Your Business Advisor

In “The Illusions of Entrepreneurship” Shane tries to dispel the myth that in times of high unemployment the rate of new business creation increases.  It is very difficult to gather data to support or refute this claim as people start businesses and don’t necessarily follow the government’s requested path to documenting and registering those enterpries.

People often follow the closest path to income in tough times.  They get that old beater truck running and go out and start picking up wood and lawn refuse for people for a few dollars.  They forage in the dumpsters for scrap metal and recycle it (have you seen what some of the metals are going for now-a-days?!).  They sell candles, baskets, and hand made items.

What it seems that keeps some people from this “risky” path for good is wanting and needing security in a job.  The risk or not in starting and sticking with a new enterprise is having all the areas of expertise you need as the owner to actually make it happen.  You need:

• financial planning skills
• sales and marketing skills
• production skills
• management skills
• operations skills
• mood management skills

The machine that is a business can be effective and just as “secure” as a job if you are paying attention to these areas of need within your business.

The secret is … GET HELP!!  There are all kinds of private enterprise and government agencies out there who are there just to support entrepreneurial ventures.  One such agency is the Michigan Small Business Technology & Development Center.  The name is a bit misleading as you don’t need to have a technologically based business to benefit and use their services.  There are many SBTDC offices around the state (every state in the union actually has SBDC offices, so check with your government’s website).   These people are very knowledgeable about the nuts and bolts of business and just as importantly they are plugged into the resources you’ll need outside of their own services.  They work hand in hand with experts in all areas of business.

The important thing to remember is that although starting a business may be scary, you can build the security you need for your financial and existential future in your own company.  The #1 reason new businesses fail is because of bad business decisions.  Don’t do it alone.  Don’t pretend it’s easy, and do it yourself.  It’s NOT easy.  But get help.  It’s out there.   Get tons of help, tons of advice and follow what you feel is the most effective for you.

Every business owner has some dream about what will happen to their business when they are done with it.  Perhaps they’ll sell it and put the cash away for retirement.  Perhaps they’ll sell a minority of it and sit on the board while annually taking a portion of the net income.  Perhaps they’ll gift it to their children.  Whatever the case, knowing that dream and making strategic choices will enable you to realize that dream.

For those that are looking to sell their business I suggest that you begin to gather the following:

• quarterly financials that reflect a stable or growing business
• solid market research showing the customer base, your market share and your intention for gaining or maintaining market share
• product or service information with detail of what value it brings to customers
• future product or service plans with detail on what value it brings to clients
• 3, 5 and 10 year financial projections showing bottom line net income (be realist, this could create suspicion)
• management team bios (keep these up to date showing experience and organizational participation)
• board of advisors bios (keep these up to date showing varied expertise)

I suggest that you take the time to put these components into a visually appealing format.  Make it deliverable to yourself until such time as you will begin to show it to others (start with the board of advisors).   Be truly open to criticism and be thoughtful about changes so that this becomes a powerful sales tool for you as you begin the exit process.

If you are thinking of exiting within the next 2 to 5 years, it is not too soon to build this tool and spend a significant amount of time on it.   If you are thinking of exiting within the next 5 to 10 years, just begin to collect these items in a file folder and revisit it each time you are contemplating strategy for the business.  Remember to always include your advisors (whether they are formal or informal).

Being poised for growth and keeping an eye on cash flow is a powerful position to be in.  In these lean times now is the best time to design your costs structure to match future growth (albeit slow) and cashflow concerns.  Your pull as a business owner is to put your nose to the grindstone and work.  Remember, there is a healthy balance between work and planning.  Any employees you have with downtime can be utilized for these purposes or need to be let go.  Harsh, but true.

Reduce fixed costs to be as low as possible (rent, equipment, furniture, overhead employees …).

• move bookkeeping and accounting functions to an hourly instead of salaried (there are service packages that can grow as you grow)
• don’t buy extra equipment
• if you’ve recently purchased equipment, approach a leasing company to have them purchase it and you lease it back.
• get the smallest space you need for office personnel in the most inexpensive space your brand will allow
• employ guerrilla marketing (get help from experts to brainstorm and then do it yourself)

When your company starts to grow, tie everything you can into a variable structure.

compensation for sales and fulfillment personnel heavily weighted on commissions and delivery and light on base salary

• compensation for executives be tied to objectives and heavily weighted on bonuses for success
• negotiate old vendor contracts and design new vendor contracts so that when you get paid, they get paid
• give discounts for early payment to customers
• get discounts from vendors for larger orders and less frequent shipments
• lease new equipment as you need it and weigh the costs of purchasing new equipment as sales come in and increase

Although we are in a recession, the bottom only lasts so long.  These are the times to spend anticipating the growth that will surely come.  Every business owner will benefit from an examination of processes and practices.

If you need help, get it.  The few dollars you will spend now to do this will pay off in the multiple in the future.

We were able to break away from our normal routine last night and relax for a couple hours listening to David Sedaris read from new writings.  What a delight to just sit and laugh, not worry about kids, work or the economy.  As you may have noticed in my blog entries and articles, managing mood is one of the recurrent themes.  David provided a linguistic avenue to a better mood.

There were several memorable moments in his time with us but the one that has had me giggle spontaneously several times since was his thoughts about “undecided” voters.  He was uncertain whether these people really do exist (does the media just dream them up and hire actors to pretend) as undecided voters or whether they are just attention hounds.  Truly, it doesn’t matter what side of the isle you sit on right now but to be STILL on the fence seems very absurd.  He said it’s sort of like taking a flight over seas and  having the waitress ask you for your choice of chicken or a plate of human poop with broken glass in it.  Ha.

This piece is supposed to appear in some newspaper and the editors took exception to the “human poop” terminology.  They preferred platter of poop.   Which isn’t quite as disgusting as human poop but still pretty yucky.   I think his whole point is you are either way over on Obama’s side and think of McCain as a very distateful option or you are way over on McCain’s side and you think Obama is disgusting and something to be avoided at all costs.   Being undecided at this point is actually considering ordering the human poop.  Once again, a giggle.

Earlier I said this was one of the moments that was memorable in David’s time with us .. this instead of our time with him.  He was asked at the end of his reading by an audience member does he really enjoy book tours and he said what he is doing now is what he dreamed about when he was 12.  He gets to make up humorous stories about his life and others, read them to people and make them laugh and then get 1 minute doses of people.  He doesn’t have to spend long hours with any one person (he gets bored and irritated easily with people), there’s always someone else waiting.  When the book tour is done he gets to go home and write again.

I love hearing stories about people living their lives the way they want.  What a fabulous mood shift.  Passion for the future.

Over the last 2 months and especially in the last few weeks, more and more people are slamming doors in my face …. figuratively.  It’s been quite interesting to begin a conversation with someone who is somewhat garded and perhaps just a tad bit curious and then, dramatically, see their body language and their words forcefully cut any possibility off that someone could help them.

Bound by confidentiality agreements I really can’t tell you the particulars but I can tell you this, when a person is completely and utterly convinced they are trapped, they are.   When they are totally certain they have no other options, they don’t.

I’m as guilty as the next person of being Cartesian at times but my job requires that I challenge other people’s since of certainty.  Better yet, I must challenge them about something they are generally quite passionate about … their business.   Many times I have been thrown out of a business owner’s office (they just point at the door) because I ask questions that so lead them in a direction they think they’ve fully explored but truthfully they’ve dismissed completely as it “isn’t possible”.  Yes, my ego sometimes takes a bruising, but mostly I go to bed and sleep the sleep of someone who’s given it their all.

What can you do to avoid this for yourself?

- Invite someone in to hear your conclusions about dead ends in your business.

- Ask them sincerely for their thoughts.  Be clear with them there will be no reprecussions or arguing, just listening.

- Listen … don’t respond … just listen.  If you have to, ask a clarifying question.  Otherwise, just listen.

- Think about what they’ve said during the rest of the day but refrain from being defensive or coming back to your conclusion.

- Sleep and observe and stay curious for at least a week.  Watch what happens in your business with this person’s perspective.

- After much reflection, find another person and start again.

This methodology will serve you well if you continue to be curious.  Yes, you do have to make choices and come to conclusions about things, but staying curious will help you not to be trapped.

It’s a bit scary thinking about having someone else getting a return on your hard work and having a say in how you do it.  A very effective skill to have is how to date long enough (doing due diligence) before you sign any agreement. The first assessment before you begin dating is, is there good mojo, chemistry between you? If so, forge ahead.

An Angel Investor is someone with private wealth looking to invest their wealth for a return.  This is a fabulous option to the volatile stock market for thoughtful angels. Know that there are good angels and there are bad angels, despite what your parents taught you.  Some important issues to get out on the table as you date are:

What are the angel’s expectations for the business?

When do they want to exit?

What kind of return are they looking for in that time frame?

What kind of participation are they wanting within the business?

Will they require you to bring on people they recommend?

What milestones will they expect you to meet?

What do they say is success?

In short, it is important to fully document what they say are their conditions of satisfaction (CoS).   You, of course, must be on board with these CoS. Hold them up in conversations and status meetings to make sure that they haven’t changed and you are not marching to a goal they no longer want.

Equally as important is the reciprocal CoS. What is it you expect from the Angel?

- When do the funds become available?

- How do the funds become available?

- What kind of expertise do you expect them to bring to the table if any?

- How do you expect to report to them and when?

These are incomplete lists of issues to examine when coming to an agreement. Every engagement is different. Just make sure to have these CoS complete BEFORE money changes hands.

Equally important to agreeing on the CoS and reciprocal CoS is to agree on when these CoS will change throughout the engagement. Pay close attention to negotiating different dates to milestones and set expectations so that each party understands change is inevitable.

Don’t be afraid to get help in understanding these issues and walking through this process. Yes, it looks big and scary, but the option of no capital and a loss of an opportunity can be just as scary in the way of future regrets.

Clearly things are shaking up in the marketplace.  The incredible volatility is just an indication of how out of whack things were.

When I was little our mother used to give us little jars with lids, send us out to get rocks and sand from the drive way.  We’d put a little glitter in with them, then fill it up with water and a few drops of our favorite food coloring.  Those were the best bottled tornadoes ever.  We would walk around swirling them, watch the tornadoes and, depending upon how patient we were, perhaps see the rocks and glitter settle to the bottom.

Studies have shown how important it is to live a relatively stress free life.  Times like these require a renewed dedication to calming practices in our lives.  A few suggestions (we’ve all heard before but re-examining them can’t hurt):

Pre - linguistic practices

- exercise (walk, play a game with someone, bike ride, roller blade)

- drink a cup of tea and watch the leaves sway in the trees

- get in a hot bath and light some candles

- listen to some soothing music

- go to your church or synagogue or other place of worship and marvel and the peacefulness

Linguistic Practices

- talk to a group of people about positive things

- stay away from electronic and print media

- write a journal entry about how good things are

- read a novel (choose wisely!)

- talk to a young person

- …

We can choose to be patient and wait for the rocks and glitter of the market settle or bite our fingernails and stay up sleepless nights wondering what the future will be like.  Likely it will be a combination of both for a while.  Many of us have our whole retirements wrapped up in the market; many of us have a customer base that spends or not, depending upon how the stock market is doing.  No doubt that we will have to act to protect the assets we do have, but it’s important NOT to act in a mood of panic.  Act from a level headed mood of resolve to turn things out the best you can.

Keep coming back to different practices to shift your mood.

We will be fine, it may not be what you pictured, but we will be fine.

Cash is King.  That phrase keeps coming into my mind. The recent developments have made it more and more unlikely (or at least much more difficult) for banks to grant lines of credit that are of the appropriate size.

For those of us that have gone through moderate to high growth periods in small business, we know that cash just disappears and stays scarce until you are over the hump.  If you don’t have a line of credit to borrow against, you have to be an amazing manager of growth to do things in VERY small increments.  This could be impossible given you have a 15 other things to pay attention to every day, month and quarter.

I challenge you to think of stepping beyond a traditional approach to sales and design a program by which you sell (and get paid for) your products and services before they are even developed.  What it will require is some of your time to develop the features/benefits story and some conjecture about who your customer is and then sheer grit.  Get out there and sell.

No this isn’t for everyone but it’s for more of you than you might think.  For instance, if you are an established company and you have a core set of repeat buyers, you can present a program to them (for products and services that already do exist or a new line extention) that will have them pay in advance at a discount for delivery at some agreed upon time in the future.

You can also present this offer as an investment for the current cash.  If they wait to buy these products and services in the future, they will be paying some percentage more.  If they pay now, they will gain an 6% (or whatever you say) interest on their per dollar investment.  This is more than they will get on their investments elsewhere and less than you will pay for the cash to borrow it from an institution.

People will continue to spend money, even with the “scare” of the bailout.  Why not make an offer that they can listen to?

The world is changing.  There are those who will embrace the change, profit and live peaceful lives and there are those who will live a life of worry, stick to their old ways and lose a great deal.

Honestly I think it all centers on our mood about living lives that are different than the ones we’ve been picturing for ourselves.  So perhaps we won’t be able to own the cabin up north in our retirement.  Perhaps we won’t even be able to own the houses we live in.  Perhaps we won’t go on vacations, eat steak out weekly and give generously of our dollars to our favorite charities.

Would it be so bad to live simple lives but have meaningful work that provides for that simple life?

The business owners I see doing well have re-examined what their customers want and redesigned their offers to the world.  These same business owners are also pulling back as far as they can on their expenses and spending more time with their heads up looking and speculating on what is coming next rather than keeping their noses non stop to the grind stone.  Yes, they are scared at times.  Yes, they make mistakes.

You can’t act with passion, compassion and purpose when you are in a mood of panic.  Figure out the worst case scenario, learn how to live with it and plan for something better.  Your mood will shift to one of resolve and you’ll be able to move on.  Even if that means completely quitting what you are doing now for a living and starting with something new, you will have conserved some of your energy, savings and worth.  You will be in a much better position to launch something new if you chose to be done with what will not work in the future.

If you don’t know what will work and what won’t, start asking around.  What do others think.  Of course it will be more effective if you chose people to be talking to who have some authority in the area.  Good luck!