Tag Archive for 'Entrepreneurship'

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.

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.

5 year-end steps to take while you’re closing out this year

Fourteen hundred and forty - the number of minutes in a day.

Since we can make more money, arguably the greatest challenge of any small business owner is balancing the demands of the forces that compete for those minutes.

“What is the best use of my time right now?” is the constant management question on Main Street. And in no other part of the year are we more time-management challenged than in December, when we’re faced with allocating time to two very powerful management imperatives: The tactical focus on closing out the sales year as strongly as possible, while simultaneously taking strategic steps to set the business up for a fast and clean start on January 1.

In his book, Blue Highways, William “Least Heat Moon” Trogden said his Osage Indian grandfather once told him, “Some things don’t have to be remembered, they remember themselves.” It’s a natural law that the year-end sales push doesn’t have to be remembered, it remembers itself. But as we come to the two-minute drill in the last quarter of the marketplace game our business plays all year, committing precious time and energy to preparing for the future requires the discipline to remember it ourselves.

There are many areas to focus on this month to help you start the New Year clean and fast.  Here are five to get you started.

1. Throw stuff away

Even if you’re not a pack rat like me, you’ve accumulated stuff you don’t use anymore.  For example, one of the markers of a 21st century office is the digital graveyard. Unused or broken computers, monitors, etc., may have some value, so call a tech recycler and convert it into cash. If you can’t sell it, give it away or throw it away, because it’s in your way.

2. Empower producers - cut the dead wood

Year-end is also a great time to take stock of employees who’ve demonstrated leadership and engagement. Recognizing the performance of those individuals will motivate them to a fast start in the New Year.

The only thing worse than firing someone is letting an unproductive employee hold your team’s performance hostage for another year. A byproduct of identifying those who perform is it also shines a light on those who don’t. You owe productive people the most effective organization possible, which means you have to let the unproductive pursue their careers elsewhere.

3. Classify customers

Classify customers by gross profit into four groups, from the most profitable As to the least profitable Ds. Worship the As, cater to the Bs, encourage the Cs and teach the Ds about self-service. When the cost of a customer’s expectations encroaches on your profit margin too much, allow them to join your unproductive employees - elsewhere.

4. Purge inventory

As with customers, take a new look at your products and inventory by identifying the most profitable As to the least profitable Ds. Stock all the As, a few of the Bs and maybe a couple of Cs. But never let a D spend one night under your roof unless it’s paid for. Remember, profitable inventory management means just-in-time, not just-in-case. And write off obsolete and damaged inventory. Take the hit now.

5. A/R reality

Take another hit by writing off uncollectable accounts receivables now, so you can start January with a clean list. A/R write-offs are tax deductions this year, and if you wind up collecting them next year, it’s gravy. The only thing more troubling to a banker than uncollected A/R is a customer who doesn’t have the discipline to deliver a clean balance sheet.

Each New Year deserves to have the maximum opportunity to be successful, so don’t saddle it with obsolescence, waste and bad decisions. By taking these steps - and others from your own list - you’ll prove to yourself, your team you’re your banker that you have the discipline to make the critical decisions for which successful managers are known.

Write this on a rock … Have the discipline to set up your New Year for a clean and fast start.

Be thankful

Americans punctuate each year with the Thanksgiving holiday as a way of perpetuating a 390-year-old tradition begun by a rag-tag group of our forebears. That first time, in 1621, thanksgiving day wasn’t the proper noun it became. It was just a day set aside by a few dozen humans who risked everything, actually lost most of it, were hard-by to any number of dangers that could cost them the rest, but still felt compelled to be thankful for what they had.

Regardless of where you live on planet Earth, let me leave you with a list of things to think about. This is not my list. When we’ve published it before in this space with attribution to Anonymous, some of my readers have attributed it to Mother (Saint) Theresa, which suits me just fine. I’m thankful I found it and have the ability to pass it along.

Be thankful for the clothes that fit a little too snug, because it means you have enough to eat.

Be thankful for the mess you clean up after a party, because it means you have been surrounded by friends.

Be thankful for the taxes you pay, because it means you’re employed.

Be thankful that your lawn needs mowing and your windows need fixing, because it means you have a home.

Be thankful for your heating bill, because it means you are warm.

Be thankful for the laundry, because it means you have clothes to wear.

Be thankful for the space you find at the far end of the parking lot, because it means you can walk.

Be thankful for the lady who sings off key behind you in church, because it means you can hear.

Be thankful for the alarm that goes off in the early morning, because it means you are alive.

And finally, here is mine: I’m thankful for small business owners — the most courageous and most important modern-day pilgrims I know.

The wonderful world of small business niches

One of the things Sears Roebuck is famous for is their Craftsmen tools, especially their mechanical socket wrenches. Once, while buying one of these, I was confronted with the options of “Good,” “Better,” and “Best,” a strategy for which Sears is also famous. Asking about the difference, I was told that the Best model had more notches, or teeth, inside the mechanism, allowing for finer adjustments when tightening a bolt or nut.

For the past 30 years, the marketplace has increasingly become like that “Best” socket wrench: every year, it acquires more notches, except in the marketplace, notches are called niches (I prefer “nitch,” but some say “neesh” – tomato, tomahto). And just as more notches in a mechanical wrench allow for finer adjustments, niches create finer and more elegant ways to serve customers, which they like – a lot.

Webster (and Wikipedia) defines a niche as, “a place or position perfectly suited for the person or thing in it.” If ever a concept was perfectly suited for something, it is the niche and small business. Indeed, as one small business owner creates a new niche, another is creating a niche within a niche. It’s a beautiful thing.

Rebecca Boenigk is the president of Neutral Posture, Inc., a Texas company she and her mother founded in 1989. This small business manufactures REALLY comfortable and ergonomically correct office chairs. As a guest on my radio program, she told me they attribute their success to filling a niche: Their chairs aren’t for everyone, just those who are willing to pay a little more for a chair that promotes the best posture at work. Many small business fortunes have been made with the Neutral Posture model of being the best-in-niche, rather than trying to conquer the world.

The mother of niches is what Adam Smith called “the division of labor,” which today often manifests as outsourcing. Outsourcing is when individuals and businesses spend more time focusing on their core competencies and contract for the other stuff. For example, there are more professional lawn businesses today because folks are increasingly realizing they can earn more by sticking to their professional knitting, than it costs to hire their grass cut.

And across the marketplace, it’s become an article of faith that the best way to stay on track is by outsourcing non-core tasks to a contractor – often operating in a niche – whose core competency is that task. I’ve long said that the best thing that ever happened to small business – after the personal computer – is outsourcing, because it manufactures niches, which are pretty much the domain of small business.

As niches have increased in number, so have entrepreneurial opportunities, resulting in the most dramatic expansion of the small business sector in history. It’s difficult to say which one is the egg and which is the chicken: Have entrepreneurs taken advantage of niche opportunities presented to them, or have they carved out niches while pushing the envelope of an industry? The answer is not either/or, it’s both/and.

In the future, there won’t be more mass marketing, mass media or mass distribution, but there will be more niches – lots of new niches. Even niches of niches. And that’s good news, because more niches means a healthier small business sector, which I happen to believe is good for the world.

Write this on a rock … Most small businesses will find more success by creating and serving niches.

Identifying the elusive entrepreneur

If you venture into the marketplace jungle, you may be able to observe that rare wild creature, the entrepreneur, in his or her natural environment (darting is not necessary, entrepreneurs are very gentle - just rub their stomachs). As you study them, you will find levels of vision, curiosity, courage, tenacity, and faith. Here’s what to look for in order to identify this elusive critter:

Vision: Entrepreneurs see things and consider the possibilities before they exist, even as the world is telling them, “It won’t work.” When entrepreneurs are deep into their vision they go into what their families call a “zone,” which is when it’s easiest to slip up on them.

Curiosity: Entrepreneurs ask questions other humans don’t. They can’t help it. If someone asks you a question and you have no idea what they are talking about, you are probably having a close encounter with an entrepreneur. Don’t be irreverent; you might be at ground-zero of the 21st century equivalent of Velcro or the microchip.

Courage: Entrepreneurs attempt things that other human species won’t. As you peer through the triple canopy at your subject, look for death-defying acts in the face of conventional wisdom. Entrepreneurs eat conventional wisdom for breakfast.

Tenacity: Entrepreneurs keep trying when other humans give up. They have a high pain threshold, which when combined with a visceral desire that can only be compared to the maternal instinct, delivers a primal display of tenacity which often is frightening to other humans. If the entrepreneur you are observing is crouching, lie down quickly. You probably aren’t in danger, but fainting is a possibility.

Faith: Entrepreneurs believe in themselves and their vision. The great writer and even greater curmudgeon, H.L. Mencken, once said, “Faith may be defined briefly as an illogical belief in the occurrence of the illogical.” That’s our entrepreneur! If you see someone demonstrating an inordinate commitment to an “illogical belief,” congratulations. You’ve found your entrepreneur.

Catch and release, please.




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