Archive for the 'Start-up' Category

How does a small business fund growth?

Published
by
Jim Blasingame
on April 6, 2011
in Banking - Investors - Capital and Start-up
. 0 Comments

Large, publicly traded businesses have a vast array of options when they want to capitalize growth. Small businesses? Not so much.

In fact, there are only three primary sources of growth capital for a small business:

1. Equity capital from the founder(s) and/or outside investor(s).
2. A combination of operating cash flow and profits left in the business, aka, retained earnings.
3. Borrowed funds, typically from a financial institution.

Because borrowed money is the significant small business source of capital, we asked our radio, Internet and Newsletter audiences the following question: “In terms of using a loan to capitalize business growth, which of these four options are you more likely to choose?”

Those who said they would use a national or large regional bank represented 13% of our respondents. Independent community banks came in at 31%, followed by credit unions, at 22%. And those who chose the last option: “We don’t need no shtinking bank loan!” were 34% of our sample.

It’s not surprising that over half of our respondents would prefer a local capital source like an independent community bank or credit union. For over a decade, I’ve been telling small business owners that the most consistent banking relationships, through thick and thin, are with locally-owned institutions that practice relationship banking. The financial crisis of 2008-9 turned my advice into a prophecy.

That crisis shined a bright light on at least one unfortunate truth: Banks that are beholden to Wall Street analysts and the computer-generated credit score are fair-weather friends to small businesses. It’s likely that the same poll taken pre-2008 would have produced more than 13% support for these banks.

Those who chose the emphatic “no shtinking loan” option, representing the largest single group, track with the prevailing small business sentiment in other polls I’ve reported on lately. Many small businesses are just not yet ready to use financial leverage to fund growth.

This group is either among that two-thirds of small businesses that polls show are not experiencing growth, or are among the other third that are growing but have learned how to do so more organically, which is another way of saying, “We don’t need no shtinking loan.”

A small business should have at least one banking relationship with an independent bank or credit union.

I talked more about how small businesses are funding their growth in the new normal today on The Small Business Advocate Show. I also talked with my good friend and Brain Trust member, Gary Moore, founder of The Financial Seminary and author of several excellent books on investing, about the advantages of having a relationship with an independent community bank. Take a few minutes to listen and give us your recommendations of large banks or smaller community banks. with Jim Blasingame

How small business owners are funding growth with Jim Blasingame

In praise of the independent community bank with Gary Moore

Dispelling the myths of ownership

Published
by
Jim Blasingame
on March 16, 2011
in Home-based business and Start-up
. 1 Comment

As the economy recovers, you’re likely to meet a starry-eyed human babbling on about becoming a business owner.

Probing for the object of this person’s entrepreneurial infatuation will precipitate the what, where, how and when questions and, finally, the most important question: Why do you want to own a business? Answers to this last question, unfortunately, often produce what I call, “The Myths of Small Business Ownership.” Here are four:

Myth 1: When I’m an owner, I’ll be my own boss.
That’s right; you won’t have an employer telling you what to do. But you’ll trade that one boss for many others: customers, landlords, bankers, the IRS, regulators, even employees.

Modern management is less “bossing” and more leading, managing and partnering. In a small business, everyone must wear several hats and the dominator management model doesn’t work well in this modern multi-tasking environment.

Myth 2: When I own my own business I won’t have to work as hard as I do now.
This is actually true, you will work much harder. Ramona Arnett, CEO of Ramona Enterprises, said it best: “Owning a business means working 80 hours a week so you can avoid working 40 hours for someone else.”

The irony is you will actually want to work harder when you understand that everything in your business belongs to you. Even the irritating, frustrating and frightening challenges will take on a new perspective when you realize that you also own the opportunities you turn them into. You’ll turn the lights on in the morning and off in the evening not because you want to work more, but because you won’t want to miss any part of your entrepreneurial dream coming true.

Myth 3: When I own my own business I can take a day off whenever I want.
Well, maybe. However, you may find that your business has such a compelling attraction that you won’t want to take off. Indeed, it’s more likely that whatever interests you had as an employee will become jealous of your business.

Myth 4: When I own my own business, I’ll make a lot of money.
If the only reason you want to own a business is to get rich, you probably won’t be a happy owner. It’s true ¬ you actually could get rich. But it’s more likely that you’ll just make a living.

Being a successful business owner first means loving what you do. Pursuing wealth should be secondary and, ironically, is actually more likely to happen when in this subordinate role.

Success calls for two kinds of passion

Published
by
Jim Blasingame
on December 2, 2010
in Entrepreneurship and Start-up
. 0 Comments

Over the years, as I have talked with budding entrepreneurs, it continues to amaze me how many have not conducted anything close to a prudent amount of research as they start their businesses. 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 between slowing them down a little and dousing the fire of their entrepreneurial passion with my tough love.

Yes, passion is important. And when would-be small business owners get that far away look in their eyes at this impetuous stage of a start-up, they have plenty of passion for what the business does. They can’t wait to sell suits, manufacture plastic parts, bake bagels or (your dream here). But while their passion for what they want to do will come in handy, without a healthy attraction for business fundamentals, passion has only slightly more value than a dream. As the Texans say, it’s all hat and no cattle.

This will be on the test: Success as a small business owner requires two kinds of passion: The first is the love of what you want to do, as described above. This is like the way a mother loves her newborn baby, and it’s the easy kind. In fact, it’s too easy.

The object of the second kind of small business passion is less adorable but not less important. This is passion for a profession that requires dedication to learn and practice management fundamentals and acceptance of a return-on-investment timeline that pushes the deferred gratification envelope. See, I told you it was less adorable. The closest kin to this kind of passion would be that which is required for parents to love their teenagers anyway, during those moments when they don’t like them very much.

It’s critical for a starry-eyed start-up to make the distinction between these two types of passion. Passion for what you sell won’t be enough when payables exceed receivables, making payroll (“Is it Friday again? Already?!”), when customers are the most difficult, when an employee becomes part of the problem, etc.

These and a long list of other abiding small business challenges will require you to deliver on the management fundamentals you became good at because you had that other kind of passion – the kind that made you become a high-performing, professional business owner, not just someone who dreamed of being one.

Small business success requires both kinds of passion.

Recently on The Small Business Advocate Show, I talked with my good friend, Tim Berry, about some of the myths of small business ownership, including his thoughts on passion and persistence. Tim is the founder of Palo Alto Software, developer of Business Plan Pro software, and author of The Plan as You go Business Plan and Hurdle: The Book of Business Planning. I hope you’ll take a few minutes to click on the links below to listen and, as always, be sure to leave your own thoughts and/or experiences.

Myth 1: You can be your own boss

Myth 2:  Passion and persistence are enough

Myth 3:  A business plan is no longer necessary

Tim Berry’s Top 10 reasons small business start-ups fail

Published
by
Jim Blasingame
on April 16, 2010
in Business planning and Start-up
. 0 Comments

In 1998, the SBA reported that 50% of small businesses fail in the first five years. That wasn’t good news but, sadly, it got worse. By 2008, the mortality of small businesses actually increased by 20% when it was reported that 50% of small businesses were now failing in the first FOUR years.

There are as many reasons why a business fails as there are business failures, but over the years it has become clear that all of those micro-reasons can be conveyed up into a smaller number of macro-reasons, including being under-capitalized, bad management, bad idea, failure to plan, etc.

Recently, on my small business radio program, The Small Business Advocate Show, I talked with someone who knows a lot about why some small business fail and why some succeed. Tim Berry is the founder of Palo Alto Software, the publisher of Business Plan Pro, the #1-rated software for developing a business plan and the author of two great books on business planning, The Plan as You go Business Plan and the business planning bible, Hurdle: The Book of Business Planning.  Tim is also one of the founding members of my Brain Trust.

Take a few minutes to listen to our conversation on why businesses fail so you can avoid making these mistakes and land in the survive and succeed category. And, as always, leave your own story and/or comments. Listen Live! Download, Too!

Tough love on buying a franchise

Published
by
Jim Blasingame
on January 14, 2010
in Entrepreneurship, Franchising and Start-up
. 1 Comment

At a time of high unemployment, it’s natural for there to be increased interest in starting a small business. And one of the classic options is to look into buying a franchise because many thinks they’re like a business-in-a-box. 

Another thing that is part-and-parcel with these start-up scenarios is desperation, which leads to poor decision-making and way too many business failures.  Recently on my radio program, The Small Business Advocate Show, Nick Bibby delivered some tough love that every prospective franchisee should experience before signing on a franchise dotted line. 

In addition to being a member of my Brain Trust, Nick is principal of the Bibby Group, an international consulting firm focused on the development of franchise systems, as well as due diligence services for prospective franchisees and independent entrepreneurs. Take a few minutes to listen to this interview and, as always, leave your thoughts and experiences on franchising. Listen Live! Download, Too!

Be a networking pro and get professional results

Published
by
Jim Blasingame
on January 7, 2010
in Networking, Sales - Sales Management and Start-up
. 0 Comments

Are you a networking amateur or a pro?  Do you just show up at networking opportunities and wander around like you would at a high school reunion? Are you seeing any results from your networking activity? Just as in professional selling, there are networking tools and practices that you can learn and use that will help you become more professional and, therefore, more effective as a networker without being mechanical and manipulative.

Recently on my radio program, The Small Business Advocate Show, the world’s #1 guru on networking, Ivan Misner, revealed some of these professional networking tips you can use to become a professional networker, including a networking checklist and how to get a huge discount on an online networking resource. Ivan is a long-time member of my Brain Trust, but his day-job is as founder and Chairman of Business Network International, BNI, and author of several books on networking. Take a few minutes to listen to our visit and leave your thoughts on lessons you’ve learned about networking. Listen Live! Download, Too!