wrong direction. If you have organizational challenges, don’t grow until they’re resolved.

Fallacy 2. Growth equals profitability.

Yes, increased sales volume can help you improve vendor discounts and therefore, gross margins. But that doesn’t mean your organization can manage the extra activity well enough to convert discounts to the bottom line. One of the rudest awakenings an owner can have is when projected sales growth is achieved, but profit is no better, or perhaps worse, than a period of lower sales. Remember Blasingame’s Growth Razor: “It’s not what you make, it’s what you keep.”

Fallacy 3. Profitability improves when every customer is yours.

Being the market leader is overrated. Peter cites research showing only 29% of market leaders were also profit leaders. Not only are you not going to sell every customer, you don’t want every customer. Many customers, and some customer profiles, aren’t profitable. Remember, you don’t spend sales.

Fallacy 4. If you grow, customers will benefit.

Peter says focusing on growth is focusing on yourself. Every minute your company focuses on itself is a minute diverted away from focusing on the customer. One of the classic examples of a company’s self-absorbed focus on growth is when it uses the term “fastest growing” in marketing material, as if this benefited customers. What makes you think customers don’t like the size that you are? What makes you think they’ll like your next size?

Don’t get me wrong: I’m the last person to say growth is bad, or that you should be happy with the current size of your company. I’m a capitalist, and capitalists LOVE growth. But I do encourage you to make sure that when you grow, it’s because you’ve thought about why and how. Here are six growth reality checks, each followed by a slap-in-the-face question to ask yourself.

• The marketplace is pretty full already. Is there a real opportunity to grow?

• Growth requires capital. How will I fund the growth I am planning?

• The rewards of growth are typically delayed. Can my organization wait that long for the payoff?

• Growth takes a company into unfamiliar operational territory. Do I have the staff and systems to blaze that trail without creating a casualty list?

• Being a business owner should be a source of happiness. Will I be happy with a larger business?

• Every business has corporate values, good or not so much. If our values are good, can we scale them? If they aren’t, why would we scale them?

Ask the growth questions and answer them as Polonius instructed Laetres in Shakespeare’s Hamlet: “This above all, to thine own self be true.”

Write this on a rock … Just because you can grow your business doesn’t mean you should.

Top 10 Things That Keep Small Business Owners Up at Night

If you ask any small business owner “How’s business?” invariably they will respond: “Well, I can always use more customers.” So if someone asked you what’s the greatest concern of small businesses, you could be forgiven for being wrong if you said they need more sales, because that’s what most people think – especially politicians.

When it comes to buying and selling, small business owners are pretty good at that – every company is founded, and has been built to do those things. But operating a small business in the 21st century has become more complicated than ever before, which is why people who know small business know the best way to find out what’s really going on is to ask the owner what keeps them up at night.

One organization that knows how to ask small businesses the right questions is the National Federation of Independent Business. As you may know, the NFIB’s monthly Index of Small Business Optimism has been the gold standard for such research for 43 years. They also have a quadrennial report that speaks directly to the “what keeps you up at night” question. It’s the NFIB Small Business Problems and Priorities Survey, and in the 2016 report, you may be shocked to learn that “more sales” came in at #45 out of 75 options.

With an almost 15% response from 20,000 members they surveyed, 2,831 small business owners told the NFIB that their greatest challenges weren’t the competition (31), or social media (64), or online retailers (61). What about poor profits? Nope, that’s #16. Even the most initiated observers of small businesses would feel safe in presuming that cash flow would be #1, but this primordial Main Street challenge is actually #25.

If you listen to politicians, you’d think needing a loan is what wakes small business owners up at 2am. Surely you know better than to listen to politicians when it comes to small business or the marketplace, because needing a loan is almost last, at #70. That monthly NFIB Index I mentioned earlier has reported that since 2007, established small businesses have been adhering to what I call “The Great Deleveraging.” They don’t want no shtinkin’ loans.

So what is the numero uno greatest small business challenge? Drum roll, please: The cost of health care. Number 2 is oppressive government regulations. Number 3 is federal income tax on businesses. Number 4 is uncertain economic conditions. Number 5 is tax compliance complexity. And six through nine are also all government related. This next point is very instructive: The first operating challenge to break through the top ten is #10 – finding qualified employees. Let’s review: Nine of the top 10 greatest small business challenges are directly associated with government.

Some might say health care costs are not the government’s fault, but that would be Rip Van Duffus who just woke up from a seven-year nap and never heard of Obamacare. To be fair, let me hasten to add the cost of health care was a small business challenge prior to Obamacare. And this law did “bend the price curve,” as promised. Unfortunately, for the small business sector, Obamacare bent the cost curve up, not down.

Thanks to the NFIB Survey, President Trump and the 115th Congress can’t say they don’t know where to start helping small businesses. Indeed, they’re neck deep with the Obamacare “repeal and replace” debate right now. But here’s some “Breaking News”: We polled our online audience about that issue and 94% said “Yes” to repeal and replace, but half said, “Take the time to do it right this time.”

There’s no doubt that 26 million American small business owners – with health care costs on their minds – had a significant impact on the November election. So my advice to the political class of all three parties – Democrats, Republicans and Trumpicans– is to take the time to get healthcare right this time. And then quickly start reducing the other eight non-operating challenges government is imposing on the most important job creators in America: the heroes of the Main Street economy – small businesses.

Write this on a rock … What’s good for small business is good for the world.

Four letters from your big customers

Consider the ancient proverb: “Any chain is only as strong as its weakest link.” This is about four letters with this proverb in mind, sent to small businesses from their corporate customers – two that have been sent and two that will be.

1. Quality

The first letter was born in the 1950s, when the ideas of the godfather of the 20th century quality process, Edwards Deming, reversed “Made in Japan” from a metaphor for cheap into a mark of quality. During the 1980s, after American industrial competitiveness fell behind global competitors, quality processes like ISO and Six Sigma were adopted, returning “Made in America” to a mark of excellence.

By 1990, with their in-house quality act now together, big businesses realized they needed similar commitments from the small business vendors that had increasingly become more like integrated partners. As such, big business needed to know that the support from these partners would at least not diminish the quality expectations of their customers. Consequently, small businesses started receiving letters from those big customers requesting evidence of quality process practices, if not certification, without which there would be no continued, or new contracts.

2. Y2K

The seed for the second letter was planted by computer programmers in the 1960s. When these programmers wrote date codes with six digits, as in 121565, for December 15, 1965, they did so to conserve what was at the time very expensive data storage. However, they didn’t realize they were creating the literally ticking Y2K time bomb.

Around 1995, experts started worrying that when the clock ticked midnight, January 1, 2000, zillions of lines of date-sensitive computer calculations would fail by going back a century – 010100 would revert to January 1, 1900 – instead of rolling forward to 2000. Consequently, the codes in millions of programs had to be fixed. By 1998, small businesses started getting letters from their larger customers requesting evidence of their “Y2K compliance,” without which there would be no new contracts with eight-digit dates.

3. Sustainability

The third letter was born in the middle of the 20th century, when we started realizing that the solution to pollution was not dilution. Since then, environmental stewardship has evolved from not polluting to sustainability. That word – sustainability – essentially means doing more with less, and it includes making waste useful – especially water. It turns out that sustainability is not just the right thing to do. Since it’s been proven that it can also contribute to profitability and a positive corporate image, it’s become a 21st century business best practice.

You may not yet have received a sustainability commitment and practices letter from your corporate customers, but it’s coming. And because of that best practice thing, it will be irrespective of the current state of the geo-political climate change debate. So start thinking about resources usage, including energy, consumables, production waste – especially water. Start documenting your efforts, practices and performance in recycling, reusing, conserving, etc., so when a customer hands you their “Sustainability Letter,” you won’t have that “weak-link in the headlights” look.

4. Cyber-security

Does anyone need a review of the multiple and significant cyber-assaults that have been made on digital assets and records of American business and government in the past few years? Whether from cyber-criminals or cyber-spies, the threat is real, comprehensive, determined, unrelenting and, to date at least, very successful – for the bad guys.

Expect the Trump administration to push for increased cyber-defense measures for the government to an unprecedented degree. Because of the massive level of business that corporate America does with the federal government, a cyber-security partnership will logically be forged, as they collaborate on cyber-practices, expectations, tools, innovations, etc. This will be the most comprehensive commingling of efforts and shared goals by business and government since WWII. So expect your large customers to begin requiring cyber-security practices verification, either by a letter, or in the specifications of an RFP. Your corporate customers are not going to let you be their weak link.

Write this on a rock … Take a lesson from the Quality and Y2K letters. Set yourself up for success by taking action on sustainability and cyber-security. Do it now!

Sustained small business success requires two kinds of passion

Over the years, as I’ve talked with many a budding entrepreneur about to start their business, it continues to amaze me how many haven’t conducted anywhere close to a prudent amount of research or due diligence on their baby. Indeed, they often act as if they must get their business going … right … now … or … they … will … just … POP!
This kind of impatience is dangerous.
Doing my best to talk them down off the ledge, I walk the fine line of tough love, between slowing them down to the speed of reason and smacking their entrepreneurial passion into a wall.
When would-be small business owners get that far away look in their eyes at this impetuous stage, they have plenty of passion for what the business does. They can’t wait to sell suits, manufacture plastic parts, bake bagels, or (your baby here). And passion for what they want to do is not only a good thing, it’s essential.
But without a healthy interest in - if not an attraction for - business fundamentals, passion has only slightly more value than a dream. In truth, if the balance between your baby and operating fundamentals gets out of whack, that’s when your dream becomes your nightmare. Trust me. I’ve had to make payments on one or two of my nightmares, after the thrill was gone.
This will be on the test: Success as a small business owner requires two kinds of passion:
  1. The love of what you want to do - your baby. If you haven’t been a mother, this is akin to how a mother loves her newborn, and it’s the easy kind. Spoiler alert!  It’s too easy.
  2. This kind of small business passion is less adorable, but in no way less important. This is passion for becoming an operating professional. It makes you dedicated to learning and practicing management fundamentals. If done right, you’ll actually acquire a peaceful acceptance of a return-on-investment timeline that pushes the deferred gratification envelope beyond what you ever thought possible, let alone acceptable.
See, I told you it was less adorable. The closest kin to this kind of passion is that which is required for parents to love their teenagers - during those times when you don’t like them very much, but you still love them … anyway.
It’s critical for a starry-eyed startup to distinguish between, and be dedicated to both passions, because passion for what you sell won’t be enough when:
  • Payables exceed receivables
  • You’re making payroll and there isn’t enough cash because you didn’t manage the cash (”Is it Friday already?!”)
  • When customers are the most difficult
  • When an employee becomes part of the problem
  • When your bank loan request must have current financial statements, including a 12-month cash flow projection showing how the bank will be repaid
  • Your operating derailment here
Brace yourself! This list is like a “What’s inside!” teaser on the cover of a very thick catalog of abiding small business operating challenges. Fending them off will require you to deliver on the management fundamentals you became good at because you had that second kind of passion: you became a high-performing, professional business owner, not just someone who dreamed of being one. You were passionate about what you do, and just as passionate about how you do it.
Write this on a rock … Sustained business success - year after year - requires passion for what you do, AND for how you do it.

Why strategic alliances are a 21st century imperative

In the 1990s, when I began thinking about how to help entrepreneurs prepare for the 21st century, I condensed the areas requiring a heightened level of importance into three critical disciplines:

1. Leveraging technology in every aspect of your business;

2. Professional networking, as opposed to just meeting new people;

3. Building strategic alliances as a growth strategy.

If by now you haven’t become at least somewhat proficient with the tech stuff, you don’t have much time to adapt, adopt and survive. Better get busy.

And thanks to the work of people like the legendary Ivan Misner, founder of Business Network International (BNI), most of us now subscribe to what I call Misner’s Razor: “It isn’t netplay; it’s network.”

But what about that alliance thing?

Blasingame’s Second Law of Small Business states: It’s redundant to say, “undercapitalized small business.” It’s a natural law that small businesses come to the end of their resources - people, assets, technology, cash and credit - much quicker than do our big business brethren and sistren. So by that definition, we have to do something as primordial as when Og asked Gog to hold the chisel while he carved out his new stone invention that looked a lot like a donut. We have to seek and develop alliances.

Answer these questions:

  • Is your business growth hampered by a lack of people, capital or other assets?
  • Would you like to bid on a request-for-proposal (RFP) that has specifications beyond your company’s ability to perform?
  • Are you reluctant to ask a large customer about their future plans for fear that your organization may not be able to step up to the answer?

If you answer any of these - or variations thereof - in the affirmative, perhaps it’s time to pursue one or more of these three alliance examples, in descending order of formality.

Partnership

A partnership is more formal and typically longer term. Regardless of how it’s structured, in general, all partners have a vested interest in the success of the entire enterprise. Think of two business owners buying a commercial duplex and sharing the space because neither has the cash or credit to swing the deal alone. Most partnerships are best organized with the help of an attorney. But remember, because it’s more formal, probably even legally binding, choose your partners well.

Once, when consulting a mentor about choosing a business partner, he used hyperbole to encourage caution by saying, “A partner is only good for two things: sex and dancing.” But it isn’t hyperbolic to say that alignment of values between the parties is imperative to a successful partnership. This is a natural law: Regardless of how symbiotic the combined contributions may be to the venture, a partnership founded by parties with conflicting values is doomed from the beginning. Choose your partners well.

Subcontractor

By definition, a subcontractor becomes a contractual participant you bring in to help fulfill a larger project for which you are the lead vendor or general contractor. Unlike a partner, a sub expects to get paid for delivery of work or products regardless of how the project turns out.

Subcontractors are a great way to leverage your business without giving up control of the opportunity. But remember that with this step you’ve created a performance chain. And we all know that any chain is only as strong as its weakest link. A weak subcontractor could undermine your performance, harm your brand, and may even take you down.

Like partners, choose your sub-contractors well.

Strategic alliance

This relationship is typically less formal. Let’s say a web designer, a programmer and a search engine optimization expert plug each other in on projects as peers, instead of as subcontractors. After a project is executed and paid for, the participants go their own way until the next symbiotic scenario. The most successful professionals I know claim, nurture and go to market with many and varied strategic alliance relationships. And most were born from networking.

Going forward, I believe we’re going to see more enthusiasm and growth in the marketplace than in the past few years. That should mean more business, which should present more opportunities for alliances.

Before giving up on a project because you don’t have the in-house resources, look around for ways to create alliances that allow you to take advantage of an opportunity.  Start establishing them now - before you need them.

Write this on a rock … If Og the caveman can create an alliance, you can, too.




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