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1
HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
by Melissa Giovagnoli and David R. Stover
First printing 2011
Copyright © 2009 by Networlding Publishing. All rights reserved. No portion of this book may be reproduced, stored
in a retrieval system, or transmitted in any form or by any means – electronic, mechanical, photographic, recording,
scanning, or other – except for brief quotations in critical reviews or articles, without prior written permission by the
publisher.
Published by
Networlding Publishing
For information www.networlding.com
ISBN 978-0-9835446-0-9
1. Business 2. Self-Help 3. Non-Fiction
CONTENTS
Foreword by Jay Conrad Levinson
i
Introduction - How to Use This Book
iii
Chapter 1: What Does it Mean to Grow a Great Business?
Launch Requirements
Buying an Existing Business
1
Chapter 2: What Does it Mean to Have a Power Network?
The Value of Networlding
19
Chapter 3: The New Entrepreneur
Who is the New Entrepreneur?
Risk and the Entrepreneur
How to be Successful
The New Entrepreneurial Climate
Entrepreneurial Survival Skills
From Idea to Execution
23
Chapter 4: Launch Kit Overview
Critical Launch Elements
What is in Your Toolbox?
37
Chapter 5: Business Planning
What a Business Plan Can Do
The Management Plan
Putting it All Together
Update Your Plan Regularly
41
Chapter 6: Financing Planning and Funding
The Financial Plan
Revenue & Cost Models
Strategies for Securing a Launch Loan
Investors & Other Financing
Budgets & Bookkeeping
Cash Flow Management
53
Chapter 7: Legal Planning
69
Chapter 8: Marketing
Marketing Strategies
Marketing on a Shoestring
Public Relations
Advertising
Closing the Sale
Customer Service
71
Chapter 9: How to Network and Use Sources
The Networlding Support Exchange
Networking Channels:
Social Media
Associations
Qualifying Associations for Potential Membership
Networlding at Events: Strategies to Guide You
89
Chapter 10: Building your Team of Experts
Internal & External Resources
Alliances & Partnering
Flatworlding
99
Chapter 11: Managing Your Business in Stages
109
Business Functions & Processes
Managing Your Matrix Organization
Chapter 12: Social Glocal
117
FOREWORD
Establishing and growing a business is hardly a piece of cake. Making it a great
business is even tougher. And creating a powerful network is no easier. There
are no shortcuts. David Stover and Melissa Giovagnoli serve as your Lewis
and Clark as you attempt to navigate the rugged terrain of succeeding and
flourishing with your own venture. Because of the wealth of information they
provide in this book, your foray into business will have fewer wild adventures
and more valuable discoveries and rewards.
In these pages, you’ll be taken by the hand and guided through the minefields
of potential mistakes. You’ll be led by the bright light of wisdom directly to
your goals. The authors do not make it sound easy (because truthfully, it’s not).
But they do make you realize that it is possible. You can have a great business.
You can have a powerful network. You definitely can do it—if you know how.
Once you’ve read How to Grow a Great Business and Power Network in the
United States and tapped the rich resources it reveals, you’ll know how.
This is hardly a Get-Rich-Quick book, mainly because growing a great business
is hardly a Get-Rich-Quick activity. But this is a You-Can-Definitely-Get-Rich
book. And if you follow the path illuminated by the authors, you can attain
your goals. Almost every possible pitfall is pointed out to readers before they
get tripped up by them. Numerous details of successful businesses are laid
out—clearly and understandably.
I often get asked by people with dreams of running their own business, “Where
do I start?” This book is the answer. Many frustrated business owners would
have their frustration replaced by exhilaration if they had started with the
insights and information presented in these pages. The book is easy to read,
i
HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
easy to follow, easy to use, and easy to understand. It will help give wings
to what were once only business dreams.
One of the best things about the book is not the answers that it gives
to crucial questions, but the questions themselves. The authors strive to
ask the right ones, the ones many business owners overlook, and then the
authors provide enlightening answers. They show, as Aristotle said, that
excellence is not a goal as much as a habit. By delving into the minds of
successful business people throughout America, and investigating failure as
much as success, the authors provide you with the perfect foundation for
launching your enterprise and guiding it to glory.
What you don’t know about business and networking can work against you.
But once you’ve read this book, there will be little that you don’t know. If
the authors don’t give you the specific information you need, they carefully
point you in the direction of a source that will give it to you. If you’ve ever
looked for a book that ought to be mandatory reading for business owners,
look at the book you’re holding in your hands right now. It’s exactly what
you’ve been looking for. It’s exactly what you need.
- Jay Conrad Levinson
Author, Guerrilla Marketing series of books
Over 14 million sold; now in 39 languages
ii
Introduction
How to Use This Book
From the many previous books Melissa Giovagnoli has co-authored, such
as Networlding; Building Relationships and Opportunities for Success, Melissa,
one of the ten leading experts on social media and networking, has been
supporting people to become their best—for themselves, their families and
their communities. This is again true in How to Grow a Great Business and
Power Network in the United States.
David Stover is an international advisor and entrepreneur with decades of
experience as a business owner, c-level executive, and global transformation
leader. He has been developing and advising successful businesses in BRIC and
dozens of other countries throughout his career and brings to every aspiring
entrepreneur, savvy business owner, and chief executive, a set of keys and a
roadmap to profitably grow their business.
Over the past few years, both authors have interacted with thousands of business
owners around the world who are searching for the strategies needed to grow
their businesses in the new reality of emerging, growth, and mature markets.
Many of these companies have grown successfully during boom-times when
every consumer or company is a potential customer and have adapted to current
times of contraction when every customer is a celebration and a gift. These
business owners are weary of hunting for scarce funding sources; information
on business plans; where to go for point-of-need legal and accounting support;
and where to discover cutting edge growth strategies that actually work in our
disparate verticals and economies. They need clear, concise answers. In How
to Grow a Great Business and Power Network in the United States, the authors
have provided the answers, insights, strategies and tips that many of the world’s
great business leaders shared with them that help eliminate the frustrations
iii
HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
of business owners in this new millennium. Many of their insights derive
not just from the traditional paradigms (boom or contraction) which have
guided business and network growth in the United States and elsewhere,
but from synthesizing best practices across our “flatworld” into a successful
how-to.
How to Grow a Great Business and Power Network in the United States is a
valuable tool for those who desire to become effective and profitable business
owners and entrepreneurs. This book addresses the most common and
critical concerns of growing profitable businesses. When you know what to
look for, there is no end to the amount of assistance available. Today, more
than ever, small business is a (perhaps the) most viable, valuable market
segment; and, new resources are needed to support development.
In fact, in these extremely challenging economic times, small businesses are
seeing a revitalization—a re-growth that will not only create new channels
for the profitably creative but also lay the foundation for our next two
decades of growth. Understanding the world is flat and leveraging global
labor pools and time zones is necessary for success, not just adjunct to it.
Small businesses are already delivering the 21st century version of the cornerstore: doctors who offer virtual house calls using common technologies;
the auto repair shop who fixes your car on a Sunday; the virtual librarian
who finds that rare book; and the seamstress who custom tailors your
shirts in Hong Kong and delivers them to your home in New Jersey
the same week. All these and more are part of the new paradigm where
small businesses have access to global capabilities that as recently as ten
years ago were the purview of only the largest domestic or multi-national
companies. Global capabilities for researching, understanding, embedding,
designing, building, sourcing, shipping, supporting, enhancing, delivering
and meeting your value propositions are at the fingertips of every business
owner and every consumer. Our collective challenge is to not just predict
macro trends and respond to them with agility, but to understand how to
leverage this flatworld to better meet our customers’ needs and position
ourselves for first-mover or fast-follower profits in satisfying them.
For example, it’s nearly as easy if you are a retailer to open a store down the
street from your headquarters as it is to open a store 9,000 miles away in
iv
INTRODUCTION
Shanghai, or Dubai, or Makati, or Muscat. In fact, expanding your brand,
capturing new markets, delighting new customers, and profitably growing
can be a global play for the 5 employee startup as readily as for the multinational looking to leverage into new markets. What is the key? Business
Intelligence, finger-tip access to information and best practices, and an
eco-system of social commerce and networking which has grown over the
last eight years to offer a quick and innovative way to grow your business
successfully.
Nearly every business starts small. For every Microsoft or Intel, there are
thousands of businesses that never get past the first obstacle or their first
business plan. We believe that the infrastructure difficulties in growing a
successful business stifle and choke more business ideas than the legitimacy
of the idea or the skill of the management team. After the Internet Boom of
the late ‘90s and early ‘00s, there was a veritable bone-yard of technologies
available for 5¢ on the $1; excellent technologies whose death was due more
to poor infrastructure than poor ideation, creation, or management teams.
This book is designed to prime you on the assets available today to avoid
the boneyard, remove as many obstacles as possible from your path, and
leave you free to pursue your company’s destiny in the marketplace.
In addition to this version, we will be releasing localized editions with advice
on How To in various markets in the USA and globally. Whether you’re in
Denver or Dubai, St Louis or Shanghai, one of the key foundations in
growing a successful business in the 21st century is the concept of networking
based on a simple set of principles: values. Whether you call it ”Networlding”
or simply a return to the successful business-networking methods of the
past, this is the concept of creating a deep level of connections and alliances
with people who share your business values, co-exist in your eco-system,
and complement your product and service offerings. It goes far beyond the
concept of networking and is explained in greater detail in Chapter 9, as
well as in the book Networlding: Building Relationships and Opportunities
for Success, by Melissa Giovagnoli and Jocelyn Carter-Miller.
The number of new small businesses entering the market throughout this
2nd decade of the new century will be staggering. That increase, however,
should not be surprising. It’s a natural response to current economic
v
HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
conditions, including: downsizing; loss of jobs at both blue-collar and
white-collar levels; the trend toward integration of family and personal
goals with career goals; and the recognition that we’re seeing a permanent
and significant shift in labor and value creation toward a flatworld model.
In 1900, 97% of all American jobs were agrarian; by 2000, 3% were.
Between 1990 and 2000, Fortune 500 companies eliminated 3.4 million
jobs. Companies with fewer than 500 employees created 13 million jobs. In
the last decade, we’ve seen an accelerating shift away from large corporate
employment and toward small and medium-sized companies leveraging
global capabilities to profitably deliver local experiences. Showing how we
can collectively profit and grow from this shift is an objective of this book.
An entrepreneurial approach works well in new business startups as well
as subsidiary launches or spinoffs. The key is equipping the management
team with as many tools for success as possible and ensuring the proper
balancing of personal (delivering knowledge capital, expertise, experience)
and business (delivering structure, economic capital, branding, and reach)
demands. We have discovered from the thousands of individuals and
companies we’ve interacted with, that working for oneself (whether as an
entrepreneur or as an executive in a subsidiary/spin-off/channel extension)
is far superior to clocking in someone else’s office, trying to achieve someone
else’s goals, or executing someone else’s business plan. We have also found
that, despite times of economic struggle, running your own business does
in fact work. It puts food on the table, puts your stamp on the market,
builds deeper more meaningful relationships and network partners, while
giving all of us a deeper sense of satisfaction not gained from any other
endeavor.
As a business owner, you know that you work much longer and harder than
you ever did for any employer. Your drive, energy and talents are tested as
never before. Your agility, flexibility, and stalwartness are demanded on a
daily basis. But the rewards are enormous. We will be among the first to stress
that running your own business is not for everyone. If you’re considering
starting a business, or in a position to take over an autonomous business
unit from a large corporation, and you attempt to do so for the wrong
reasons or without adequate preparation, you may be destined to fail before
you even start. For this reason, we urge you to think through your approach
vi
INTRODUCTION
carefully and research your business ideas thoroughly before making the
leap. Taking the big change on as a challenge is not for the faint of heart.
For the growing business, we’ve compiled this information to help you
achieve your maximum potential. Take advantage of the information to
create your own opportunities. While we can’t do the work for you, we
have created a road map to mark the way. Be patient. You’ll need to ask
many questions and do countless hours of homework. You still need to
doggedly pursue the specific answers you need, but this book will save you
many days and weeks of research.
The mission of How to Grow a Great Business and Power Network in the
United States is to provide an accessible, easy-to-use guide containing the
wisdom of business leaders and the resources we have uncovered during
our years of doing business as business owners, runners, and entrepreneurs.
Much of our knowledge comes from our many years of counseling other
business owners. We wrote this book in the following manner. All of the
generalized information, strategies, tips and guidance are in the main body
of the book. Much of this comes from our experience, and much has been
provided to us through either contributions or interviews with highly
successful business owners and executives around the world.
How to Grow a Great Business and Power Network in the United States is
organized into chapters that address the major needs of startup, established
entrepreneurs, and new business executives. This book addresses money
issues, financing, in sourcing and outsourcing of activities, and overall
business planning.
Use the Table of Contents to target the areas where you need help. How
to Grow a Great Business and Power Network in the United States should be
your reference on where to find help for whatever business enterprise you
are launching or growing. Our overriding goal is to make you as informed
as possible. The resources referenced in this book are inexpensive and the
best use of your time and money. Please note, however, that we cannot
guarantee the effectiveness of any resource. While we, and our colleagues,
have personally used many of these resources, we cannot ensure results. We
have attempted to be comprehensive. It’s up to you to decide whether a
particular resource is helpful, given your circumstances.
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
A Word of Advice
Keep an open mind when contacting resources. You’ll have better results
if you are patient and make multi-sourcing part of your long-term plans.
Realize that the person who might be helping you is just one person in an
organization. If you don’t get the results you’re looking for, ask for someone
else’s advice. Take advantage of the information boom. Never before have
there been so many resources available for your benefit, and never before
does it make clear business sense to not have a single source for a particular
product or service, but to have multiple sources, properly managed, to
optimally extract the best leverage from the local, national, and global
business landscape we live in.
As you read this book, we hope that you will discover many useful resources
for building a successful business. Throughout our research and writing, we
have been surprised by the deluge of information that is constantly being
developed for the business owner, runner, and entrepreneur. At the pace we
are now receiving new information, it is likely that by the time you finish
reading this book there will be dozens of new classes, associations, support
systems, and Internet assets that you can benefit from.
Therefore, we ask that you accept the challenge of staying informed. We
expect to update this book regularly and invite you to take an active role in
that process. If you find that you have used or are currently using a resource
that is particularly beneficial to your business, please take the time to let us
know. Visit our website and tell us on the Contact page about the resource
that you’ve used. Share your resources with others. If we use a resource you
recommend, we will credit you in our next edition.
Enjoy the ride!
Melissa and David
http://www.networlding.com
viii
CHAPTER 1
What Does it Mean to Grow a Great Business?
What does it mean to grow a great business? Well, that depends on what you
mean by the terms “grow” and “great” and your personal business objectives.
Are you looking to gain market share in an overcrowded market? Are you
looking to keep your current market share but increase your margins? Are you
looking to improve unsolicited name recognition for an existing brand…or
build a new brand?
Depending on your business model and objectives, the term grow doesn’t just
mean sales growth. There are different focal points to analyze in order to push
your business in the direction you desire.
What does “great” mean to you? Does it mean happy employees? Does it mean
being mentioned in Fortune’s best 100 firms? Or is it to be recognized for
innovation, domination, or social impact? Defining what “great” means to you
will help you focus on reaching your personal vision.
Also, keep in mind that starting the race smoothly is helpful but not enough in
and of itself. Finishing the race and accomplishing your goals is the key. Prepare
yourself and your organization with the best service model, business processes,
technologies, organization and market awareness possible. Remember that
there will be obstacles in your way! Sometimes there will be more than you
would like or feel that you can handle, but if you’re smart, savvy, and nimble in
adjusting to the market you will be successful.
The key to building and growing a successful business is preparing yourself
to go around, over, or through obstacles. Keep in mind as you move forward
1
HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
that even the most successful businesses have faced (and continue to face)
large and difficult obstacles. Now that we know that the road ahead may be
bumpy (even though it’s the path we must take to reach our destination)
let’s begin!
Launch Requirements
Starting a business can often be confusing. Not only are there local
ordinances to follow, but there are also state and federal impediments.
Luckily, the amazing Internet makes finding the forms and procedures for
starting a business simple and easier than ever.
While this chapter provides an overview of how to start up a great business,
it is not meant to replace professional counsel. We encourage you to seek
advice from your headquarters (if you are launching a franchise, channel
extension or subsidiary), and/or an experienced corporate accountant or
attorney as soon as possible.
Help is also available from any state small business development center. It’s
very important that you consider the type of business you plan to open,
and select an initial legal support structure that will be most beneficial to
your potential growth. The extra time taken at launch will be well worth
it. As your business grows, so does your potential legal exposure, so protect
yourself now!
Additionally, there are tremendous resources available from many easyto-access sources. For example an interview with Joceyln Carter-Miller,
ex Chief Marketing Office of Office Depot, revealed what Office Depot
provides in the way of support for small business owners:
Office Depot has partnerships with the Small Business
Administration and local universities, offering consultants who can
help you streamline your business plans and strategies.
x
Office Depot offers hundreds of classes a year, on various topics
from gaining productivity from your employees to marketing ideas.
x
2
CHAPTER 1
Their website www.officedepot.com provides many resources for
both business owners and entrepreneurs. There are downloadable
forms, human resources background and information, professional
business plan ideas, and of course office supplies, furnishing and
technology assistance.
x
Office Depot’s tag line says it all: “Office Depot has what you
need, and what you need to know.” They not only offer office
supplies, but they offer the consulting and knowledge for business
owners to grow and succeed.
x
Following is a list of considerations you should address before opening the
doors of
your new business:
Check Local Zoning Laws, Municipal Ordinances and Deed
Restrictions
If you’re planning on starting up a new business and you lack the capital
resources to open an office, be aware that some areas restrict home-based
business occupations. Call your town or county clerk (at your town hall) to
obtain information on possible restrictions in your area and to determine
whether you need a license to run your business out of your home. Also, if
it applies to your circumstances, check with your homeowners association
or examine your house deed for any possible restrictions.
Choose a Legal Name
All individuals who will be operating a business under names different than
their personal names are required to file an Assumed Name Act Registration
Form (to be filed with the County Clerk in the county where you will run
your business), often called a dba (doing business as). These businesses are
required to publish in a newspaper of general circulation, located within
the county, to notify the public of their assumed name once a week, for
three consecutive weeks.
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
Think big. A.P. Giannini renamed his company the Bank
of America in the 1920s even though it did not have a single branch
outside of California.
x
Choose a name that describes your business without
being too confining. Check the Yellow Pages and professional and
business directories for ideas.
x
Ditto for geographical dictionaries, thesauruses, guides to
mythology and so forth.
x
Coined words—those that are invented and have no
preexisting meaning—are especially prized but difficult to create.
After all, one of the best, Kodak, dates to 1888, and marketers have
been working hard ever since to create equally memorable trademarks.
x
Invent a person’s name. There never was a Betty Crocker,
but her name is one of the best-known, and most successful, in the
packaged food business.
x
Imagine introducing yourself to prospective customers
at a business function; does your business’s name roll off your tongue
easily?
x
Avoid names that are hard to pronounce or spell, or that
can be misconstrued.
x
Be careful about being too cute. Flower Power Nursery
works, Bloody Bandage Ambulance Service doesn’t.
x
Consider using a descriptive phrase with your legal name.
Two examples: The Hilltop Group [your legal name], Temporary
Staffing Specialists [the descriptive phrase]. Atkins Palmer & Associates
[your legal name], Computer Systems for Middle-Market Companies
[the descriptive phrase].
x
Think how your legal name will look when reduced to fit
on a business card.
x
Discuss possible names with friends and business
associates.
x
Check with the county clerk or secretary of state to see if the name you’ve
chosen is available. Additionally, you’ll need to register your company’s
name with the federal government in order to ensure that you are not
infringing on someone else’s intellectual property or brand. Even if you
4
CHAPTER 1
plan on launching a company locally, you should be aware of similarly
named businesses in other localities around the country so that you don’t
build a local brand that can never be rolled out across the country under
its original name.
Also, run a trademark search. Visit www.uspto.gov (U.S. Patent and
Trademark Office’s site) and enter the name of your business and any
coined words you will be using to describe products or services. (Ask your
attorney if you need to engage a trademark search firm to augment your
web search.)
Register Your Company’s dba
Once you’ve selected your name—your “dba”—you need to file a name
statement, typically with your county clerk. This is important for at least
two reasons. First, it will enable you to set up a business checking account at
a bank under your legal name. Second, it gives your business legal standing
in litigation, such as filing a lawsuit to collect money owed you.
As part of the business licensing process, you’ll be required to publish a legal
notice of your dba in a newspaper of general circulation, located in your
county, usually once a week for three consecutive weeks. Call the advertising
department of any daily or weekly newspaper in your area, explain what
you want, and the ad rep will send you an application and instructions.
You may be able to apply for your business license in connection with the
legal notice, which means you won’t have to visit the county administrative
offices.
Set Up a Legal Form of Business
Nearly all the great corporations of the 19th Century started as sole
proprietorships or two-man partnerships. The corporation emerged
strongly in the 2nd half of the 20th century due to tax and capital structure
advantages. Yet as recently as the 1980s and ‘90s, most advertising agencies,
national accounting firms, and security brokers were still structured as
partnerships.
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
Prior to startup it is important to determine the legal structure of your
business. Some common legal startup structures are summarized below.
From the easiest, fastest structure, to the more sophisticated and expensive
ones, you are encouraged to seek additional advice from an attorney and/
or accountant—and remember to think “big.” Most company launches
burden themselves unnecessarily with “small” structures and upon later
growth, end up with unnecessary legal, operating, or financial issues.
1. Sole Proprietorship
One individual maintains complete control and responsibility for the
business. Business losses and gains are your personal losses and gains, and
are filed on Schedule C Tax Return.
Advantages
Disadvantages
Ease of formation.
Less access to capital and financial
resources.
Relative freedom from
government control.
Less protection with regard
to personal liability (you as an
individual are not separate
from your corporate entity).
2. Non-incorporated Association other than a Partnership
This refers to two or more persons who establish a business together with
nothing more than a dba. It’s a way for them to quickly and cheaply learn
if they are compatible business partners, and if their startup business holds
promise. It is particularly suited to certain types of service businesses, such
as party-planning and investor relations. But its amorphous structure can
cause problems as the business grows. And larger prospective customers
may refuse to buy products or services from a company that essentially is
just a hand-shake agreement among its principals.
6
CHAPTER 1
3. Partnership
The business is owned and operated by two or more people who are coowners. Before starting a company under this legal structure, it is highly
recommended that a written agreement be drawn up by an attorney, both
creating the partnership and specifically covering all of the contingencies.
The partnership agreement should define the ownership percentages of
each partner, the limits of responsibility and the work requirements, as
well as when and how the partnership might be dissolved. The partnership
is responsible for filing tax returns with each partner reporting his or her
own share of the earnings on his or her individual 1040 tax return.
Partnerships enable you to focus on personal strengths while relying on
your partner’s strengths. When partnering with an established firm, such an
arrangement can provide more predictability of demand for your product/
services.
Advantages
Easier to form than a
Corporation.
Disadvantages
As with a sole
proprietorship, general
(versus limited) partners
are personally liable.
Sharing expenses of startup
of partnership.
Limited partners are only
exposed to
liability based on the extent of
their investment in the partnership.
Startup costs are shared.
Cannot sell stock to the
public.
Two (or more) heads are
often better than one when
making decisions.
Psychological comfort of
being part of a team with a
common goal.
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
4. Limited Liability Company
This is a relatively new concept, and combines some key advantages of both
a general partnership and a corporation. In fact, you can think of a limited
liability company as the small business equivalent of a corporation.
An LLC can be owned by an individual (who then pays income taxes as an
individual, not a corporation), by two or more persons (whose tax liabilities
are the same as if they had formed a general partnership), or by any legal
entity, including a corporation.
Advantages
Disadvantages
Low legal costs to form and operate.
Cannot sell stock to public.
More perceived stability and
prestige than sole proprietor.
Vendors may require
personal guarantee
from owners before
delivering
services or
products.
Generally, company owners are
not liable for debts of company.
All capital must come from
owners. Bank
loans must be guaranteed
by owners.
5. Limited Liability Partnership
LLPs use the same legal structure as LLCs but are generally limited to statelicensed professionals, such as physicians, chiropractors, dentists, lawyers,
accountants, architects and the like. Where permitted, LLPs have pretty
much replaced general partnerships.
8
CHAPTER 1
6. Corporation
This is the legal concept that made possible today’s world of giant
companies, with thousands of employees and operations around the world.
When states began passing enabling legislation in the early 1800s, the idea
was controversial. After all, a corporation exists only in the eyes of the law.
In a proprietorship or partnership, the owners are the company, and they
are quite visible. Not so with a corporation.
Instead, a corporation is a legal entity whose ownership is represented
by shares of stock. The shareholders are not necessarily the managers of
the enterprise, and are not responsible for its debts or other liabilities.
Shareholders may die, but the corporation continues until its charter
is revoked by the issuing state authority, which happens usually only at
the request of the corporation’s board of directors. In practice, then, a
corporation is immortal.
Obviously, a corporation is more complex than a sole proprietorship, a
partnership or a limited liability company. To create a corporation, you
must file incorporation papers with the state and pay a fee, which in some
states can be as little as $1,000. You may also need to place a notice in your
local newspaper.
A corporation may sell shares of stock to fund its startup and the growth
of the business. The shareholders elect a board of directors, which in turn
elects a president of the company and other officers who run the company
on a day-to-day basis. The company is responsible for paying taxes on its
income; any dividends are paid from after-tax earnings, and are subject to
personal income taxes at the shareholder level. Remember that corporate
income is taxable in the state where it is earned, so there is no advantage
to incorporating in a low-tax state unless that’s where you will be doing
business.
An attractive alternative for smaller startups is the Subchapter S Corporation.
In an S Corporation, the profits of the company flow through to the
individual shareholders without being taxed at the corporate level; losses
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
are treated in the same manner. There are a number of requirements for
qualifying for S Corporation status, one of which limits the number of
shareholders to 35.
Get a copy of Incorporating a Small Business, a pamphlet published by the
Small Business Administration, an agency of the Department of Commerce.
Or visit the SBA’s website at www.sba.gov.
Clearly, corporations are more expensive to form and maintain than other
business structures but provide many advantages otherwise not available.
Advantages
Disadvantages
Limited personal liability.
Costly formation and
annual fees.
Relatively easy to transfer
ownership.
State-mandated
reports and
other regulations
More attractive to professional
managers.
Dividends are taxed at
both corporate and
shareholder levels.
Stock can be used to reward
managers and employees.
A corporate structure is usually
perceived as more stable by
prospective customers than any
other type of business structure.
Some Words of Caution
As we said earlier in the chapter, this book is not a substitute for legal
advice. When you talk with a business lawyer about the advantages and
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CHAPTER 1
disadvantages of various legal structures—from a sole proprietorship to a
corporation—you’ll hear unsettling phrases like “in most instances” . . .
“generally speaking” . . . and “except in limited instances.”
For example, the limited liability feature of a corporation owned by one
person vanishes if a court determines that there is no separate identity of
the owner and the corporation—the “alter ego” doctrine.
Likewise, the tax consequences of these business structures can be more
complicated than they might appear, which is why you need to consult an
accountant as well.
Buying an Existing Business
This is the fastest way of getting started, and in some ways the most
attractive. The business—its products, services, trade names, employees,
physical facilities, and customers—already exists.
Unless the business is relatively small, you likely will need to borrow money
to buy it. The best source is the seller. Offer a down payment, perhaps 10
percent of the sale price, and ask the seller to take a note for the rest. The
monthly payments come from the earnings of the business itself. This is
called a leveraged buyout, and is a common means of financing.
Often large companies will entertain LBO proposals from the managers of
a division or subsidiary that the parent company wants to sell. But beware:
just because you’ve been successful managing a division within a larger
company doesn’t mean you will automatically succeed once the division is
on its own, without the resources of its parent.
Entrepreneurs who start or purchase businesses and succeed in running
them profitably possess a hardiness, tenacity and willingness to take risks
not inherent in everyone.
According to Nancy Dodd McCann, president of The Fordham Group,
Inc., a Barrington, Illinois business consultancy specializing in acquisitions:
11
HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
While franchises provide support, owners of new businesses must understand
fully the businesses they purchase and possess the skills and personality necessary
to operate them effectively. More than assets, a potential stream of profits, and
an existing structure, a purchased business is a complex organism of many living
parts. It is a strategic plan, a market position and reputation, technology, assets,
debts, equity and people. A particular chemistry or culture makes it go or not go.
Six distinct cycles surface during the purchase process. Unfortunately, far
too many individuals start at cycle three, not realizing that cycles one and
two are critical for long-term success. The six cycles are as follows:
1. Determining one’s suitability for the type of business.
2. Understanding that there are different strategies for buying a
business and selecting one.
3. Locating potential business for sale (if it is not your current
employer).
4. Evaluating all aspects of the business, including “due diligence.”
5. Negotiating and completing the purchase of the business.
6. Planning and implementing a successful transition of ownership.
Specificity and analysis during these cycles pays off. For example, you could
be unsuitable for sole business ownership but suitable for a partnership
with someone of complementary skills. Strategies are critical. The cost of
buying a business should never exceed the cost of starting one yourself,
unless lack of time or skills are factors; or the business has brand equity that
you cannot build yourself.
Setting parameters for the purchase will ensure that you don’t fall in love with
a business that doesn’t meet your needs. The use of a career counselor who
specializes in strategy development for acquisitions, rather than a business
broker (often called a mergers and acquisitions consultant), will help in a
positive outcome. Counselors of both types may be available through small
business institutes at local colleges. However, if you’re not knowledgeable
in acquisitions, you should request a referral to a qualified business
consultant rather than a broker. After the parameters are understood, the
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CHAPTER 1
business of locating a business commences. This is the time to involve a
business broker, almost always required in a seller’s market. Brokers work
on commission from the sale of a business, and generally work much like
a real estate broker.
Brokers know where to find businesses for sale, the current market and
going prices. While accountants often look primarily at asset value, brokers
regularly appraise businesses on market value. Additionally, brokers
understand sellers and can often negotiate a successful purchase where a
novice cannot.
Potential buyers should hire professionals who perform due diligence.
This should include a full investigation of not only financial and legal
concerns, but also the quality of the products, customers, employees
and management. Since confidentiality must be maintained during the
prospective sale, potential owners must often negotiate with the potential
seller for permission to contact suppliers and customers, or pay for a
market research study. A trained interviewer specializing in mergers and
acquisitions should evaluate any management expected to remain with
the business. This evaluation can provide a potential buyer with a better
understanding of specifically how the business operates. A business owner’s
failure to obtain this critical (and often non-financial) information prior
to purchase of a company is the most common cause of serious problems
down the road.
A business broker, or merger and acquisition consultant, will negotiate the
purchase for you. Even if you don’t use a broker to locate a business, you
may purchase their services for the negotiation process. Before the purchase
is consummated, a buyer should formulate a plan to manage through the
transition. A merger consultant specializing in assimilations, as well as the
other phases, can prevent major problems from developing.
Business ownership is a viable option, but locating the right business can
take a long time. You need to develop a preliminary strategy long before
negotiations begin. The entire cycle may well take a few years, a cycle longer
than most people realize when beginning the process.
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
Checklist for Buying a Business
What types of business match your skills and personality?
What level of risk can you live with?
For what strategic reason are you purchasing a business?
Are you sure you know the real reason the owner wants to sell this
business?
x Have you talked with other business owners who might know the
current owner in order to find out what they think of the business?
x What is the image of the business in the marketplace?
x Have you spoken with current customers of the business?
x Is the technology of the business current?
x What is the company’s value?
x If there is a building involved, is it in good shape?
x If there is inventory, is it in good condition?
x If there is a lease involved, is there a possibility of transferring the
lease to you?
x Have you compared the cost of buying this business with the cost
of starting a similar one yourself?
x How will you determine the price you will pay?
x Have you made a complete list of all the advantages and
disadvantages of buying the business?
x Have you talked with the owner about possible financing assistance?
x Have you spoken with an attorney?
x Have you done your research to see if this is the kind of business
that offers growth potential and is right for you?
x
x
x
x
Buying a Franchise
Buying a franchise is a popular, and potentially a relatively safe way to
become a business owner. Instead of reinventing the wheel, adopt a
business model that has been proven to be successful. In theory, the answer
to nearly every operational question is either in your franchisee manual or
at the other end of the phone line.
Franchises are available for many kinds of businesses, ranging from
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CHAPTER 1
sandwich shops to automobile dealerships, from quick printers to hotels.
When you buy a franchise, you become a franchisee and pay the franchisor
(the company that grants the franchise) an initial fee plus a royalty, typically
a percentage of revenues. If the franchisor also owns the property in which
your business is located, you’ll also pay rent to the franchisor, and this too
may be a percentage of revenues. In return, you get the right use the name
of the business, typically on an exclusive basis in a specific geographic area,
and sell its standardized service or products.
The franchisor usually will provide market research, site selection,
construction supervision or lease negotiation as appropriate, and equipment
and furnishings. In addition, the franchisor may be obligated to conduct
regional or national advertising (paid for by contributions from you and
other franchisees), furnish sales promotional material, and provide the
actual products for resale to customers.
Advantages of Franchising
Use of an established name that offers faster recognition of your
business and a faster return on your initial investment.
x Comparatively low franchise fees, especially for certain types of
business that have been created to fill new market niches (diaper
delivery services, senior day care and pet sitting).
x Lower marketing costs because of shared publicity.
x Lower supply costs because of volume discounts when many
franchisees are purchasing the same supplies.
x
Disadvantages of Franchising
It is critical that you research the franchise market very carefully.
You need to know and understand every detail of the franchise business
you eventually select. There are excellent franchises available—and
there are some that are not particularly reliable.
x Keep in mind that opening a franchise operation is, in effect,
forming a partnership with another company. You can benefit from
the assets that company brings to the partnership, and you can also
suffer from any negatives. The negatives include:
x
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
o Having to conform to operation standards. When you buy a
franchise, more often than not you are buying a standardized way of
operating. Many entrepreneurs end up feeling constrained by these
standards.
o You must participate in profit sharing. As mentioned earlier,
many franchises charge a royalty on a percentage of gross sales. This
ultimately comes out of your profits. Sometimes this fee is required
whether you make a profit or not.
There are oftentimes other restrictions. Some franchises restrict you from
meeting your competitor’s prices, and adding or dropping certain inventory.
Your contract may also contain other restrictions that are particular to the
franchise you are purchasing.
As always, think through the entire process. Ask questions. If you don’t
ask the right questions, you won’t get the information you need to make a
wise decision. As we’ve recommended several times, seek the advice of an
attorney before you negotiate a contract.
If possible, use your attorney during the negotiation process rather than
after you’ve gone through the contract.
Partnering
You can create a partnership by entering into relationships with other
related, compatible businesses that might be serving the same end user.
You can develop cooperative projects with competitors so that each might
profit. Or you can look for opportunities to work with a larger company, or
a marketing company to act as their preferred or exclusive supplier.
In theory, partnering allows a smaller company the opportunity to create
strategic alliances that can result in more business. However, there are
advantages and disadvantages.
The advantages are obvious: increased revenues, decreased marketing costs,
long-term investments based on future sales volume, and more efficient
16
CHAPTER 1
planning with an increased ability to plan purchases and production
schedules.
The disadvantages, although fewer in number, must be carefully considered.
They include an increased risk if the other company decides to end the
relationship, a tendency to become dependent on one large partner, and
possible unwelcome demands upon your development schedule.
Weigh your options before agreeing to such a relationship. Reduce your
risk by becoming and staying attuned to your market. Knowing the inner
workings of your market can help you anticipate market changes that can
affect your relationship. Also make sure that you have strong contracts with
your partners that protect your interests. Again a good attorney can help
make sure that you are protected.
Additionally, if possible, don’t rely on just one business relationship for more
than 30 percent of your business. Even if unforeseen circumstances result
in the loss of a relationship, you can downsize moderately while looking
for the next opportunity. Although this may be difficult if you launch with
a flagship account or customer, you should make it an immediate goal. As
with your personal well-being, it’s necessary to protect yourself if you want
to have long term success.
17
Chapter 2
What Does it Mean to Have a Power Network?
A power network is that set of relationships inside and outside a company
that increases your overall level of success.
Having a power network has become an even more critical aspect of business
success as we enter the 2nd decade of the 21st century. The proliferation of
new startups and businesses (driven by technology proliferation as well as by
service innovation) in the past two decades created such an overwhelming
supply of products and services that building and maintaining excellent
business relationships with employees, investors, alliance partners, suppliers,
and customers became one of the few differentiating characteristics
of businesses who’ve sustained themselves through the current lower
demand market. As we move further into these chaotic (but exciting) 21st
century days, the interdependency of your power network and your value
proposition in the marketplace has increased even more.
What does it mean to have a power network? It means that:
x You value the exchange involved with long-term sustainable business
relationships; not simply the benefit of short-term transactions.
x You understand that the way of managing profitable business
isn’t just “economies of scale” but “economies of share” involving
employees, investors, suppliers, and customers.
x You plan to continuously examine and refresh your “network
nodes” to ensure that the value received and given are proper for your
business growth plans.
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
You act on a daily basis to enhance or release relationships and your
network in ways which will mitigate future risk, reduce current costs,
and improve future revenue opportunities.
x
A power business network always involves the five basic people components
of your business: employees, investors, alliance partners, suppliers, and
customers. You could add a sixth, the government, if you specifically
are engaged in business activities that bump up against more stringent
regulation or monitoring by various governmental bodies (which appears
likely to increase in the years to come) but for our purposes, we will stick
with the basic five.
In each of these five people components, you need to determine what your
objectives are and how to achieve them. Again, we go back to how you
personally define some basic terms. What does a “great” relationship with
your employees mean? To many, it simply means that you will pay above
market rate for wages and salaries. To others it may mean that you allow
employees a two hour lunch break or a work-from-home telecommuting
option. And to others, it means that there are charity benefits, or other
non-core services that the employees can take advantage of that make their
life-balance picture better.
Determining the proper goals and objectives for your power network is
important for a number of reasons. First, you may have already articulated
your overall business goals, but applying those goals against the five
important groups of people that you and your company interact with
everyday will help you see potential flaws or adjustments you may need to
make in your business model.
For example, if you’re starting a pizza delivery business and your competitive
advantage is that you promise delivery within 20 minutes or the pizza is
free…what kind of stress does this place on your employees? What kinds of
compensation might you need to provide to ensure that they can perform
at peak efficiency?
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CHAPTER 2
As you think through the development of your power network and its
goals, you may find that some of your assumptions about how you wish to
successfully build and grow the company need to change.
In the case of the pizza delivery business, it may be absolutely necessary to
promise the 20 minute delivery service in order to get into that crowded
marketplace. However, you may need to adjust the expense side of your
operating cash flow model to include more fuel expense and perhaps higher
wages to delivery personnel to offset the additional demands they have.
Additionally, as you explore and define your goals for the customer
components of your network, suppliers, and alliance partners, you’ll make
decisions on the associations and clubs and groups of business people you
connect with. In a big city like Chicago or New York, you could go to a
dinner event, a seminar, or a lunch every day of the year and never improve
your business an inch. Why? Because if you don’t know where you’re going, no
road can get you there!
Networking just for the sake of making connections is ultimately just
socializing. Purposeful networking, where you value, understand, plan, and
act in accordance with your business goals and objectives is the prelude to
having a successful power network.
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Chapter 3
The New Entrepreneur: Who is the New Entrepreneur?
We used to think of the entrepreneur as the small business runner. Someone
with an idea, or a skill, or a unique set of connections who decides to grow
that idea from acorn to oak on their own; striking out across new territory
to organically create and run their own enterprise.
But then came the last two decades, when entrepreneurs began leaking
out from all walks of life: academia, government, large corporations, etc.
No longer was he or she the stereotypical home business owner or tired
corporate executive going to seek their fame and future on their own. Now
entrepreneurs are younger, highly connected to sources of capital, big ideas,
new technologies, new products, new markets, and new profitable business
models. Entrepreneurs launch everything from business-to-business
exchanges and business-to-consumer communities to global alliances and
corporate spin-offs, captive centers to leverage global labor pools, and new
brands which have swept the world in ways no one could have (well, just a
few) dreamed of a decade ago.
The new entrepreneur isn’t just operating a design shop out of their
basement, but is rubbing shoulders with private equity fund managers,
angel investors, investment bankers, and patent attorneys. All of a sudden
it isn’t enough to have a good idea, a small line of credit from the local
bank, and a couple of employees. Entrepreneurship has reached into every
home, every office, and every industry. For a few years, if you weren’t
writing business plans on the weekend, or joining investment clubs, or
moonlighting as a marketing or technology executive somewhere outside
of your normal job, then you had already made the jump to a startup and
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
were enjoying the 80 hour weeks, cold pizza, and sterile warehouse space
of the new economy.
For many reasons, nearly all of that energy, creativity, capital, and expertise
came crashing down a few years ago. Our economy (and many others
around the world) is suffering the hang-over from the over-confident
mistakes made by thousands of new business runners, investment bankers,
and alliance partners. The lessons learned and the metamorphosis of the
role of the entrepreneur in the marketplace will forever be changed because
of the years that have preceded us.
The new entrepreneur has to have more than a good idea, a deep skill, a
unique set of connections, and the will to strike out on their own. The
new entrepreneur has to be broad and deep across many more areas of
their business in order to predict pitfalls, avoid obstacles, and bypass the
poor management decisions which wiped out the good business ideas of
the ‘90s, crippled the startups of the ‘00s, and stifled growth over the last
few years.
Today, there are numerous ways in which the entrepreneur or new business
runner can launch their business. A deep understanding of all elements of
the business can go a long way toward not just starting with the correct
things in place, but in creating a model that avoids the pitfalls we’ve seen in
the market or at least leverages the weakness gaps.
The new entrepreneur needs to understand techniques and tactical
strategies covering everything from customers and connections, eco-system
and economics, people and culture, processes and information, innovation
and integration, to infrastructure and assets.
Being aware of all aspects of your business and focusing on how you want
to launch is necessary but not sufficient alone to make you a successful
entrepreneur. In addition to identifying the basic building blocks (i.e.,
do you need an office, how much square working feet per employee, an
answering service or a receptionist, a virtual IT shop in India or a call
center in Iowa?) the new entrepreneur needs to understand whether they
are meeting a known need in the marketplace or an unknown need.
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CHAPTER 3
Creating demand for a product or service versus just more efficiently satisfying an
existing demand completely changes the dynamic interplay of the entrepreneur’s
business model.
All decisions need to be made with two criteria in mind:
1. What are the direct needs of our targeted customers today?
2. What are the anticipated needs in the “best case scenario” growth
situation?
The entrepreneur needs to understand that being aware and understanding
the proper mix of people, processes, technology, and strategy isn’t
enough. They need to share their understanding with every associate and
alliance partner in their network. And they need to share not through
communications, but through actions. The organizational structure and
the way a business does things is a direct reflection of the actions of the
owner/entrepreneur.
There is no detail too small that doesn’t reflect back on the values and
beliefs of the owner. The new entrepreneur doesn’t just understand this,
but accepts and communicates this through every decision they make. The
deeper your commitment to succeed, the more passionate a chief advocate
you will be for your company.
Only then can the business evolve into one in which there is a culture of
ownership and stewardship amongst the employees, efficient use of assets,
and outstanding customer service driven by the day-to-day smart leverage
of business and market information.
The Small Business Administration defines small businesses in terms of
sales or number of employees. Any wholesale business with annual sales
below $7.5 million; any retail business with annual sales under $1.5
million; a construction business with less than $3 million in annual sales;
or a manufacturing business with less than 250 employees is considered a
small business.
25
HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
But the last decade has proven that real small businesses actually defy this
definition. The term previously referred to talented people—frequently
working from home—who sold services and products that were the result
of their own ideas and resources. Their efforts were generally categorized
as lifestyle businesses. We’ve seen a radical re-definition of this over the last
decade. Many small businesses reached astronomical growth levels in a few
months time, and then gave it all back to the market when they failed to
deliver on their promises to customers, investors, and employees.
Whether it’s a lifestyle business or a much larger small business (“NewCo”as
it’s defined) it remains the fastest-growing segment of today’s economy.
Because of the enormous potential for rapid growth, small businesses have
been the market’s primary focus for the last decade and will continue to be
in coming years.
The common element between the old entrepreneurs and the new is that
they both strive to realize their fullest potential, working on their own
terms while maintaining control of the business. Flexibility and the ability
to make quick strategic decisions and unrelenting focus on identifying and
capitalizing on opportunities that arise out of shifts in the market are key
characteristics of the entrepreneur.
As in the past, the new entrepreneur maintains a proactive business style
rather than simply reacting to outside pressures. Entrepreneurs take on
the risks of decision making and accept responsibility for the successes or
failures that result from their decisions.
Risk and the Entrepreneur
Entrepreneurs are known to be risk takers—but they aren’t reckless. Some
of the techniques they use to minimize their risks include:
Asking the right questions: Starting with, “What if…” and “If I take this
risk, what is the worst that can happen?” Pre-planning and groundwork are
essential to taking calculated risks that help entrepreneurs address the issues
and avoid worst case scenarios.
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CHAPTER 3
Researching the market: Entrepreneurs realize that customers, competitors
and suppliers are integral to their success. They evaluate choices by
identifying the range of outcomes from worst-case to best-case scenarios.
Entrepreneurs may use a schematic number line from -5 to +5, the Ben
Franklin model; listing pros and cons for each choice, case histories, gut
feelings or some other method of comparison and evaluation to keep them
on track.
Looking beyond costs: Examining how easy or difficult a startup would
be; understanding user perceptions, timing and other crucial factors,
entrepreneurs realize that numbers aren’t the whole picture.
Evaluate all risks in terms of overall goals and objectives: Since many
entrepreneurs start their business with personal savings or angel round
capital, and function on the financial edge, risk-taking skills are critical.
Even those who start with solid financial backing will be confronted with
risks—and calculated risks can offer the opportunity to grow and move
forward. Whether starting a new business or growing an existing one, an
entrepreneur needs to be armed with every available resource in order to
overcome the challenges ahead.
How to Be Successful
Our motto is, “Why reinvent the wheel?” Let it be yours. Startup
entrepreneurs often mistakenly believe that in order to succeed they must
have a product or service that is far superior to their competition. What’s
really needed is a competitive advantage. It only takes a small improvement
on what the competition is doing to create a successful business.
Remember the analogy of the campers who are awakened in the middle of
the night by the prowling bear? When everyone starts to run, the survivors
remember that they don’t have to run faster than the bear, they just have
to run faster than the slowest person in the group! Survival and success as
an entrepreneur hinge on this concept. You don’t have to revolutionize the
marketplace with a product or service, you just have to execute X% better
than your competition and you will achieve your goals.
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
Businesses always grow in stages. Those stages require a quiet revolution in
the way a company makes decisions and defines roles and responsibilities.
Each down-tick in the stages of growth represents significant risks. The new
entrepreneur has to understand and forecast those risks. One significant
risk which appears across nearly all new growing companies is the risk of
not changing your management style as the company grows more complex
and sophisticated.
This above all else was the downfall of many of the successful startups
over the last decade. Business runners didn’t know when to change
from entrepreneurial-ship to professional manager-ship. Oftentimes an
individual who starts a company is not best suited to run it as it grows
increasingly complex.
What once you could do on an Excel spreadsheet, you may find requires a
costly back-office system in a few years. Recruiting and personnel decisions
which once were made over coffee in the morning now require professional
recruiting firms and attorneys.
The new entrepreneur needs to understand the migration from startup to
functional alignment to process alignment; and strategically know when
along the growth stages of the company things need to change.
Along the way, regardless of the growth stage that you’re in, finding
good resources will bring about growth opportunities for your company.
Persistence will be your ally. Continuous learning and resource gathering are
important keys to your success. You’ll need to be assertive. Entrepreneurs
are doers. They rarely say “It can’t be done.” Instead, they say, “Let’s find a
way to do it.”
One of the most successful business growth stories ever recorded is the
case of Reliance in India, who, without any mobile/telecom or retail
experience, successfully penetrated and dominated both markets (i.e., to
the tune of entering the top 10 telecom companies globally in less than 4
years and entering the top 25 global retailers in less than 3 years). One of
the chief philosophies of this company is, “If you can dream it, you can do
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it.” They and many others have proven that if you want to be a successful
entrepreneur, whether as a channel extension or startup, you must proceed
with eyes wide open and ready for dirty fingernails. We recommend that
you:
Review your business. What could you do to be different to stand out
among all your competition, to improve your work, to instill a sense of
excitement in your business? Look ahead. Read product and trade papers.
Study market trends and keep looking ahead.
Ask successful people the secret of their success. Invite them to lunch or
coffee. Truly successful people share. Their insights and experience are
invaluable resources that can save countless hours of misdirected efforts.
Advance your education and follow-up on available resources every chance
you get. Libraries, workshops, seminars, colleges, community colleges and
publications are irreplaceable support mechanisms for the small business
owner.
Get rid of your deadweight, wasted time, and nonproductive products or
services.
Introduce new products or services that speak to the needs of the market.
Follow your hunches. If you’ve taken the time to obtain adequate
information, these hunches will be solidly grounded and trustworthy.
Don’t pin your hopes on luck. Be ready. Prepare in advance. Join the
team. Get into the game.
Move at the speed of thought. There is no yesterday and tomorrow is too
late, there is only today, so just get it done.
The New Entrepreneurial Climate
Four areas affect the way entrepreneurs will do business in the 21st century:
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
1. Rising global markets and the movement toward sponsorship of
business by government in foreign countries.
2. Keener competition in an unpredictable environment.
3. Turbulence in the marketplace.
4. The element of surprise that pervades the business climate.
You must be able to sense when your environment is changing. Don’t
assume that the marketplace is there. You have to research, develop, and
build your marketplace and then continually refine it.
Flexibility and resiliency are more important now than ever before. Learn
by doing, and profit from customer feedback. Be a market-driven business
adapting and changing to meet the demands of the market. Remember,
most products are incremental improvements, not originals. Look at this as
an asset. A small flexible company can change and achieve more than a big
corporation because it can adapt to changes more quickly.
Begin by taking a good hard look at the market in which you’ll be
functioning. Have a clear understanding of how your business can fit into
the larger picture. To do this, learn to read the signs that are all around us:
The market is in the midst of a tremendous shift—toward smartspending, smart-economics, smart-management.
x
Companies in specialty market segments are experiencing
phenomenal meltdowns of their customer base and their profits; new
markets are increasingly hard to penetrate without significant (or
smart) use of capital.
x
Large companies are laying off millions of workers, both bluecollar and white-collar. “Mean and lean” is the economic reality of the
year—and perhaps for the rest of the decade.
x
Because there are no guaranties for today’s work force, many of the more
skilled individuals (who have the most difficulty securing new employment
quickly) are looking for alternatives. Despite the fallout from the collapse
of the new economies, thousands of new businesses have been started in
recent months, and thousands more will be started in years to come. Self30
CHAPTER 3
employment is a particularly attractive option for those who have come to
realize that the real stability is that which they create for themselves; that
even large companies can fail quickly in today’s marketplace.
This idea is not new. Until the rise of industrialism in the mid-nineteenth
century, the United States’ economy was based on individual enterprise.
At that point, the focus of business shifted to mass production and
market control. No longer was individual enterprise considered worthy
or as profitable. Growth and control of the marketplace gave rise to the
corporations—the Fortune 500—that we know today.
Entire populations moved to the large cities. By the middle of the 20th
century, the successful were recognized primarily by their climb up the
corporate ladder rather than by significant individual achievements.
We are experiencing a swing of the pendulum. We’ve reached and passed
the peak of the trend toward industrialization and we’ve suffered the 1st
wave and collapse of the information age.
Many experts say we are now simply returning to a more balanced
economy. Over the past few years, in addition to thousands of startups
failing, millions of employees have lost positions with large corporations
that were once considered invincible. Those stories dominate the taglines
of Internet blogs and headlines of newspapers across the world every day.
The employees who are left behind in mean and lean downsized companies
still must produce. Downsizing has left enormous holes in the economy
where small businesses can fill a need. Since those still employed are limited
by capital, time, and resources, they must increasingly rely on outside
vendors for services and products that were traditionally produced inhouse.
While the thought of creating a small business may seem a very attractive
alternative, a word of caution is in order—there are many pitfalls. Get in
the wrong business (one that fails to satisfy a real need in emerging markets
or a gap in mature markets), take wild risks that you aren’t ready for, fail to
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
do your homework, ignore market indicators, and you can fall flat on your
face, as so many have before.
There is a wealth of information and assistance out there. The federal
government, state governments, and the marketplace are encouraging us to
look at small businesses as a viable alternative. Special training programs,
counseling, tax breaks, financial assistance, and educational opportunities
are increasing. But no one is going to search them out for you, and no one
is going to make it easy. It’s going to be struggle and, as always, those who
survive and prosper will be those who use available resources wisely.
Until recently, new businesses needed to ferret out resources as best they
could. They often discovered that resources were few and far between. They
also found a tremendous resistance to their vision of success as individual
entities in competition with the market giants. Even today we find pockets
where small businesses have credibility challenges. And frequently, it’s
difficult for newly created businesses to establish their credibility without
vast infusions of monies to support brand recognition or formal customer
relationship management programs to sustain them.
But this is changing. Today, although it certainly isn’t as easy to establish a
business account with banks and suppliers as it was 5 years ago, neither is
it as difficult as it was 25 or even 15 years ago.
And if you need to, be aware that in many municipalities there are still
restrictions on working out of one’s home. Of course, there is a lot more
work to do. As we’ve discussed, there is still no single definition for what
really constitutes a small business.
For example, real estate brokers, artists, writers, and others find themselves
disqualified from programs and financing slated for the small business.
Frequently, independent proprietors in the business of providing services
are told that they really don’t have a business because their receipts aren’t
substantial.
Small and medium-sized businesses have contributed the majority of jobs
for Americans in recent years and today, small business means big business.
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Small businesses currently represent more than 98 percent of all United
States companies. They employ more than half of the private work force
and produce almost 50 percent of the Gross Domestic Product. Nearly two
out of every three new jobs are the results of small businesses growth.
Contrary to what many believe, it is small businesses—in fact, very small
entrepreneurial businesses—that have provided our country with the
majority of new jobs during the past two decades. More than 88 percent
of all business establishments are owned by small businesses. While
small businesses with fewer than 100 employees created almost all of the
employment growth, the number of jobs created by big businesses has
decreased significantly.
Entrepreneurial Survival Skills
Regardless of the economic climate, many entrepreneurs are still surviving
and prospering. Common traits of the survivor include:
x
x
x
x
x
x
x
x
x
They are always ethical, even when times are hard.
They know their customers’ needs and satisfy them.
They take the time to do something extra for their customers.
They focus their energies on the bottom line rather than on growth
for growth’s sake.
They pay special attention to accounts receivable.
They control their inventories, keeping them close to sales.
They reduce expenses.
They know how to minimize paperwork.
Survival also requires caution against the pitfalls of operating a small
business. Below are the most common causes of small business failure.
Inadequate Capital. Be prepared with hard cash for months—even years
of sustained losses. Always prepare for the worst-case scenario.
Inexperienced Management. Get some sound experience in managing
before you go into business, or seek the advice of a good management
consultant as you grow your business.
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
Failing to detect bad credit risks early. Develop the ability to read the
warning signs: collection claims, suits and judgments (get credit reports on
your larger customers); reluctance to provide audited financial statements
and bank references; partial/erratic payments on account; unusually large
orders.
Mistaking a hobby for a business. Hobbies can be the basis for promising
business ventures if creative or technical skills required for the hobby are
balanced with strong business sense and know how.
Trying to make the business appeal to everyone. Remember less is more.
Focus on a single age category, a single socioeconomic group, a single
selling point. Narrow your focus, identify a specific market segment, and
utilize every available resource to become a significant factor in that area.
Underpricing the Product/service. The right price should balance the
company’s need to make a profit and the consumer’s search for value.
Establish the range you feel meets both needs, research your market and
build intangibles (prestige, status, pride).
Types of Small Businesses
Small businesses can take a wide variety of forms, including:
Freelancing writers, designers, photographers, etc…
Part-Time opportunities in almost every type of business.
Consulting practices management, marketing, computer opportunities
and more.
Professional practices doctors, lawyers, accountants, and other licensed
individuals.
Manufacturing representatives to represent large companies and their
products
from your home.
Franchises hundreds become available yearly, some with very low startup
fees.
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CHAPTER 3
Service businesses such as telecommunications, computer repair and
maintenance, commercial real estate and leasing, to consumer services like
diaper services, home health care and personal shoppers.
Manufacturing combining importing and exporting opportunities with
a good product.
Retail stores filling a need in a niche market.
Most professions require that you have formal training and licensing prior
to opening your business practice. However, most other business categories
require much less in the way of formal schooling. No matter what business
you’re in, you must have a solid skill base. Too many entrepreneurs put
their time and money into businesses that require more expertise than
they currently have. For example, a person with little or no background in
computers might start a business selling computers. If you find you need
more skill development, consider taking a part-time job in your area of
interest.
Some businesses are risky even if you have the right experience. It would
be unwise, for example, for a couple to quit their jobs and put all their
current savings into a restaurant. According to many business consultants,
including the financial lending division of the SBA, restaurants are high
risks—so risky, in fact, that many banks and the government won’t loan on
such ventures. Whatever you do, when choosing a business, make it one
that you’re sure you will enjoy. While you’re waiting for the dollars to roll
in, you’ll need a business that satisfies more than just your financial needs.
So where do you fit in? If you’re looking for the magic guaranteed to
succeed, can’t fail road to riches, security and notoriety, forget it. There is
no best business, but you can select one that is best for you.
Know yourself, your talents, what you enjoy and don’t enjoy doing. Are
you creative or more comfortable accomplishing tasks that are predictable
and repetitive? If you need help identifying your interests and talents, seek
help from career counselors (available though many colleges at very low
fees) or personal development specialists.
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
Research until you find an idea (maybe even one that is working for
someone else). Improve it, change it, mold it to fit you and your strengths,
and look for ways to make it most profitable for you.
Organize yourself. If you don’t take the time to get organized now, you
will never catch up.
Take a chance. Step out of your comfort zone. Allow yourself to take small
risks in order to achieve the possibility of growth and profits.
Learn how to live with less for a while. Work smarter, applying your
mind, your energy and your spirit rather than throwing money at problems.
Get Help. Consult professionals and experts in your industry.
Set clear goals and bottom lines for yourself and your business. A solid
business plan is essential.
From Idea to Execution
As you read through the next chapters, take time to investigate the many
resources available to you prior to startup. Taking a business from “Idea”
to “Execution” is very difficult. Keep a large notebook with divisions for
marketing, management, financial and legal information. Schedule weekly
sessions to review the material you have collected, either on your own
or with another business friend or small business counselor. Constantly
summarize the information you have gathered, and incorporate anything
relevant in your business plan.
Most startups take six to eight weeks, if not much longer, before they open
their (real or virtual) doors for business. Remember, a little planning can
go a long way. Once you begin operating, you have almost no time for
planning. Enjoy this time, and don’t be overly anxious. It’s important to
start on firm ground.
When you’re in business and several months have gone by (and you’ll be
amazed how quickly they do), you’ll have trouble remembering a time when
you weren’t working ten plus hour days. The time spent in the planning
stage is crucial to the success of your business.
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Chapter 4
Launch Kit Overview
Critical Launch Elements
What is in Your Toolbox?
Critical Launch Elements
There are numerous ways in which entrepreneurs or new business runners
can launch their business. However, there are a limited number of critical
elements which need to be considered regardless of the geography, industry,
product or service you are committing yourself and your customers to.
These elements break down into four foundational areas: People, Process,
Technology and Strategy. Within each foundational area, as we briefly
discussed in the last chapter, you need to not only make decisions on what
you need to launch the business, but in how you will acquire, maintain,
enhance those critical elements of your business.
For example, if you need sophisticated financial accounting capabilities,
because you are providing a unique service to the financial services
marketplace and your business will process (and perhaps evaluate) hundreds
of thousands of transactions a day, then your front and back-office IT
strategy is a necessary launch element.
Additionally, you may need to make decisions on whether you use an
outsourcing service provider for this transaction accounting or not. And
if so, for how long and at what price. Clearly in this case, technology is
a critical component not just to the business, but the reporting on the
business necessary to invoice customers, capture taxable revenues, etc.
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
In each business, across each critical launch area, there are decisions to be
made and tradeoffs to evaluate. This chapter is designed to outline some
of those key decision areas and give you an overview of the kind of launch
kit you should prepare for yourself as you complete your business plan and
financial modeling, begin hiring your associates, and get the business ready
for profitable operations.
What’s in Your Toolbox?
Below is a list of critical elements across People, Process, Technology, and
Strategy which you should consider having answers for …. IN your launch
toolbox:
Strategy
9Market Trends/Assessment
9Market Demand Analysis
9Competitive Assessment
9New Entrants Analytics – SWOT
9LCVM – Lifetime Customer Values Model
People
9Organizational Alignment Matrix (as is)
9Job Profile Templates
9Compensation Models
9Organizational Migration Plan (to be)
9Critical Skills/Behaviors Template
9Mission, Vision, Core Values Templates
9Business Plan Templates
9Brand Strategy/Marketing Templates
9PR, Media, Analyst Preparation Kits
9Internal Communication Flow Model
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CHAPTER 4
Business Process
9Business Function-Point Model
9Critical Decision Economic Tradeoffs
9Business Process Interdependencies
9Process Maps/Decision Trees
9KPI’s, Key Succcess Factor Template
9Product/Services (P/S) Design Requirements
9(P/S) Attribute Analysis
9(P/S) Price Elasticity Analytics
9Customer Survey Template
9(P/S) Lifecycle/Margin Analysis Model
Technology
9Business Application Requirements Checklist
9Logical Business Data Model
9Information Flow Diagrams
9Application Architecture Template
9Data Architecture Template
9Technical Architecture Template
Basically, the critical elements in your launch kit will correlate with the
key decision-areas in your business, which offer the greatest potential
opportunity for profitable growth or the greatest potential risk for margin
erosion, poor performance, or legal liability. So, like all business runners,
you need to be prepared to manage the upside and downside of your
business with equal efficacy.
There are literally thousands of forms or templates which you could
imagine being useful in the startup stages of the business. However, what
we’ve tried to do is create a focused list of elements addressing the main
areas of risk (and opportunity) that we’ve seen repeatedly under-managed
in the initial stages of company growth, and to provide you with going-inrecommendations that can more quickly launch your business.
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Chapter 5
Business Planning
What a Business Plan Can Do
The Management Plan
Putting it All Together
Update Your Plan Regularly
Business plans are usually written to secure financing. Few, if any, funding
sources—banks, venture capitalists, angels or even family members—will
lend or invest money without a written plan. They all want to know when
and how you’ll pay back the money you want to borrow, or grow the money
investment contributed to the company in equity term sheets.
A smart entrepreneur also understands that a business plan is an important
foundation for a business’s day-to-day activities. Whatever reasons you may
have now, after reading this chapter, we hope you will see the importance
of a written business plan.
The first step in planning your business is to take a realistic look at what
your costs will be. Start a list, and jot down every expense category that
comes to mind. From this, set up a work sheet containing an estimate for
each item. Whether you write your own business plan or decide to hire a
specialist to assist you, there will be costs involved for researching, writing
and printing.
David H. Bangs, Jr., in his book The Business Planning Guide, suggests
three major reasons for going to the trouble of writing a business plan:
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
1. Objectivity: The process of putting a business plan together,
including the thought you put in before beginning to write, forces
you to take an objective, critical, unemotional look at your business
project in its entirety.
2. Effectivity: The finished product—your business plan—is an
operating tool that, if properly used, will help you manage your
business and work effectively toward its success.
3. Communications: The completed business plan communicates
your ideas to others and provides the basis for your financing proposal.
Take the time to sit down and put on paper the basic, Who, What, Where,
When and How of your business.
What a Business Plan Can Do
A business plan can open doors for you. It creates, perhaps, the only solid
evidence that you can do what you say you can do. How do you create
such a plan? You can use one of the numerous books available, buy a
software program designed to aid in the creation of business plans, or find
an individual or firm that specializes in writing plans.
Rhonda Abrams, in her book, The Successful Business Plan (Oasis Press), sets
forth her five fundamental steps to the business plan process:
1.
2.
3.
4.
5.
Lay out your basic business concept.
Gather data on the feasibility and specifics of your concept.
Focus and refine the concept based on your data.
Outline the specifics of your business.
Put your plan into compelling form.
Research and develop all the components of your plan. Take the time to
know your market. These steps will greatly improve the quality and success
of your plan. This is the basic marketing research that will help you better
understand your industry and how your business fits in.
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Jill Johnson of Johnson Consulting in Minneapolis, states: “One of the most
crucial elements of any plan is going to be tying your projected revenues
to your expenses.” Johnson also emphasizes the need for businesses to
revisit their business plans as they enter the second critical stage of business
development that usually occurs when the business is three to five years
old. She adds, “You will be more sophisticated then. It is the best time to
go back and rethink your vision.”
A lot of businesses neglect long-range planning. Johnson suggests you
combine this with long-range, strategic planning. An ongoing business
plan helps you to see new opportunities and manage growth.
Finally, Johnson notes that the written plan helps you with one of the most
important and critical areas to your success—pricing. Many entrepreneurs
do not take the time to find out what is competitive in the market. It’s
extremely difficult to compete on price. Johnson explains:
If you deeply discount your numbers, you will have nothing left for cash or
savings. What you have done is discount yourself out of the market. We as a
nation have created an image that the more expensive the better. We have
conditioned ourselves to believe that if we get it for free or cheap it is not very
good. You can lose clients when your low prices decrease your credibility as
a valued source of business. This is especially true with service businesses. I
recommend people come close to the middle of the price ranges you discover
through researching your competition.
All the elements of the business plan can be identified relatively easily with
diligent research and by giving careful thought to the following questions
before you begin:
1. Who are you? What is your business idea? Why do you think this
idea will work? What do you expect to accomplish? How will you
do it? What does the future look like? This becomes your Executive
Summary.
2. What is your reason for starting this business? This is your Mission
Statement.
3. What is your philosophy? What are the driving forces that guide
and motivate you?
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
4. What are your goals? If you don’t have a goal, you cheat yourself;
you have nothing to strive for and no reason to get there.
5. Do you have a business name and a structure (i.e. sole proprietor,
corporation, etc.)?
6. What are you selling? This is very important, and reflects back
to your Mission Statement. For example, if you’re going to sell can
openers, are you selling them as tools that cut metal cans so you can
get food out? Are you selling speed and efficiency so that the user
can get on to other, more important activities? Or are you selling the
prestige of owning a one-of-a-kind item that buyers will brag about
for the next six months to all of their friends?
7. Where and to whom will you be selling your product/service? Who
are your suppliers? Who is your competition? What do you know
about them?
8. How do you plan to produce this product/service? What raw
materials will be used in the production process? What human
resources will you need to draw on? What is your production cycle?
9. What price will you be selling your product/service for? What will
the market bear? What must you sell it for to make a profit? What do
comparable items sell for? Will this price cover your costs and provide
ample profit?
10.
What is your marketing strategy? How are you going to sell
your product/service? How are you going to advertise? Will you hire
a sales staff and/or use direct mail solicitation? What public relations
efforts do you plan to incorporate?
11.
Do you and/or your personnel have the necessary skills,
qualifications and technical expertise to keep the business moving at a
respectable clip and achieve the goals you’ve set forth?
12.
What about your financial plans? How are you going to
pay the costs of getting this business off the ground? Where is the
money coming from to pay day-to-day expenses? As you grow and
develop a track record you’ll be able to call on past performance to
predict the future. With or without that track record, you need to
know how you’re going to handle financial needs and achieve a return
on your investment.
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CHAPTER 5
You may have the answers to these questions already, but chances are you
may find some holes in your thinking. In any case, the mere process of
putting all of these elements in black and white can help you to focus.
The act of preparing a plan forces you to recognize the weakness in your
thinking and to identify the elements that you don’t have clearly in place.
In the initial stages you don’t need volumes of information in your business
plan. Most of the critical questions can be answered in a sentence or a
paragraph. The key is that the more precisely you can identify your answers,
the closer you will be to success.
Your business plan will become your map to success, itemizing your
ultimate goals for your business as well as the path you will follow to get
there. It will also substantiate your loan-ability.
The basic business plan will get you moving and keep you focused. And,
particularly during your first months of business ownership, it will keep you
from getting sidetracked. As you become better grounded in your business
plan and begin using it day-to-day, you’ll begin to fine-tune it. Experience
will show you the areas of your business that are shaky and where you need
to focus your attention.
Typically, the marketing, management, and financial areas of your business
require constant adjustment. They are actually plans unto themselves. Each
of these sub-plans is fluid, requiring regular adjustment if you hope to
continue moving toward your goal. If you allow these elements to remain
static, you will lose momentum.
Following are overviews of each of these sub-plans. Later chapters cover
these topics in much greater detail.
A Business Plan Outline
Business plans may take a variety of forms, but they must all contain
information critical to lenders or investors. David Bangs, Jr., suggests the
following outline:
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
Outline of a Business Plan
Cover Sheet: Name of business, names of principals, address and phone number
Statement of Purpose
Table of Contents
Section One: The Business
A.- Description of Business
B.- Product/Service
C.- Market
D.- Location of Business
E.- Competition
F.- Management
G.- Personnel
H.- Application and Expected Effect of Loan (if needed)
I.- Summary
Section Two: Financial Data
A.- Sources and Applications of Funding
B.- Capital Equipment List
C.- Balance Sheet
D.- Break-Even Analysis
E.- Income Projections (Profit and Loss Statements)
1.- Three-year Summary
2.- Detail by month for first year
3.- Detail by quarter for second and third years
4.- Notes of Explanation
F.- Cash Flow Projection
1.- Detail by month
2.- Detail by quarter for second and third years
3.- Notes of explanation
G.- Deviation Analysis
H.- Historical Financial Reports for Existing Business
1.- Balance Sheets for past three years
2.- Income Statements for past three years
3.- Tax Returns
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CHAPTER 5
Section Three: Supporting Documents
Personal resumes, personal balance sheets, cost of living budget, credit
reports, letters of reference, job descriptions, letters of intent, copies of
leases, contracts, legal documents, and anything else relevant to the plan.
Source: Reprinted with permission from The Business Planning Guide by
David H. Bangs, Jr. Copyright 1992 by Upstart Publishing Company, Inc.
The Management Plan
Perhaps a bit less formalized than the marketing plan and the financial
plan, the management plan is important because it delineates how you will
utilize the resources—physical, financial, and human—at your disposal to
achieve your goals. If you don’t take time to work through the details of the
day-to-day business operation, the business will rapidly get out of control.
Guidelines, limitations, and development stages need to be thought
through and planned for carefully.
In management planning, you’ll need to identify how, when, where, and
by whom the various functions of your business and office will be handled.
You’ll consider such mundane problems as furnishings and supplies,
bookkeeping, billing and accounts receivable, taxes, office policies and
procedures, and much more. It’s a bit like preparing your car for a long
trip. If you don’t plan your gas, oil, tire, and pit stop needs, you simply
won’t arrive at your destination.
Startup Fees: As a new business owner, you can expect to pay the startup
fees that we discussed earlier.
Attorney’s Fees: These can include costs of incorporation or drawing up
partnership agreements. Whether you plan to remain on your own, take on
a partner or form a corporation, we advise that you see an attorney prior
to startup.
Accounting Fees: Whether or not you’ll need monthly record-keeping
services, we advise you to see an accountant prior to startup.
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
Supplies: Costs for the materials of your profession must be anticipated:
stationary, business cards, telephone system, answering and fax machines,
photocopier and personal computer.
Office Furnishings and Equipment: You will need a desk, chair, filing
cabinet(s), bookshelves and lighting. Do what you can to reduce these costs
at first by buying second hand.
Insurance: Insure your equipment and your office separately. Do not
include the equipment under your existing homeowner’s policy unless
you use a home office rider or addendum. Purchase a policy that covers
replacement costs. You will also need an umbrella liability policy to cover
things like customers getting hurt on your property.
Miscellaneous Expenses:
emergencies.
Add a 20 percent financial cushion for
Working Capital: You must pay yourself to cover personal and family
bills. You should have enough in the bank or in liquid assets (mutual funds,
pension funds, stocks and bonds), to cover business expenses for three to
six months.
Putting It All Together
Once you’ve done your homework—thoroughly researched, set your goals
and expectations, planned your objectives and day-to-day operations,
and determined all the key elements of your business—you will put that
information into a formal document.
The first step is to assemble your working document. Some find that a threering binder with a separate page or section for each topic allows flexibility
and ease of revision. If that works for you, fine. You’ll be reviewing your
plan on a regular basis and updating it from time to time. For your own
planning purposes, you will want to keep revisions as simple as possible.
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But there will come a time when you’ll need to present this document to an
equity investor, a lender, a consultant or others for review. That’s when your
communication and writing skills become extremely important.
Who is your audience? What do you expect to be the outcome? Use a list
of key points that need to be addressed to support your cause. Anticipate
and answer your reader’s questions, leading them to the same conclusion
that you addressed in the beginning of your document.
While you write, keep the structure you’ve chosen. Make smooth transitional
statements. Incorporate graphics and supporting documentation where
needed. Close by repeating the main points of your opening remarks.
Now, edit your plan. Consider asking someone with expertise in these
matters to review it so that you can get a feel for any problems with your
communication process. Your style and final presentation will follow basic
business/technical writing techniques:
Watch the white space: Make your presentation easy on the reader. Don’t
crowd your pages with details.
Use headings for each topic discussed: This will keep your presentation
organized and will help the reader quickly locate information.
Keep your sentences short and concise: Eliminate editorial comments.
Use active, descriptive nouns and verbs to convey your message.
Use transitional words and phrases throughout your report that help
the reader follow your reasoning: For example, now, because of this, so,
additionally, and other strong transitions show relationships and help your
reader follow the logical flow of your work.
Precede all detailed object or process descriptions with an overview of
function or purpose: Anticipate possible reader objections or questions,
and incorporate explanations or answers into your plan.
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
Include supporting documentation: You might consider putting it in a
separate appendix so your document flows easily. Make any limitations of
your study clear from the beginning.
Read over your writing twice: Read once for clarity, and once for
mechanical correctness; then ask someone else to read it.
An average business plan can take more than 200 hours to write. Hiring
someone who knows the process and what it looks like, especially if you
are putting a substantial amount of money into your business, should be a
strong consideration. The difference between doing it yourself and taking
a course in college is the critical perspective. Jill Johnson comments on the
role a management consultant takes in the business plan process:
A consultant who works with you to develop a business plan will work with
you on the research or do the research for you, interpret the information as
it relates to you and what you want to achieve. The consultant will give you
objective feedback as to how your ideas fit within your marketplace and help
you understand how they fit your operating issues, staffing issues and the total
financial impact they will have. Some consultants will also act as a guide,
helping you develop your own successful plan.
Your business plan must be realistic. You need to take an active role in its
development even if you’re using consultants to help you. The time spent
creating a realistic, workable plan will have a substantial payback as you
grow your business.
Update Your Plan Regularly
Because you are in business to grow, and growth is predicated on change,
you’ll need to review your plan on a regular basis. Your plan should be
a working document—it’s even wise to keep it handy for an occasional
review, just to see if what you’re doing is in keeping with your plans and
goals.
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Re-evaluate every six months or at least every year. (Ideally, financial
documents such as profit and loss statements and balance sheets should
be updated monthly). You will have to decide the best schedule for your
business. Careful re-evaluation is obviously indicated any time you are
faced with major issues that may call for you to change direction. You may
think you need to invest in a new computer or hire a manager. Don’t do
this without consulting your business plan. These are the kinds of steps that
need to be evaluated in light of your overall plan.
You may reach a point where you discover that your marketing efforts aren’t
working—sales are off and you need to do something soon. This is another
critical time to check the marketing portion of your plan. Without these
plans in place, you might decide too quickly that it’s time to change your
company image, before your original ideas have had a chance to work. Your
plan should help you to evaluate such issues in light of the bigger picture.
View your planning documents as fluid; keep refining them, and they’ll
keep you growing.
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Chapter 6
Financing, Planning, and Funding
The Financial Plan
Revenue & Cost Models
Strategies for Securing a Launch Loan
Investors & Other Financing
Budgets & Bookkeeping
Cash Flow Management
The Financial Plan
The financial plan is critical to the success of your business plan. Despite
the fact that it is usually developed for the benefit of potential lenders,
keep in mind that such a plan is first and foremost important for you.
Entrepreneurial businesses all too frequently straddle the financial edge,
and you must have a firm grip on how financially sound your business is
at all times.
Fundamentally, every business creates value by generating cash in excess
of deployed capital. This means growing your revenues, reducing your
costs, and deploying your fixed and working capital to the most profitable
channels, products, or services. The chart below outlines this concept. Many
business runners forget the basic tradeoffs between incurring smart costs,
which can drive increased revenues; locking down too much investment
in fixed capital and undervaluing the working capital component of the
business; and in how these cost and revenue components interact in general
across the business, with its suppliers and with its customers.
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
Revenue
Cash
Costs
Value
Working Capital
Invested
Capital
Fixed
Capital
In your financial plan you’ll detail profits and losses, current assets and
liabilities, budgets and the like. You must keep in mind that the timeframe
for your return on investment, and the timeframe for profits will differ
by line of business, and perhaps even by product or service. Being able
to directly allocate costs or working capital to the products and services
you’re promoting in the marketplace is essential to being able to produce
a financial plan that a) allows you to seek debt or equity financing; and b)
allows you to profitably run and grow your business.
You’ll need to analyze your current financial health at a specific point in
time and use your track record to predict probable future growth.
Financing is one of the toughest areas for an entrepreneur to address.
During the current recession, drastic cutbacks have taken their toll on a
number of financial institutions. There are no simple tricks or shortcuts
to getting money—only old fashioned strategies that often aren’t taken
seriously enough.
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Don’t accept quick and easy solutions. Look at the process from all angles
before making any decisions. Be sure that you understand cash flow analysis
and financial planning well enough to at least ask the right questions before
making any decisions.
This chapter provides an overview of the financial planning needs for both
startup and emerging businesses. However, an existing business is likely
to meet with more success in obtaining financing to meet those needs.
Our advice is to use the resources as a starting point to begin seeking
funding. Prepare yourself for the process by setting aside blocks of time for
researching, planning, writing and meeting potential funding sources. You
will find that looking for funding becomes, at the very least, a part-time
job.
Try to seek loans for growth rather than for working capital. First, look for
loans at your current bank. The relationship you have been developing for
the past startup years should serve as a foundation for lending, although
banks are very reluctant to loan money to startups. You typically will need a
stable customer base, revenue, and a year’s worth of operations behind you
if you seek a loan from a local bank.
Once you’ve developed a financial track record, usually after a couple years in
business, you become eligible for loans, lines of credit, and a much broader
range of funding opportunities. Both the state and federal governments
have a variety of funding programs. You’ll need to meet certain financial
qualifications, such as adequate collateral and increased annual revenues. If
you’ve shown financial success, you’re in a good position to request funding
for expansion. Funding sources are often reluctant to lend for operating
expenses. They want to see the funds they lend being used to develop new
business opportunities.
Revenue and Cost Models
One of the most important aspects of your financial planning efforts is
gaining the proper level of detail on your financial forecasts. It’s not enough
to list assumptions, gross sales numbers, and basic operating costs. You
need to understand:
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
Which of your costs are variable (i.e., will grow as sales grow), and
which are fixed.
x What are the costs of maintaining your customers?
x Do your customers have lifetime value? Or is every sale a one-off?
x What is the margin per customer? Is this different for different
customer types? How will your forecast incorporate customer attrition
rates? Customer acquisition rates?
x Is your selling model predicated on volume? (i.e., the first fax
machine ever sold was useless… the millionth sold was highly
valuable—how should this reflect in your pricing structure?
x Can you pull through sales of complementary products and
services? How should you model this in terms of costs/revenues?
x What assumptions can you make on creating membership programs
or subscription services vs. transaction services and direct sales?
x What assumptions can you make on the value of alliance programs,
or alternative channels through which your product or service can be
sold?
x What should be the appropriate sharing/commission on these
alternative channels?
x
These are some of the hundreds of questions which need to be asked and
answered as you build the cash flow, balance sheet, and pricing schedules
for your business. The best way to build these revenue and cost models is to
make them variable driven so that you can do what-if analysis on different
alternatives before you launch the business.
A flexible, variable-driven financial model can be used later as a scorecard
to benchmark your company performance after each month/quarter/
year against your original assumptions. Being nimble and able to coursecorrect as you go, by either trimming overhead, eliminating unprofitable
distribution channels, or allocating more capital to products or channels
which appear to be growing more rapidly are critical skills you will need to
sustain your business growth.
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Strategies for Securing a Business Loan
For those who think their business would be successful if only they had an
infusion of capital, here are the strategies that can boost your chances for
success:
Create an Excellent Business Plan
All funding sources will want to see a comprehensive, concise, and realistic
business plan. Your plan will be the primary key for getting funding and,
if used as a basis for daily business decisions, will help you reach your goals
and give you continued opportunities for funding.
Create a File on Contacts
Whether you have a computerized data base or keep a notebook of the
many contacts you make with potential investors, it’s important to keep
track. Once you’ve completed your business plan, mail it with a cover letter
to the investors you have prescreened. Prescreening is important because
you shouldn’t waste money copying or mailing to unscreened individuals.
Take the time to make the phone calls, and see if at this time (because things
change constantly with every business), the bank, angel network, venture
capital firm, etc., is accepting applications for your type of investment
request. Time taken to target market is the best time you can spend.
Continue to Periodically Follow Up on Your Contacts
“If at first you don’t succeed, try, try again,” is an excellent motto when
applying for funding. Just as you must constantly sell your product or
service, you must also sell the opportunity to others to invest in your
company. Make regular phone follow-ups (monthly or every other month)
even to contacts who were noncommittal or negative.
Your initial negative contact with a representative of a bank or investment
firm might have involved just a bad day for the person with whom you
had spoken. As long as there was an initial interest in your company, keep
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
trying. Ask for suggestions on how to improve your plan. The advice you
get could mean the difference between wishing for an opportunity and
making one happen.
Ask for a Larger Sum of Money Than You Need
Many entrepreneurs make the mistake of not asking for enough money.
Banks, investors and even the SBA see this as a sign that you don’t have
a good understanding of what your needs are. Keep in mind that your
success in obtaining funding hinges on your preparation. Take the time to
seek advice from professionals. Some banks even offer to help you create
realistic financial projections at no cost. SBDCs can also assist you. Take
your projections to your accountant, or seek the assistance of an accountant
who has worked with companies like yours. This extra preparation may not
ensure that you will get funding, but your clear, unshakable understanding
of your company’s financial health; its potential for growth; and the value
of money will go a long way toward convincing your lenders to invest in
you.
Lenders no longer—if they ever did—buy the concept of “blue sky.” Money
is spent on a realistic, projected return on investment now more than ever
before. The key, if you want to become financially strong and if you want to
secure funding, is to become money wise in every sense of the word.
Loan Package Checklist
Your accountant and banker can be valuable resources in helping you
construct the financial section of your loan package, the first step forward
obtaining financing. Your financial profile is critical in substantiating your
loan-ability. Listed below are the basics of a loan request:
General statement regarding the Loan Request
x
x
x
58
Purpose – What exactly will the loan be used for?
Loan Amount
Repayment Terms
CHAPTER 6
Definition of Product/Service Sold
x
x
x
x
x
x
Description of product/service
Strength/weakness of product/service sales strategy
Who is your potential market? Supporting demographics
How product is/will be sold
Trade area/competition
Sales Volumes—historical, projected
Place of Business
x
x
Location
Description of physical facility/equipment/inventory
Resume of Owner/Principals/Management—What are your
specific strengths?
Financial Information
(three years minimum, if available)
x
x
x
x
x
x
Company Balance Sheet
Company Profit and Loss Statement
Company Federal Tax Returns
Company Pro Forma Statements (minimum two-year forecast)
Personal Financial Statements on all principals.
Personal Tax Returns on all principals
Ratios That Indicate Loan-Ability
Your lender will be interested in financial ratios when evaluating your loan
request. Below is an explanation of three key ratios.
Current Ratio – This indicates the strength of the company in servicing
additional debt. A 2:1 ratio allows a reasonable margin of safety:
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
Current Assets
________________________
Current Liabilities
Current Assets = cash, accounts receivable, short-term investments.
Current Liabilities = accounts payable, interest accrued, etc.
Acid Test Ratio – This indicates whether the company can meet its current
debt obligations. A ratio of 1:1 or higher is satisfactory.
Liquid (Quick) Assets
___________________________
Current Liabilities
Liquid Assets = cash and investments that can easily be converted to cash.
Current Liabilities = accounts payable, interest accrued, etc.
Ownership ratio – This indicates what you have at stake in the business.
Liabilities
____________________________
Net Worth
Liabilities = monies owed by the business
Net Worth = amount of owner’s equity or money at stake.
Types of Loans
Character: After you’ve built up a history with a bank, an uninsured loan
that is basically based on your character may be considered.
Lines of Credit: This involves loans for financing a short-term asset. A line
of credit is drawn upon either seasonally or during a specific time in the
cash flow cycle of a business. This draw is usually paid off during another
time in that same cash flow cycle. The rate on a line of credit is usually
floating with prime so that it is adjusted by the market. The term of a line
of credit is never more than 12 months; however, lines are renewed yearly
with updated financial information. These loans are typically referred to as
working capital loans.
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Term Loans: (i.e., one year, five year, fifteen year) Term loans often require
collateral and high credit standards. They are usually installment loans that
blend the interest and principal into monthly or quarterly payments.
Co-signer Loans: These loans are most typically used in the consumer
finance or retail banking industries. The co-signer is one who personally
guarantees the performance of the borrower on the loan. Typically the
borrower has little or no credit experience, while the co-signer has a
significant amount of good credit experience.
Warehouse (Field Warehouse) Loans: Commonly known as brokerage
businesses. A mortgage loan broker uses the line to fund a loan underwritten
to the specifications of a particular securities pool. The line is advanced for a
short-term and may then be readvanced numerous times as the proceeding
loans are funded and then sold as a security.
Equipment Loan/Installment: (usually directed at manufacturing
companies) Your equipment is the collateral for this type of loan.
Accounts Receivable Financing: Some commercial credit companies will
finance a percentage on receivables; however, such loans are usually at very
high interest rates.
Trade Credit: These loans are made between two or more businesses.
Technically, trade credits are an accounts payable that is owed to a supplier
and used to purchase inventory. That supplier may offer a trade discount
to the purchaser. A discount—two percent/ten days—means that if the
supplier gets paid in ten days, the purchaser gets a discount of two percent.
This type of lending is secured by the product and is a nonbanking type of
financing.
Investors & Other Financing
Barry Molz is an entrepreneur who has co-founded three startup companies.
He has many years of experience, both on the funding and the granting of
funds, in which he gained insight into this difficult, but critical process.
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
The last company he founded was SciTech where he served as the CEO of
this direct mail catalog and e-commerce reseller of scientific, engineering
and technical software.
Moving from the role of entrepreneur to angel investor, he co-founded
Prairie Angels, a group of private investors committed to investing in
and mentoring early stage companies and their entrepreneurs. Prairie
Angels is recognized and supported by Chicago Mayor’s Office, and Price
Waterhouse Coopers
Venture capital funding, the most expensive of funding resources, usually
looks for a minimum 20 percent equity position in a company and often
a share of far more than 50 percent. Most entrepreneurs consider this
funding as an alternative only after they have exhausted the possibility of
self financing.
However, there are businesses, such as high technology companies, that
need a great deal of money to position themselves quickly and effectively
in market niches. When it’s of the essence and the business has a diverse
team of seasoned professionals coming together to build a business, venture
capital might be just the right form of financing.
For a services business, venture capital is one of the more appropriate
resources for a second/round investment in a company in order to ensure
continued expansion. The company, initially funded with the owner’s
finances, has grown to the point where it clearly demonstrates success and
a growth curve that shows reasonable chance of creating an open-ended
market. By the time the company needs a second round of financing, the
niche should be clearly defined. Again, a business plan is required with
sound projections based on a two-year to five-year financial track record.
It could take up to a year or more to get funding once a firm is interested in
your proposal. Venture firms receive 100 or more funding proposals weekly.
Most firms have a board that reviews applicants. It they are interested in
you, they can continue to request new information and hold meetings until
they are ready to make a decision.
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Venture capitalists prefer businesses that are novel and interesting enough
to promise a fairly short-term buy-out, an opportunity to go public or
generate private dividends, and high profit returns. They like to consider
businesses with fairly sophisticated original investors oriented toward longterm investments with intent to reinvest on the second round.
Venture capitalists usually want more than 20 percent ownership interest
in the business in exchange for certain investment monies. The younger the
business, the higher the equity interest requested. Along with the interest
comes management support and expertise that maybe beneficial.
Typically Venture Capitalists look for:
A track record and a good reputation in your industry as well as
in-depth, relevant experience. Usually a minimum of ten years in
management and five years in a position of significant responsibility
are required.
x The potential for serious growth is necessary—usually $50-$100
million in revenues. Venture Capitalists typically look for companies
that require at least $1 million, $5 million, or $20 million; although
individual tranche releases differ based on management achieving
certain milestones, EBITDA numbers, etc.
x A strong management team is preferred over an individual.
x A concise business plan is required of at least 10 but no more than
25 pages including a summary of financial information for which
there’s a lot of back-up.
x Executive Summary: a two page overview of your business, your
market, your request for financing and your estimated explanation of
when and how you will buy back the equity interest. This should also
include answers to why this business makes sense from a competitive
standpoint and what the target market will be.
x Essential qualities of the company that must be outlined when
seeking to attract venture capitalists, include:
o ability to evaluate and react to risk well;
o leadership demonstrated in the past;
o at least ten times return in five to ten years;
o a thorough familiarity with the market and the capacity for
sustained intense effort.
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
Network with lawyers and accountants who provide a significant amount
of venture activity as intermediaries with venture capitalists. Or, try a
venture-capital club meeting where entrepreneurs can pitch their ideas to a
room full of venture capitalists and private investors.
Research carefully before applying. Find out how much the venture
capitalists’ minimum investment is, what sort of companies they like to
back, how much they’ve invested in the past year and who some of their big
winners are. Be confident, assured and, most of all, prepared—for either
success or rejection.
Budgets and Bookkeeping
Once you’ve been in business for more than a year, and preferably two
years, you will create a financial history that will offer the basis for possible
commercial financing. A lender will evaluate your financial stability when
considering a loan to your business. Therefore, take the time to nurture
your business by watching what you spend in the early years.
Organizing Your Finances – Five Steps toward Financial Security
1. Consider obtaining the advice of a financial planner to help organize
your financial goals, or take a management accounting course at a
local university.
2. Draw up a budget that is realistic, and stick to it. Make sure you
incorporate sporadic expenses, such as: legal fees, hardware and
software, club dues and miscellaneous advertising costs.
3. Keep organized records of payments and expenses. Keeping good
books saves you time and money. Your checkbook is a handy database
of expenditures. Avoid spending cash.
4. If you have extra money, consider saving a portion and using the
additional earnings for more marketing, especially in the early stages
of business.
5. Have your account review your earnings on a quarterly basis to
help you organize your financial plan.
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Your books should enable you to do more than just keep records. They
should tell you what percentage of profit you’re making; whether you’re
charging enough or spending too much; whether you’re directing your
energies in certain business areas wisely; prepared for a temporary (or longterm) downturn in business; collecting all the monies owed you; and many
other details that can keep you on top of your cash flow. Each business has
its own requirements concerning keeping of books, with much depending
upon the form of the business and the specific industry requirements. There
are a number of excellent software packages that can help you.
Cash Flow Management
When all is said and done, cash flow is the life blood of every business. It is
cash flow that determines a business’s health and its ability to sustain over
the long run. Your first priority is to get as much cash as possible coming
into the business, and as little going out, as quickly as you can.
Refuse business and deals that don’t produce enough profit. Many business
owners have discovered that they work just as hard for a $5000 customer
as they do for a $50,000 customer. Your first responsibility is to sustain
yourself and your business so that you can continue to be available to offer
your services or products. If you can’t pay the bills, you won’t be around to
do business.
Entrepreneurs need to establish very clearly their expectations concerning
payment. No matter how desirable a specific job, if you don’t get paid,
you’ve hurt yourself and your business. Those who negotiate and sign
contracts for major projects have less trouble than those who don’t. It’s
also important that you be very selective about whom you will work with.
It’s a waste of your time and energy to work with customers who don’t
honor their commitments. Tom Barnicle, CPA, a partner in the firm of
John Hauter and Associates recommends, “Establish terms of payment up
front to prevent questions being asked later. Also, don’t be afraid to ask for
money that is owed to you. You did the work; you deserve to get paid. Not
asking for payment is a sign that you don’t think you were worth it.”
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When times get tough, and you have to stretch beyond your means for a
while, you must always keep the doors of communication open. Tell your
creditors and suppliers that you are running a very tight ship. Let them
know what you’re doing to correct the situation. They’ll respect you for
your openness. It’s only when they find you becoming inaccessible that
they begin to question your sincerity and anticipate the probability that
you’ll leave them hanging.
Be willing to do any work you can yourself until it becomes
counterproductive. At that point, it’s better to do what you do best and
“hire out the rest.” When you reach the point where you think you’re ready
to expand, look at the temporaries, consultants or independent contractors
(see your accountant before you hire one) before hiring employees.
When paying your bills, keep the following order of priority in mind:
x
x
x
x
x
x
Payroll
Taxes (payroll, state, federal, social security, unemployment, etc.)
Bank loans
Rent and utilities
Suppliers
All other expenses
Payroll taxes should be of particular concern to entrepreneurs. Penalties
for noncompliance are severe. Even if you are incorporated, you can be
personally liable and hit with a 100 percent penalty for nonpayment.
Finally, with regard to cash flow management, a quick examination of last
year’s budget can help you determine your annual cost of doing business
and help you plan for next year growth.
Identify the fixed costs you have some control over and which ones are
outside of your control. Are your numbers realistic? Are there any ways that
can be trimmed? Evaluate the kind of reasonable profits you can expect in
the next year. Set a goal but make it realistic. Profit projections should be
achievable, making you stretch and grow without being oppressive. You
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may set goals for each product or service line or each individual in your
organization to determine how each contributes to the profitability of the
whole. If you’re offering a product or service line that is eating up your
profit margins, you should consider doing away with it.
Look at your budget as a flexible tool. It’s not an end in itself and should
not be cumbersome or overly time-consuming. Because it’s based on future
expectations and is meant to serve as a map, you can deviate from your
budget as long as you remember your goal to stay within your projections.
There are no universal numbers or formulas that fit all businesses. Check
your company ratios against average ratios for businesses similar to
your own. These can be obtained through your trade associations, trade
magazines or the annual reports of similar companies. The numbers may be
different, but using the ratios, you should be able to create a good analysis
of important financial ratios for your business. Accountants, financial
consultants and bank loan officers can also help you determine the key
ratios for your business. Some basic formulas you will want to be familiar
with because they allow you to determine the health of your company
include the following:
Current Ratio: The measure of your company’s solvency is one of your
most critical assessments. This is the ratio revealed on your company’s
balance sheet. All assets, including cash, inventory, and accounts receivable,
are divided by all current liabilities (property taxes, payroll, and loan
payments). You will want to keep your ratios in line with the industry if
you hope to obtain a loan.
Gross Profit Ratio: This ratio is determined by subtracting the cost of
goods sold (including raw materials, direct labor and overhead) from the
gross sales. The answer is your gross profit. Now divide the gross profit by
the gross sales. How does this percentage compare with the ratios of similar
companies in your field or industry? If your gross profit ratio is not on
target, you need to look at what’s going on. Your first inclination may be to
increase prices. But it’s also possible that you are losing money on excessive
administrative costs, or other expenses.
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Return on Investment (ROI): This calculation, figured by taking net
profit (gross sales minus all costs including taxes) as a percentage of
invested capital, will tell you whether your company yields an acceptable
return and warrants further investment. When the ROI is less than the
percentage your money could be earning in a money market account or
other passive investment, you will want to consider whether cutting costs
or diversification of products is called for, or whether you should simply
sell out and invest in more lucrative venture.
Inventory-Turnover Ratio: This ratio will be important if your company
maintains an inventory. Your goal is to keep your inventory costs low
and your turnover high, running your company with a little inventory as
possible without limiting sales opportunities.
When analyzing your company to determine bottom line, cash flow and
profits, the numbers to use are not the dollars, but rather the important
relationships between various components of your business. Only you
can determine what those key components are and what the ratios for
maintenance of your company’s health should be, but consider that
most companies’ main expense is people. Revenues divided by number
of employees will tell you that you need to do something soon if your
financial ratios drop.
Client or job numbers should generate a known stream of revenues and
expenses. If productivity figures decline or costs get out of line with the
ratio model, look at expenses as a percentage of revenues. Consider setting
net revenue as the denominator, and check the ratios with cost categories
to determine the percentage of net revenue.
If you now have more staff and services, more customers, or take on more
projects, the dollars should be there (if you’re pricing your product or service
high enough). You should also know how much income each customer
brings in and how much in the way of costs that income justifies—all
through examination of ratios.
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Chapter 7
Legal Planning
When considering growing a great business and power network, one of the
must-have’s is sound legal planning and counsel. Whether it’s the risk of
litigation with employees, customers, or suppliers, or simply understanding
and adhering to the legal structures and reporting requirements mandated
by the government, legal planning is essential to the success of your business.
One of the first things you need to consider in the early stages of your
business planning efforts is not just the legal structure of the company,
but how and when you’ll record revenues, expenses, and capital outlays.
Obtaining the proper legal counsel to help you answer these questions is
critical to ensuring that you don’t misstep early on in this area of growing
your business.
There are essentially three ways in which you can obtain the proper legal
counsel to support your business operations:
1. Interview, select, and enter into a retainer contract with a local law
firm who specializes in supporting your kind of business.
2. Use a known attorney whom you trust to represent you and the
company in the various filings and legal proceedings necessary to start
and run the company.
3. Use a local law firm to support specific legal activities on a specific
project-by-project basis.
Which option you choose depends greatly on the nature of the business
you are growing. Some of the factors to consider are:
x Will you be conducting business in or just taking orders from
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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK
multiple states in the United States? The tax treatment on the revenues
(and expenses) incurred differ depending on your business model.
x Will you be sourcing product from overseas? Will you have a need
to set up a taxable entity outside the USA?
x Are you a subsidiary or joint venture? What kinds of legal liability
or protection are you inheriting from the parent company?
x How many employees and which ones are exempt vs. non-exempt?
x How frequently will you be outsourcing certain business functions?
(i.e., technology, back office financials).
x How many strategic or tactical alliance partners are you planning
on having?
x Will you be selling direct or indirect into the marketplace? What
are the legal issues associated with product or service delivery not
conducted primarily by your employees?
x Will you need to register trademarks or apply for provisional or
permanent patents as a part of the business to protect your brand and
intellectual property rights?
x If you are a partnership, how are earnings to be distributed vs.
reinvested into the business?
These and many other questions may influence your decision to go it alone
with a personal legal representative or to retain a law firm that may provide
you with more breadth, depth, and experience in dealing with the legal
issues around growing your business.
Suffice it to say that in the beginning, there is minimal legal support
required for a startup operation. Knowledge of incorporation law and the
proper fees and filing procedures is all that is needed to get your business
registered and operational.
However, depending on the product or service you’re providing, your needs
may quickly escalate, requiring far more support than a single generalist
practitioner can provide. Many of these legal activities can and should be
completed prior to taking your first order or hiring your first employee, so
that the company can be as protected as much as possible from business
disruption litigation, labor law conflicts, etc.
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Chapter 8
Marketing
Marketing Strategies
Marketing on a Shoestring
Public Relations
Advertising
Closing the Sale
Customer Service
This is where you show that there is a need for your product or service.
Without a large enough need, no amount of management talent or financial
backing can create a successful business. Marketing is the lifeblood of a
business. Because of this, we’ve set aside a complete chapter to discuss it.
No combination of marketing activities works all the time. Marketing
requires a constant juggling of supply, resources and demand. Because your
marketing mix will constantly change, you’ll need to adjust your efforts
accordingly.
Your marketing plan is simply an expanded plan of action detailing how
you’ll make your marketing strategy work, based on the priorities you’ve set
for reaching your goals.
The marketing process is built on a firm foundation composed of the
four Ps: Product, Place (distribution), Price and Promotion. Without all
four elements nailed down and appropriately balanced, you don’t have a
marketing strategy—no matter how ambitious your promotional plans.
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Product: What are you really selling?
Place: (distribution) How will you get that product to your
customer?
x Price: What is the correct price that is acceptable to your customer
and profitable to you? Price your product or service too high and you
eliminate customers who can’t afford you. Price your product too
low and you lose customers who think you don’t offer something of
quality because quality perception is often tied to price. Therefore,
take the time to thoroughly research your market to find out what is
being charged for the product or service you plan to sell.
x Promotion: How will you promote your product or service? This
category includes personal sales, advertising and public relations
tools—promotional activities that stimulate interest, create desire and
result in sales. Answer the customer’s primary question, “What’s in it
for me?” by focusing on the unique benefits of the product/service and
the customer’s needs rather than features of the product or service.
x
x
In its broadest definition, marketing is the function of your business that
includes all activities necessary to get your product/service first into the mind
of your customer and then into their hands. It requires market research,
product development, pricing, packaging, advertising, transportation, sales
and distribution and promotional activities including the use of public
relations tools.
Because marketing can be a major business expense, marketing plans for the
small business should, for the most part, incorporate more public relations
efforts than any other form of marketing. Therefore, a large portion of our
marketing chapter will address this effective strategy. Because there are so
many different kinds of businesses, however, it is important that you take
a look at a wide variety of strategies, using those that will be most effective
for your particular business.
Marketing anticipates needs and directs the flow of goods and services from
producers to consumers. As an entrepreneur, your mission is to target your
product or service to the market that needs it. If your price is competitive
(what the market will bear) and your product or service is valuable to your
customer (because it has quality), you will achieve sales and repeat sales.
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One of the primary problems that many business owners have is a lack of
understanding of the difference between marketing and sales. Marketing
is getting people to know you exist. Sales is having people buy something
from you. Further, networking is a process that weaves the two profitably
together. It’s amazing how often, in the flurry of activities that surround
us day to day when running our businesses, that even seasoned veterans of
business mistakenly mix the two concepts and waste precious capital, not
obtaining their objectives and not understanding the third and perhaps
most important strategy of networking in this ongoing Age of the Network.
It’s imperative that you establish a web presence for your business, starting
with your website and migrating into social media, which is discussed
more in Chapter 9. Every business needs a website—it’s the best way for
many people to find you these days. You have several options when it
comes to setting up a website. If you’re not comfortable striking out on
your own, then by all means hire a website designer to help you. But if
you have some degree of technical literacy and want to save money, there
are plenty of companies online that offer easy to set up templates and
instructions. The following steps can make this process easier:
1. Register your domain – this is your website address, which
should align closely with your business name.
2. Find a reputable host for your site. Look at some online review
sites, such as PC World or Cnet for recommendations.
3. Many hosts offer templates, or you can use Wordpress, which
is a free service with many different designs. You can download the
Wordpress software and then upload to your selected host’s server.
4. SEO – Search Engine Optimization, the process of getting your
site into the annals of the search engines. You may want to outsource
at least this portion of the site; otherwise, there is a great deal of
information available to help you do it yourself.
All of your marketing pieces should reflect your website, and your website
should tie in to your social media strategies—each works in concert with
the other, offering you maximum exposure at a low cost.
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If you don’t have a systematic method for getting your message and your
product to your customer and creating sufficient reason and urgency for
that customer to buy, you have nothing. You might have the most perfectly
structured business and the most needed product or service in your
marketplace. You might even know who would buy your product. But,
you still need a marketing strategy to tell your potential customer why he
or she must buy now and the means to deliver.
Marketing Strategies
It’s important to create a mix of marketing strategies early in the development
of your company. Your business plan broadly addressed the concept of
marketing; it’s now time to develop a detailed approach to marketing
yourself and your business. Your marketing plan will detail the strategies
you need to use to promote your business in your specific market. It will
also outline how you will apportion your advertising, direct sales (activities
where you contact your market directly), and publicity campaigns (activities
that utilize media exposure to reach your market). It will delineate the
methods and tools you’ll use and in what general proportions you’ll address
each of these areas in relation to time and monies spent. The plan will also
address how you will maintain a balance of the four Ps we talked about
earlier.
A very simple marketing plan might be based on the following outline:
x
x
x
x
What marketing mix is offered to whom and for how long?
What company resources/costs are required to do the job?
What results are expected?
What controls are needed to point out potential problems?
Another critical component of your marketing strategy is image and
relationship management. If the goal of marketing is to get customers to
know you, and the goal of sales is to get customers to buy from you, then
the relationships you form between your growing brand and both existing
and potential customers is a critical bridge to build for your business.
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Defining, building and maintaining the exact image which you wish to
share with the marketplace is crucial to positioning yourself against your
competitors and against substitutes, and alongside your customers to
address both their articulated and unarticulated needs.
Marketing on a Shoestring
We know of very few smaller companies that have been able to start and
grow their business without spending at least ten percent of their projected
first-year revenues on marketing. Unless you’re lucky and start with an
existing client base, you need to spend time and money to build one. A
little creativity can go a long way toward developing a successful small
business marketing campaign. By mixing different strategies together, you
can generate excitement.
Where should you begin? First, take the time to find out how companies
similar to yours are marketing themselves. Successful marketing starts
with committed dollars, but you need not overspend if you choose your
strategies wisely. Move slowly. You’ll be inundated by salespeople urging
you to advertise with them. Knowing what works in your market and what
the costs are can save you hundreds, perhaps thousands of dollars. The first
thing to do before you open your doors is to develop your yearly marketing
plan. This plan lays out your monthly marketing mix. Keep to it as much
as possible, making sure one strategy works into the next, and you’ll find
that you will build customer awareness and readiness to buy much more
quickly.
Public Relations
Public relations begins with a clear definition of who you are, what niche
you’ve chosen and a selection of tools that conveys your message clearly.
Everyone from the individual to the Fortune 100 corporation needs and uses
public relations, and entrepreneurial businesses have a definite advantage.
Because they are usually closer to their markets, entrepreneurs can react
quickly to strengthen good relationships and correct misunderstandings
before they get out of control.
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The key to success with public relations lies in your ability to project a clear
and purposeful message about who you are and what you have to offer.
Remember…Perception is Reality.
Create an identity that cannot be mistaken by the public and develop an
ongoing plan of action designed to reinforce your position in the market.
Many businesses tend to continually create new corporate identities,
shifting emphasis to suit temporary needs. That inconsistency can confuse
customers, resulting in a dramatic drop in credibility and sales. Here are
some pointers for keeping yourself—and your customers—focused:
Establish a consistent business identity: Website, press releases,
business activities, color choices, type styles, paper and other materials
identified with your business must be in sync with your chosen
identity. To be effective, they must convey one clear, unmistakable
message.
x Develop an aura of expertise and credibility: Any time you
can obtain third-party endorsements, recommendations and referrals
from satisfied customers your credibility is strengthened. When
those endorsements appear in print, the public’s perception of you is
heightened.
x Be involved in your industry: Activities such as writing for trade
magazines and other media, public speaking, workshops, seminars and
radio/TV appearances position you as an authority. Demonstrate your
expertise by serving on committees for organizations and associations
where you are already a member.
x Be professional and courteous when dealing with the media:
The media can help you maintain a high profile as long as you
contribute something that will be newsworthy to their readers, viewers
or listeners. Make it easy for the media to work with you by being
dependable, agreeable and, most of all, resourceful.
x Publicize yourself to customers: In addition to using the media,
consider publishing your own newsletter with news and views that
would help clients. Send out mailings updating your qualifications at
least four times a year. Write about new developments in your industry
and how-to tips.
x
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A successful public relations campaign is continuous and consistent.
Although not easily measured, an effective campaign can give your business
long term credibility. Often you must work on public relations efforts for
six months to a year before experiencing results. Too often, small business
owners try new marketing and public relations strategies every other month
and quit too soon before reaping the benefits.
Press Releases
A successful campaign begins with a good press release, a one or two-page
announcement that tells the media: Who, What, Where, Why, When, How,
and most importantly in today’s over-exposed marketplaces, So What. It
focuses on one major idea that the media’s audience would find interesting,
informative or newsworthy (or all of the above). A release is one of the
most powerful small business tools available—and one that is must often
misused. Here are some tips for creating successful press releases:
Use the release to announce news in your business or industry, to
establish your expertise and credibility.
x Address your releases to a specific editor. If you don’t have a name,
call and find out.
x Target the specific media most likely to be interested in your
information. Don’t get caught up thinking “more is better.” You’ll
have much better results if you target a few interested media outlets.
x Make sure your release offers newsworthy information (this is
not the place to sell yourself ). Follow industry trends: What types of
businesses and issues are currently receiving extensive press coverage?
x Include a cover letter introducing your release and offering to be an
information source for your areas of expertise.
x Keep your sentences short and easy to understand. You want your
audience to read and quickly understand what you are saying.
x Standard format for releases is double-spaced with an inch to an
inch and a half margin on all sides. This format is for the convenience
of the editor. It makes the release easier to read and allows ample room
for editor’s notes and corrections.
x Write “News Release” in the upper left-hand corner and “For
x
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Immediate Release” or “For Release on (a specific date)” in the upper
right-hand corner.
x Include a contact name and phone numbers during and after
business hours. Writers have deadlines and frequently need to verify
facts in a hurry.
x Signify the end of the release with “-30-“ or “###.”
Just as with any market strategy, repetition is key to your success. Be
innovative. Look for great press ideas. If you’re stumped for ideas, call
the business editor of your local publications. (Don’t forget to first ask
when they would have a moment to talk). Editors are always facing some
deadline, but, for the most part, they’re interested in receiving wellresearched, interesting news. Ask them what they would like to receive and
then deliver it.
Below are a few ideas for generating news:
Stage a contest
Promote someone
Make a donation
Do a good deed
Conduct a survey
Announce results of a survey
Announce a new plan
Organize a committee
Make a progress report Take a stand on an issue
Make a final report
Hold a meeting/workshop
Announce the visit of
Turn a speech/leaflet into
out-of-town VIP.
a byline article
Make a speech
Provide “how-to” info.
Press Kits
While press releases are generally adequate for the entrepreneur’s needs,
there may be occasions to compile a press kit. A press kit is most effective
when you offer a complex product or service or multiple lines. The kit
provides your media contacts with background materials for current and
future pieces about you and your company. Use this kit as a first contact
with a media source and at press conferences. Kits usually include the
following:
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Photos – use a variety. Head shots and action shots.
Technical information (where appropriate).
Background and historical facts about you and your company.
Biographical data sheets about you and your key personnel.
Human interest pieces – if directly related to the subject of your
press kit.
x Brochures – if applicable.
x A copy of the press release.
x Copies of published articles (the media like to see that you are
newsworthy).
x Highlights of applicable speeches.
x Direct quotes/testimonials/endorsements.
x A list of anticipated questions/answers relating to the subject.
x
x
x
x
x
Business Articles
While press releases describe your business and its news, business articles
allow you to position yourself as an expert. Call the editors at your local
newspapers or your trade magazines and ask if they could use articles about
your area of expertise. You will be credited with a byline. Formats are
typically the same as press releases, although business articles can be longer
than two pages, depending upon the editor’s requirements. This marketing
form can be very successful, especially for service-based companies. Even if
you can’t write well, take advantage of the wealth of available writing talent
through organizations for writers (e.g., Chicago Women in Publishing or
Independent Writers of Chicago). A hired writer can either be a co-author
or a ghost writer (someone who writes the article but is not acknowledged).
The latter arrangement is often used by successful business specialists.
One successful entrepreneur we know hired a ghost writer to help him
write a series of articles about desktop publishing. He then offered the
articles to a magazine free of charge, and promised additional information
if they called him. The entrepreneur received many calls after the articles
were published and gained clients as a result of his efforts. This is a good
example of smart marketing. Although the entrepreneur had to spend some
time and money up-front, it was nominal.
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Flyers
Flyers are inexpensive promotional pieces generally used as hand-out or
throw-away items. They may be given personally to prospective customers,
placed on car windshields, inserted in mass distributed pieces such as
newspapers, bulletins and newsletters, attached to doorways, etc. They
usually contain a brief message: What you offer and where you can be
found. In general, flyers feature a bold eye-catching headline, graphics or
pictures, a message and directions on how to reach you. They frequently
include a discount coupon to encourage follow up.
Generally the simplest, least expensive method for flooding a specific area
with information, flyers are best used when announcing sales or special
offers, or promoting inexpensive products/services.
Brochures
Brochures are usually 8 ½” x 11” or 11” x 17”, three fold or four-fold
pieces. Two-colored, three-colored or four-colored, brochures are much
more expensive than flyers. Typically handed personally to prospects or
mailed to a targeted group, brochures can also be left at a distribution
point, such as a store counter, to draw attention and to be picked up.
A brochure, while using fewer words than you would need in a personal
contact, allows you to tell your story in great detail. It may focus on your
business, any of your products or services, or on individuals within the
organization. It may also be strictly an information piece.
Particularly valuable to service companies, brochures serve as a tangible
piece of the business that creates credibility and brings about a sale. Typically
you’ll want to include enough information in your brochure to tell the
whole story, but not enough to confuse the reader. Keep it simple and
direct, and focus on customer benefits. Promotional pieces often include
some or all of the following information:
x
x
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Business address
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x
x
x
x
x
x
x
x
x
x
Telephone and fax numbers
Contact person (if other than yourself )
Photos/drawings of product or representation of service
Description of your product or service
Price list (indicate if wholesale or retail)
Terms of payment
Return policy
Shipping terms
Minimum order policy (dollar or unit amount)
Warranties and/or guarantees
A brochure allows you to tell your story completely and create further
interest on the part of the reader. It should clearly demonstrate your
expertise, attention to detail and understanding of your customer’s needs.
Be sure to design your brochure in such a way that it does not need to be
changed frequently.
Newsletters
This marketing tool generally serves two purposes: first, to target a specific
readership or market; and second, to establish you as the expert that your
readers will turn to when they require your services or product.
Newsletters are good for delivering hard news relevant to your business,
products or services. Talk to your customers to find out the kind of
information they might be looking for. Read through several of your
industry’s trade journals to stay current on industry trends and to get ideas
for your own articles.
Newsletters can be electronic or printed. You can create a template to email
your customers directly from your email client, or you may subscribe to an
e-news service, such as Constant Contact or Mailchimp.
Create your newsletter with a blend of hard news relative to your industry/
product and soft news, which is information on your company’s goals and
objectives and information on programs and projects. Establish what you
hope to accomplish through the publication and who your readers will be.
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Then write for them. If you really understand your customers, it’s relatively
easy to find materials of interest to them. When you fill your newsletter
with news your readers want to read, you’ll be building your credibility and
establishing yourself as an expert.
To create winning newsletters, be sure that you have a clear-cut written
statement of objectives and editorial policy before beginning. These
publications should be used any time you wish to establish a regular
method of communication with a targeted readership. But remember: this
is not a one-time project. The effectiveness of this method of promotion
relies heavily on consistency. Consider mailing at least quarterly. And,
most importantly, don’t attempt this unless you’ve studied the process
and techniques extensively or have expert assistance. A poorly designed
newsletter can do more harm than good.
If you’re serious about taking the do-it yourself approach, don’t let anyone
discourage you, but be prepared for major investments of money and time.
Begin by getting proper training.
Speaking Engagements
Opportunities for speaking engagements include workshops, seminars,
association meetings and radio and TV talk shows. Speaking before area
groups can increase a company’s revenues 20 percent or more. Search for
speaking opportunities everywhere. Welcome invitations. Be creative.
Keep a file on area clubs that schedule speakers and contact them early.
September and October are excellent times to contact incoming officers to
arrange a program during their tenure. Take the time to write a one-page
biography. Get a professional photographer to take your picture, and then
have a printer typeset and design a professional presentation piece. Include
two or three titles of speeches you could give. In the meantime, create
outlines for these speeches and include this sheet as part of your press kit.
Speaking engagements are particularly effective because they allow you to
maintain high visibility, recognition and credibility within the group. Such
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opportunities allow you to demonstrate your expertise and expand your
exposure in well-defined market segments. The invitation to be a guest
speaker says to your audience that you have the organization’s endorsement.
Conventions
Trade shows are one of the best marketing strategies for entrepreneurs
because they offer one-stop opportunities to sell. For the price of a booth
design (if necessary) and the booth rental fee, you’re exposed to a targeted
audience—prospects who are attending the show for the express purpose
of buying the types of products or services that you sell. All shows are not
created equal. It’s up to you to do some research to determine which trade
shows would be best for you
Advertising
Advertising is a method of reaching potential customers that requires
payment for placement of your message in print, online, radio or television
media. This marketing strategy focuses on the product or service you offer
and openly solicits action on the part of the reader/listener/viewer. Since
advertising represents a major portion of your marketing budget, it’s critical
that you keep your message brief and to the point.
The less visible you are, the more you need advertising to keep your name
in front of the public. Establish a routine—smaller advertisements placed
frequently are more effective than one big splash. Be sure your ad contains
a clear message: who you are, what you’re offering, how you can be reached,
as well as a request for action.
One form of advertising frequently taken for granted is the (yes, still
here and thriving!) Yellow Pages. This can be an extremely effective tool
if your ads are carefully thought out and well-constructed. Yellow Pages
ads can be terribly expensive, but they have the advantage of targeting
warm customers. Callers responding to Yellow Pages ads typically are in
the market for your product or service. Keep in mind that your Yellow
Pages ad will be surrounded by your competition’s ads. Make sure that
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your ad conveys a sense of urgency and uniqueness. If your market research
indicates that Yellow Pages advertising is good for your type of business,
consider a relatively large ad (at least 1” x 1”) placed, if possible, in the
upper right-hand corner of the book.
You might also consider signing up with an online service that offers
qualified leads to businesses. For example, a customer searches online for
a service or product, and finds as a top search choice a website that sends
their information to three to five participating, qualified providers. The
website then provides the information to the providers who then email or
call the customer with their offer. The customer is not bombarded with
sales calls and can select the best company out of the small sample.
Direct Mail and Telemarketing
Direct mail and telemarketing can be used whenever you want to reach a
particular
individual or class of individuals. These are extremely effective tools for
entrepreneurs. Shawn Greene of Savage and Greene has been in sales
and sales training for nearly 20 years and is a professional speaker. She’s
the author of I’d Rather Have a Root Canal Than Do Cold Calling, and the
Serious Fun sales repair kit. Her thoughts on marketing, and specifically
telemarketing, are particularly helpful in understanding the potential to
use this technique to increase your level of success:
Direct mail techniques may include:
Fact Sheets
Promotional giveaways
Discount Coupons
Letters
Contest
Brochures
Mailing lists are the backbone of your promotional efforts. Buy them, rent
them, maintain your own. They’re priceless and virtually irreplaceable. But
don’t expect more than a two percent response. That’s the national average.
Target your market by age, sex, ethnic background, education, occupation,
family status and income. Analyze the lifestyle, personal behavior and
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values, community involvement, ambition, skepticism, self-concept,
buying style and itch cycle (that cycle that typifies their buying habits) of
your chosen market. And be aware of current trends and fads.
Use direct mail to introduce yourself and your products, solicit mail-order/
phone orders, announce new products/services, notify customers of price
changes, welcome new customers, thank current customers and highlight
special events. Target your audience with broker lists. Direct mail specialists
say that the list is the most important part of a direct mail campaign. Either
compile your own list or contact a list broker, a professional who compiles,
updates and sells lists. A good list broker will be able to compile almost any
kind of list imaginable.
A list targeted to a specific segment of the market decreases costs and
increases the possibility of reaching potential customers who should be
most receptive to your product. If you’re planning to do any direct mail
marketing, it is worthwhile to at least talk to a list broker.
Ask the post office about their business mailer services (CD-ROM
and Operation Mail). You must be familiar with mailing regulations,
particularly when using bulk rate mailing. First class mailings can
typically get better response; however, bulk rate mailings can be effective
for continuous mailings. Your post office is a valuable resource when you
decide to use direct mail as a means of marketing. Take the time to confer
with your postmaster concerning your plans; he or she may be able to
suggest cost efficient alternatives you hadn’t considered. The post office
offers publications and brochures explaining guidelines and other time and
money-saving techniques.
Closing the Sale
The goal of all your business efforts is to close the sale. Sales ability is
critical to your continued growth—the most important skill you can have.
Larger companies usually employ many people to promote their products.
In a smaller business, you may do this yourself, hire a full-time salesperson
or work with an independent contractor, offering paid commissions based
on sales volume.
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If you’re not comfortable with sales, or find that you need to sharpen your
skills, we highly recommend taking sales training courses. Ask around for
referrals to trainers specializing in small business sales. Although selling
techniques are rather universal, it’s important to learn from others who
have been involved in selling the services of a company similar to your own.
Even if you had a great track record with a previous employer, you’ll find
entrepreneurial sales to be different. As an entrepreneur, you represent
yourself—not an established business. Thus, it’s important that your sales
tools (brochures, slides, etc.) support who you are and what you can do for
the customer.
You don’t necessarily need lots of customers, just the right ones. If you’ve
taken the time to identify your market, its need and its willingness to pay
to satisfy that need, you should be able to pull in a minimal number of
clients with a maximum payoff.
Whether you are in high-volume (product-oriented) or low volume
(service-oriented) sales, it’s a numbers game. Use the 80-20 rule: 80 percent
of your business will come from 20 percent of your clients. Sell to those
larger, potential clients in your targeted niche markets. If you’ve taken the
time to locate that market and you are prepared, your sales success ratio
could be one client for every five to ten sales calls (or even better).
A significant importance of marketing is the impact that it has not just on
closing the sale but on closing the right sale.
Determining your scorecard for measuring the effectiveness of the
marketing dollars that you spend is as important as selecting the media
type (advertising, speaking engagements, brochures, etc.). Are you looking
for image or traffic (i.e., do you want to be known, or do you want to book
new orders)?
There are tremendous insights which can be gained through the use of
service bureaus or other businesses providing predictive modeling and
customer insights based on market research, vast quantities of data, and
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the proper preparation and use of these insights to help grow your business
successfully.
Customer Service
Much has been written about customer service. The bottom line is that
keeping customers is crucial to your long-term success. Following are some
basic tips for keeping your customers happy and loyal:
Have a plan: It will help you follow through and achieve tangible and
quantifiable results.
Use a questionnaire to follow up after a sale: The questionnaire should
address the level of satisfaction the customer had after using your product or
service. The benefits of the questionnaire are two-fold. First, questionnaires
that offer favorable comments can serve as references leading to better sales
results. Second, those that offer criticism can provide feedback to improve
sales techniques that can also lead to more sales.
Take the time to call your customers regularly: This technique can be
extremely effective, yet many small business owners make the mistake of
not considering current customers for new sales opportunities. Experts
have shown that it’s much easier to secure new sales through existing
customers than new ones. One entrepreneur we know contacts her current
customers at least once a week and her past customers at least once a
month. Customers who are truly satisfied with what you’ve done for them
will use you again and again, and often refer you to others. If you’ve pleased
a customer, ask them to give you referrals and testimonials that you can use
in your promotions.
Referrals are critical to your growth and are one of the very best marketing
tools. Once you’ve provided the first customer with service beyond
expectations (under promise and over-deliver), it will be easier to get new
customers.
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How to Network and Use Sources
The Networlding Support Exchange
Networking Channels
As we mentioned in Chapter Two, networking is critical to the success
of any business, offering you the contacts and market information you
need to keep your pulse on the market. A frequently misunderstood skill,
networking demands give and take, and unless the process is mutually
beneficial, it helps no one.
The Networlding Support Exchange
In the book, Networlding: Building Relationships and Opportunities for
Success, Jocelyn and Melissa talk about something they designed called
“The Networlding Support Exchange.” It’s a helpful tool to assist people
in understanding the many types of support you can ask for when you
network as well as the support you can offer.
There are seven levels of support in the Networlding Exchange. They are
as follows:
Emotional Support: This is support you give to others to begin the
crucial process of building trust. Experts who teach the skills associated
with developing emotional intelligence recognize this key exchange in
building rapport as foundational to relationship success. We have so often
heard, “People buy from people they know and trust.” Growing a powerful
relationship through an initial conversation that integrates statements of
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support such as “You are a good listener.”“You have good insight(s) into
my challenges.” “You offer me a way to see things differently.”“You are well
versed in your field.”“You share great ideas.” Set a trust foundation that will
only grow over time.
Information Support: Everyone appreciates knowing about things that
are important in their line of business. For example, Melissa once received
information from a colleague that there was a columnist from the Wall Street
Journal who had just written an article on networking. Melissa went online
immediately after she received an email regarding the column. She found
the article and wrote the columnist after reading the article. Recognizing
that there was room for more commentary around great networking and
less than a day later, the columnist emailed her asking to do an article on
her and her company, Networlding. Three weeks later, Melissa ended up
with a great article in the Wall Street Journal. In this level of request or
support you’re asking people to keep their radar out for things that would
be of benefit to you and, in turn, you ask them what they would like you
to look for to benefit them. Having five to ten people a month looking out
on your behalf can make all the difference in your ongoing success.
Knowledge Support: This level of support is all about getting insight from
other peoples’ experiences. Mastering this level of The Exchange would
look like having a team of people who provided you with ideas for new
products or services or help with drafting proposals or contracts or sharing
their insights as to how to achieve your goals and objectives faster based
on their experiences. That’s why we pay so much for expert advice; it’s so
much more beneficial to get the tips and strategies of others who have
experienced what you are just going through to help you leverage every
opportunity.
Promotional Support: What’s the number one way people get new
business…through word-of-mouth. And, what’s the number one way
people get new jobs…through networking, which is also word-of-mouth.
It’s the process of people having conversations in the network—their many
circles of support that reach wide and deep—at least for those who know
how to network well! So, it becomes very evident for those who study the
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science of networking that one can consciously and strategically leverage
the power of word-of-mouth marketing through strategic conversations
with key people in your network. In The Exchange, your networking
partners agree to promote you and know how you want to be promoted
and vice versa. Some wonder if this is manipulative. We have been coaching
thousands through this process and rather than, manipulative it is decidedly
strategic. Here, you have conversations that help others understand who
you are and what value you bring to opportunities you want to create.
Examples of question you could ask include:
What are your top three strengths that you would like others to
know about?
x What would you like people to say about you?
x What have past clients or business partners said is unique about
you?
x Which of your last, few, successful projects were the most exciting?
x Which two people would you like to have know more about you?
x What three or four organizations would you like to know more
about you and your work?
x
And examples of support you can offer include:
I’ll mention your name to others I meet this next week and let
them know more about the things you’re doing.
x I will share your strengths with a couple of colleagues who might
benefit from them.
x I’m going to tell all my friends about your business.
x I’m going to make sure I tell as many people as I can regularly
about you.
x I’m going to write about you in my next newsletter, column, etc.
x I will tell my board about you and your organization.
x
Promotional support is like having your own private sales force and PR
firm working for you 24/7. It’s one of the most powerful pieces of advice
we can give to have a conscious promotional support exchange with even
one network partner within the next couple of weeks.
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Wisdom Support: Everyone of us has some wisdom that we uniquely own
and dole out when the occasion warrants. Here, we recommend questions
of others—especially mentor types—that revolve around their top strategies
or tips for getting ahead in your particular industry. The wisdom you will
receive when you ask will carry you to success that much faster.
Transformational Opportunities: For the thousands who have gone
through Networlding we constantly hear, “If you keep working The
Networlding Support Exchange Model, you will get to this step very quickly
over and over again.” Here, you will find the journey’s end is not just one,
but many, evolving transformational opportunities that ripple from your
connections and conversations. We’ve seen entrepreneurs get funding for
their dreams or that new key account that they never thought they could
get as they were up against a much larger competitor. The more you use this
model the more transformational opportunities emerge.
Community Support: If you’re a leader or want to be—and who wouldn’t
want to be? We know you want to understand the benefits of this level
of support. Here, not just your business but your whole community can
be supported by your exchanges. A good example is all the community
networking events Networlding has put on—from an event bringing
businesses together in an effort to revitalize our struggling economy; to an
event supporting reading and literacy; to events that bring people together
to support mentoring for our youth and upcoming leaders of tomorrow.
Networlding has experienced this level of support and has given it to
communities throughout the country and throughout the world. Anyone
with children or family or friends will understand the powerful ripple
effect of contributing their time, treasure and talents to the growth of their
communities.
Fulfillment: So what happens when you keep working all levels of this
model? There is an ongoing fulfillment both intrinsically and extrinsically
that you receive. We’ve met the many people who have used this model
through emails, letters, and face-to-face at events we host. We’ve seen,
first-hand, the benefits they receive by practicing a powerful, strategic and
values-based networking exchange that helps themselves and their partners
truly “realize their visions through their relationships.”
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Networking Channels
Social Media
Blogging, Facebook, Twitter, LinkedIn—can these social media outlets
really help your business? Indeed, they may be a key to reaching your target
audience if utilized correctly. Recent research by The Pew Research Center
shows more than fifty percent of adults maintain a presence on two or
more social networking sites, including 73% on Facebook and 14% on
LinkedIn. So, how do you leverage social media for your business?
Facebook: Set up a page for your business that is separate from your
personal page. Use status updates to notify subscribers of upcoming events
or new products and services that your business offers. You should also post
about newsworthy items that are relevant to your business or industry—
don’t make it all about you, but about what can benefit your customers.
Twitter: An opportunity for you to join in a conversation about interesting
facets of your industry. It’s especially important here to make sure that
you’re responding to other people and posting updates that don’t just
promote your business. Think of Twitter as a lunch meeting dialogue
between you and your customers as well as business associates. You would
never go through an entire lunch just promoting your business—you’d ask
the other person about their own business, or something personal, or talk
about something newsworthy that interests you both.
LinkedIn: Your online Rolodex. This service allows you to connect with
other business professionals and perhaps get your foot in the door at a
company with whom you want to do business—you know somebody
who knows somebody who knows somebody. The site features contact
information, employment information and status updates.
Blogging: Many businesses maintain a blog, which allows them to talk
in greater detail than Facebook or Twitter about subjects that interest their
customers. Here you can promote a new product, recommend another
company for some type of service and discuss interesting items in the news.
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Then your readers comment on what you’ve posted, and you comment
back to them, creating a conversation.
Depending on your type of business, there may be other avenues of social
media for you to consider. The most important aspect of social media
for you to remember, and what is consistently emphasized, is to consider
it a conversation and a way to build trust in your followers—not just a
promotional tool. For more in-depth coverage of social media, please see
Melissa’s book Fifty Ways to Better Social Media.
Networking Through Associations
One of the best ways to meet people in business is through associations.
In these organizations, industry professionals meet, share information
and develop new business opportunities. Regular meetings present the
opportunity to learn while establishing contacts. For a comprehensive
listing of associations, check the Encyclopedia of Associations at your local
library. There are literally thousands of organizations around the country
most of you can join, especially those of you living in larger cities. And
we believe there will be no end to the start up of more organizations,
even online organizations that will connect people to other people and
opportunities all over the world.
Many associations publish newsletters and magazines that will help
you stay abreast of the current state of your industry. There are many
national associations than can be of benefit to your business. Those
lacking local chapters can still provide you with opportunities to network
with professionals in other parts of the United States. Contacting other
business owners long distance can be an invaluable networking tool. These
professionals are often invaluable sources of information about successful
marketing strategies and sales techniques. Another benefit is that these
long-distance telephone conversations tend to be short and concise.
The individual on the other end of the line is usually flattered that you
took the time to call long distance and therefore answers your questions as
quickly and precisely as possible. You should also utilize email to keep in
touch with these long-distance contacts.
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We recommend regularly keeping in touch with your long distance
business network. These professionals can become great sources for
new information, as well as new business in the future. Long-distance
networking can be extremely advantageous for business owners who have a
national or international market potential.
Joining Associations
So, how do you know which organizations are right for you? Below, we
list five criteria you can use to query prospective organizations to discover
which organizations will offer you the best value for your time and dollars:
Qualifications:
1. Does the organization have some type of mentoring initiative? In
other words, what systems have been put in place by the organization
to help those new members who would like the support of a mentor
to help them learn more about the organization and get introduced
to members with whom they can share the many benefits of strategic
networking?
2. Does the organization have a diverse base of members? One of
the most important learning objectives around building a successful
power network is to practice what is termed, “divergent networking.”
This means that you network with different people from different
industries, different cultures, different companies, etc. The more you
grow a divergent network the more you will grow connections and
opportunities. Good examples are all the women’s organizations out
there who allow men to join. We find the best male mentors among
those who support these organizations. One such organization is the
Women’s Executive Network (WEN) run by a wonderful woman
named Joan Toth. When Melissa spoke at one of their meetings
she met a partner from Accenture, Mike Gorsche, who has been a
great supporter of Networlding as well as a supporter of WEN, an
organization Accenture sponsors.
3. Does the organization offer scholarships? We like to see organizations
that give back to the community—especially when they give back to
the upcoming leaders within their communities. There is nothing
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more rewarding than the participation of future leaders at events that
have included their wisdom and presence.
4. Does the organization have a dynamic, active, and forward-thinking
board? Many organizations are so politically skewed they don’t have
the best interests of their members at the forefront of their actions. It’s
good to find out who is on the board and what kind of agenda they
have for the year.
5. Does the organization allow structured networking during their
meetings? We define structured networking as a time for special
connections to be made around a structured process that gets everyone
involved—not a haphazard networking initiative that does not allow
all members to be connected. For the past ten years, Networlding has
developed hundreds of interactive, structured networking events that
literally level the playing field to include all participants in dynamic,
exciting and valuable exchanges.
Only you determine your philosophy and networking requirements, and
then set your priorities. Your business commitments will not allow you
enough time to get involved with too many groups, so pick the values and
networks that provide the greatest benefit to your business. Avoid spreading
yourself too thin—start by joining one or two organizations.
If you take your membership seriously and get actively involved, you’ll
benefit from participation in a professional or community organization.
This is where others can see you in action. Ideally, participation in a
combination of professional and general business organizations is beneficial.
The best networks are those that make things happen by bringing regional
and national issues to the community level. Such organizations actively
promote their members and are therefore selective about whom they accept
as members.
Thoroughly check out the programs and benefits offered by each organization
you consider joining. Many organizations offer you an opportunity to get
acquainted at business after-hours meetings. There is usually no cost to
attend these events, and you may even get some business.
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You’ll also want to attend several of each group’s organizational meetings.
Look for an affiliation that will increase your potential sources of business
and provide you with opportunities to enhance and challenge your current
expertise.
Meanwhile, collect lists from membership rosters, chambers of commerce
and alumni directories. Start contacting these people to introduce yourself.
Participate in at least one membership group, fundraiser, benefit or charity
event quarterly. Get involved in planning and organizing major meetings/
celebrations. Always do this with complete dedication and attention to
detail.
General Association Networking Tips
Join and participate regularly in community organizations and
professional, technical or trade associations.
x Read and listen. Newsletters, professional and trade journals and
magazines spur creative ideas and keep you aware of what’s happening.
x Attend workshops, seminars and courses in your field, or explore
new and related fields. Begin by contacting the continuing education
department at your local college or university and professional,
technical or trade associations.
x Use the telephone and email. Call or email to say “hello,” to get an
opinion, or just to share some news.
x Schedule breakfast, lunch or dinner dates with peers.
x Invite others to visit your office, and arrange to visit theirs.
x Meet with a peer group on a regular basis.
x Affiliate or form other joint business relationships. Drawing on the
contacts you make, set up joint projects with people in your field.
x
Networlding at Events: Strategies to Guide You
It doesn’t take a rocket scientist to help us realize the benefits of good
networking. But it isn’t a skill that is second nature to all of us. When we
note that statistically more than half of the world is shy, we need to be
sensitive that not everyone, even if they know how, can network well. One
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of the things we recommend the most to network better is to get someone
to help you. We’ve added into our coaching the practice of taking our
clients to events. You can also make a point of finding yourself a partner to
join you. Actually, one of the better strategies for networking at events is
to go with someone else and each one of you covers one side of the room.
When you meet someone you really want to impress, bring that person to
your partner on the other side of the room and introduce him or her. Your
partner should be ready to endorse you to the person you’re introducing,
helping you gain even more credibility as to who you are and the value you
can offer to others buying your products or services.
Another top strategy we’ve recommended and that works very well is to, in
advance, call the head of membership for the organization whose event you
plan to attend. Ask if you can get in contact with one of the top networkers
in the organization to introduce yourself ahead of time and find out from
them more about the organizations—in other words—members learning
the “inside scoop” from other members. This can make all the difference in
getting introduced to the inner circle within an organization. The adage,
“You only have one chance to make a first impression,” could not be any
more real than when it comes to organizations. We also know that we
are around seven times more effective face-to-face than we are over the
phone. After all, there are so many more senses connecting you to someone
through the face-to-face experience. Therefore, getting introduced through
someone with strong influence can be invaluable. And, if for some reason
you forget to call in advance, go early to the event and ask the folks at the
registration table to help you. Most often they will and, if they don’t, then
you know this is perhaps not the organization for you.
Most importantly, remember, as one of my colleagues, Miles Kierson says,
“Organizations are really just networks of conversations.” Remember, you
are on your way to better connections and success faster when you create
better conscious conversations with the right people at the right time and
in the right place!
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Building your Team of Experts
Internal & External Resources
Alliances & Partnering
Flatworlding
Internal & External Resources
Long before you’re ready to hire employees, you need to decide which skills
and behaviors you need in house vs. which skills and behaviors you can
acquire through contractor, alliance partner, or service providers. You should
prepare yourself well in upfront planning of your internal organization and
your external network in order to ensure that you will make well educated
choices when the time comes.
Before you hire your first employee, carefully evaluate the kind of individuals
you need to bring into your organization. While working with other
professionals and businesses, observe the kinds of skills and work tactics
that mesh best with your own. Develop your ability to communicate your
needs and motivate others to follow through.
You may need salespeople (products and services usually don’t sell
themselves). Consider using outside reps who work on straight commission.
This arrangement—typically an independent contractor relationship,
allows flexibility on both sides. Your salespeople set their own hours and
goals and you pay them only when a sale is made.
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You may also need product development, sourcing, administrative, call
center, customer support, supply chain, information technology or other
functions. As we mentioned earlier, no matter what the size of your business,
you can take advantage of a flatworld and leverage mature service offerings
which can provide you back office and other services that are needed to
run your business profitably. The global communications infrastructure
and ubiquitous computing, along with two decades of improvement in
offerings and service levels, make a virtual back office, and even a virtual
front office, a profitably reality for many of today’s small businesses.
You might use on-site independent contractors in some areas of your
business. Many computer programmers, for example, work as independent
contractors. All small businesses have special projects for which independent
contractors are appropriate.
A word of caution is in order here. In the past, a number of small businesses
falsely classified employees as independent contractors in order to avoid
unemployment insurance, payroll taxes and social security payments. As a
result, the IRS has targeted abuse of the independent contractor status for
audit. Penalties for noncompliance are severe—100 percent in the case of
payroll taxes, and the owner’s personal assets are liable.
Carefully review federal, state and IRS regulations to be sure that any
temporary help arrangement you set up conforms to be the legal definition
of the independent contractor. This is a confusing area of the law. If there is
any question in your mind, we advise you to consult your attorney.
Another method for securing workers to fill gaps in your workload is to
tap into the temporary job market. Temporary workers fill a very definite
need. They work on a per job basis for a day, a month or a year, and they
are not on your payroll. You hire temporary workers from a service, which
is responsible for tax liabilities. You benefit in another way—you have help
when and where you need it without paying an individual for down time
when business is slack.
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Don’t be put off by the idea of temporary workers. Today’s temp agencies
offer workers with many different levels of skill and expertise—everything
from bookkeepers to computer consultants and executives. Some agencies
specialize in administrative help, while others can provide you with
technical, financial or managerial personnel.
Temp services offer skilled, prescreened workers, and they frequently offer
the option of permanent placement. Be sure to check with the agency’s
policies concerning permanent placement of temporary personnel in
the event that you decide you would like to offer a temporary worker a
permanent job.
These aren’t the only resources you can tap into when seeking qualified
talent. There are many reputable employment websites that allow employers
to post advertisement and/or view resumes of jobseekers. You can also
advertise in newspapers, and try your own trade and association websites,
newsletters, and magazines. Solicit referrals from business acquaintances,
organizations and friends.
Approach universities and technical/vocational schools—most of them
offer job assistance programs.
Temporary services cannot fill job orders for home-based offices. If this is
a problem, think about hiring individuals outside the standard temp job
market. Most US cities today are filled with professionals willing to work
on an on-call basis to earn extra money.
Whether you’re hiring permanent or temporary employees, one of the most
important things you can do is seriously consider the type of person you
need, and their relevant background for your company.
In addition to skills and behaviors that you interview for, it’s important to
understand the extent to which employees can make or break the company.
You should look for attitudes in your permanent employees which suggest
that building a career with your company is what they’re interested in.
You should look for attitudes in your temporary staff that show they are
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engaged and interested in the business as a whole, and not merely going
through their job tasks or activities. Temporary employees who wish to be
considered for permanent employment can be a great asset to the business.
Finally, the subject of background checks needs to be seriously addressed.
Distasteful as it is for the entrepreneur, it may be prudent to solicit
assistance from services which can quickly and inexpensively provide you
with background checks on your employees.
Permanent Employees
You may want to start planning for permanent employees with an ongoing
search. Collect the resumes of those who impress you and categorize
them according to the role they could one day fill in the development
of your business. Conduct information gathering interviews. Exploratory
interviews serve the purposes of qualifying the interest of the individuals
in possible future alliances. Explain your interest and intent, and ask these
professionals to keep you apprised of their progress. Those who continue
to update you and show promise stand out as the best candidates for your
company when the need arises.
As you develop a reputation as a solid business owner, you’ll also be able
to network with business leaders in your community, even if they are
outside your own industry. If you’re looking for someone to fill a top spot
in electronics, don’t pass up the chance to discuss your credentials and
employment needs with the recruiting executive of an advertising firm. He
or she just might have the hidden connection that could lead to the talent
you need. Network with recruiters from many industries, both related to
your own business and others. It’s the only way to learn about available
talent.
Employees are your company’s lifeblood and most valuable resource. You’ll
generally get back as much, or more, from them as you’re willing to invest.
Consider investing in their continued education and upgrading of skills,
and capitalize on every opportunity to foster their abilities. Employees who
are given a sense of pride and co-responsibility will contribute much to the
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growth of your business. You might want to consider cross training your
employees so that they are well-versed in all facets of your business and
capable of performing multiple tasks within your organization. Common
wisdom today is to seek out those people who know to function without
organizational charts—people who are able and willing to make decisions
and take responsibility for the outcome.
While you’re looking for workshops, seminars and other educational
opportunities for yourself, you might also keep an eye on what is available
for employees. Also consider subscribing to newsletters and magazines that
are focused on updating employee skills.
Employee Manual
Before hiring anyone permanently, you should have an employee manual in
place that complies with all IRS and OSHA requirements. The handbook,
which is not intended as an employee contract, should be updated regularly.
When setting up your employee handbook you might want to include
many of the following topics to avoid misunderstanding and conflicts later:
Introduction of the company and company policies
Company history and financial status
Working hours and sign-in procedures
Rest periods/coffee breaks
Rules for absences
Pay periods
Safety and accident-prevention programs
Policies on phone usage
Vacations and holidays
Compliance with the American Disabilities Act and similar
regulations/laws
x Policy on jury duty and military leave
x Employee’s rights to unemployment compensation
x Medical, hospital and surgical benefits
x Pensions, profit sharing and bonuses
x Group insurance
x
x
x
x
x
x
x
x
x
x
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x
x
x
x
Training Programs
Parking rules
Service awards
Credit Unions
When to Hire a Manager
There is no best time to hire an outside manager. However, you need to
recognize that there comes a time when hands-on attention to the details of
growing and operating a startup business reaches a point of negative return
on your invested time.
Sometimes entrepreneurs find that the investment of more time and energy
fails to produce a comparable return. Simply put, your growing business
may require more expertise than you have. It is then that you must decide
whether to bring in new managerial help or to curtail continued growth.
When you bring in an outside manager, you must give up control.
Managers are an important part of business growth. It’s best to bring in
new managers when the business is on course and holding steady with
increasing profits, usually after the startup period is completed. Bringing
in that outside manager frees you up to conquer new worlds. Before the
search begins, you must consider compensation. A good resource is the
Executive Compensation Booklet from Price Waterhouse. This booklet on
executive compensation packages includes information on stock, deferred
performance bonuses, and stock appreciation rights.
Employee Benefits
Health insurance is the most critical benefit question facing small business
today, and clearly there are no easy answers. Although few small businesses
can afford costly benefit packages, there are other ways to compete against
larger companies for employees.
Take advantage of your flexibility. Listen to the needs of your employees.
Sometimes all it takes is a small concession like flexible working hours to
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make an employee happy; and the small business is better able to respond
to that type of need.
You should talk to your accountant about creative compensation packages
that will help keep valued employees. High-tech companies have used stock
options quite successfully in gaining the commitment of key employees.
Look into profit-sharing or retirement savings plans that are financially
within your reach.
Perhaps the best advice we can give you is to take time to shop for coverage
using all the resources available. For example, many chambers of commerce
and trade and professional associations offer special group plans. A good
resource is the National Association for the Self-Employed.
Once you’ve found a good medical plan, consider picking up a part of the
premium and having your employees pay the balance. Author Linda Stern
gives this advice, “Forget about buying an expensive, top-quality health
insurance policy. It simply doesn’t exist. At best, you’ll find a reliable, solid
policy that fits your needs at a cost you can afford.”
The first thing you want to look for is whether the insurance company you’re
considering has a proven record of safety and reliability. You probably don’t
have the time to evaluate the performance of more than 2,500 insurance
companies on your own, so you’ll need to rely on an impartial third-party
resource such as A.M. Best Company, Standard & Poor’s Corporation of
Moody’s Investors Services.
Best has been recognized as a leading firm in analyzing the financial strength
of insurance companies since 1899. Ratings are based on what Best thinks
of a company’s relative strength and operating performance.
Standard & Poor’s has been rating companies since 1923, and rating
the Claims-Paying Ability of insurance companies since 1971. Moody’s
Investors Services originated a system of rating securities in 1909. This
system was first applied to insurance company policy holder obligations
in 1986. Moody’s considers all phases of the life insurance industry when
assigning ratings.
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Another good source of information is other business owners who already
have policies. Ask them what they like and don’t like about their current
policies. Make a prioritized list of the services you value the most, and
compare these services with the features offered in available policies.
Alliances and Partnering
Smart partnering and alliances are essential to getting an adequate return
on your invested time. Building successful alliances and finding the best
partners in today’s dynamic marketplace is more important than ever in
this post-boom economic environment that we find ourselves in today.
Too many companies either ignore potential alliance partners, through
either ignorance or arrogance, and find themselves suffering alone in
today’s market; or have gone on alliance and partnering binges, resulting
in poorly planned and positioned networks of business partners who have
added to the bureaucracy of conducting business or even added to their
costs of doing business.
There are three basic questions that need to be asked prior to considering
any alliance or partnership arrangement:
1. Will this alliance help me reach more customers or better service
the ones I have (i.e., partnering for indirect sales or customer service;
or call center support)?
2. Will this alliance improve my internal operations, making them
more efficient or effective (i.e., partnering for financial management,
or legal assistance, or IT)?
3. Will this alliance improve my ability to source product, obtain
raw materials or talented personnel (i.e., partnering for supply chain
providers, purchasing consortiums or recruiting firms)?
Building and maintaining successful alliances is not difficult if you have a
clear vision of the “as is” state of your business. Alliances that may serve
your purposes in the beginning years could very well hinder your growth
in later years, so you need to be careful about the terms and conditions of
such relationships.
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With that said, the majority of alliances break down not over time
requirements and needs changes as they end up stifling growth or being
unproductive, but because the members of the alliance think too shortterm and don’t invest the time and energy in making the relationship winwin, driving profits for both.
Think very carefully about the alliance partner you’re considering. Everyone
is in business to achieve their corporate goals. Research the corporate
goals and objectives of your potential alliance partners. Understand their
market strengths and weaknesses. Be sure to match that up with your
own company’s strengths and weaknesses and set the framework for the
relationship.
Some of the most successful alliances come between companies that have
similar styles in the marketplace, complementary services, and a healthy
respect for the strengths, weaknesses, and operating models of their partners.
Flatworlding
Flatworlding has been a major part of business models for the last twenty
years or more and will continue to dominate the labor, talent, and business
process landscape for decades to come. Originally known as outsourcing,
it has enormous benefits if deployed in your business model appropriately,
but can also be enormously distracting and inhibitive if done poorly.
You should not consider flatworlding talent or outsourcing certain business
functions or processes as a mechanism for reducing costs. Flatworlding
can potentially reduce your costs; especially if you are a smaller enterprise
requiring more sophisticated services which would be expensive to acquire
and maintain in-house.
However, the business case is far more valuable when addressed to a specific,
non-competitive business focus. For example, rarely would a software vendor
outsource or use a 3rd party for technical support of their products because
world class technology knowledge (IP) inside the company is essential to
protecting the brand and company growth.
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However, for businesses such as small retailers or service operations that
are not selling technology but merely trying to more efficiently use it to
grow their business, outsourcing of non-competitive IT functions may be a
viable alternative to hiring and maintaining an IT staff in-house.
Additionally, many large and small companies have considered flatworlding
payroll and/or backoffice financial functions. Oftentimes the initial
reasoning is based on cost savings; however, the long term benefits stem
mainly from freeing up valuable internal resources and capital that can
then focus on more strategic customer or market-facing programs which
can help the company grow.
For example, your best financial analysts in the company no longer need to
spend all year preparing quarterly reports and annual financial statements.
Instead, they can get closer to the sales and production portions of the
business and provide valuable financial analytics and insights on cost and
revenue elasticity; market dynamics; and overall business acceleration.
In each area of your business model, whether it’s marketing, sales, IT,
finance, HR, legal, logistics, etc., you need to consider what gives you a
competitive advantage and what gives you competitive parity. Based on the
relative importance of each function to your overall business goals, you can
then decide whether flatworlding the service or process, or outsourcing the
function, is a viable alternative for the business, and most importantly—
for how long?
The most successful businesses are agnostic when it comes to many noncritical portions of their business operations. They don’t care who does the
work as long as it gets done with the proper level of quality and timeliness.
On the other hand, this agnosticism is offset by the fanaticism of their desire
to excel in those areas of the business that require world class performance
and unique customer or service delivery capabilities.
Understanding your business model well enough to know when to “hold
on loosely but don’t let go” and opt for a flatworlding arrangement…and
when to hold on tightly and optimize your best and brightest people onsite is a key to a successful flatworlding strategy.
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Managing and Growing Your Business in Stages
Business Functions & Processes
The Matrix Organization
Business Functions & Processes
Whether you’ve established your business as a sole proprietorship, a
partnership, a corporation, or a hybrid model—your management skills
and ability to determine how to handle or delegate key functions (sales,
marketing, production, etc.,) will be critical to the success of your business.
As an entrepreneur, your focus has been on conceiving, gathering resources,
organizing, and running your business. During the developmental phase of
your business, you must take steps to create internal functions in a manner
which best ensures that your operations flow more smoothly. You’ll then
have more time to do the things that really grow your company—like
direct investor or customer contact, or direct research and development (if
that is your expertise), etc.
If you’re a sole proprietor with full responsibility for all aspects of your
business, you don’t need to worry about formally creating certain functions
(i.e., human resources, sales and marketing), but you do need to be skilled
at managing time and energy levels and to balance the varied needs of your
business, from production to sales to collections. You will want to organize
your company for the greatest efficiency and to tap into every possible tool
that your budget will allow.
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Successful business owner-managers are incredibly well-organized. They’ve
developed keen conceptual skills that enable them to acquire, analyze and
interpret information from various sources and then to make complex
decisions. These entrepreneurs see the big picture and plan ahead rather
than reacting to outside influences.
Leaders who can inspire others with their vision, they learn to handle
administrative tasks and budgeting. If they don’t, they don’t survive. To
succeed, owner managers develop the functional skills required to complete
the tasks that keep their business operating—or they find outside experts
to help them.
Deciding which business functions are critical and which business processes
are essential is one of the most difficult things for an entrepreneur. Most
entrepreneurs simply aren’t initially wired in a way which fosters that kind
of thinking; but the best ones learn quickly.
What is the difference between Jack of All Trades, Functional Expertise and
a Process-Aligned organization? In the entrepreneurial stage of a business,
there are many functions being performed by few people. As the company
grows, however, (either in terms of sales or risks), the structure of the
company needs to change to be more functionally aligned.
Whether this is due to the owner-entrepreneur not having the time (or
perhaps the skill) to properly perform these functions him/herself, or
because of wise foresight to continue to service customers optimally,
eventually marketing departments, sales departments, IT departments,
finance departments, and others are created and staffed. In a traditional
growth model, the final stage is the process aligned business.
As the walls or silos between functions get thicker over time, communications
barriers increase. Sales personnel don’t communicate properly with product
development or marketing. New promotions or advertising events are
launched without proper understanding of the impact on field personnel,
existing customer perceptions, or the supply chain. What was once an
effective way to organize resources around key functions has now become
a field of inefficiencies and barriers, choking off the company’s ability to
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quickly and profitably service new and existing customers. So processes
like customer service centers of excellence are given life, leverage, and
capabilities to cut through the thick walls of functional silos, and continue
to keep the company focused on the customers and the marketplace.
Finally, a word about time management, which is a subject written about
extensively, and is probably as important to the growing business as
delivering profitable sales. Successful entrepreneurs have control over their
time—it is the one skill that propels them forward at a consistent rate of
growth.
It’s all about self-management over time management. Good selfmanagement can save entrepreneurs as much as one hour a day. For
service-based companies that are essentially selling their time, that extra
hour (12% of the day) can really make a difference—not only in sales, but
in the personal development of the business owner. One key metric which
is critical to the success of the entrepreneur is ROIT, return on invested
time. Having an extra hour a day to think, plan, and execute the business
is a 1200 basis point increase in productivity, a 12% increase in productive
time which your company, associates, customers, suppliers, and partners
will all benefit from.
Effective self-management is based in discipline. Entrepreneurs have a
tendency to get trapped into taking on too much. They often overbook
their appointments, their administrative tasks and even their networking
opportunities. A better way to handle the many tasks required to build a
business would be to first prioritize them as follows:
An “A” priority task: something that directly relates to achieving one
of your goals. For example, you want to begin growing new business
opportunities by giving talks at various clubs. The first step, then, might be
to contact an organization such as Toastmasters to develop your speaking
skills.
A “B” priority task: something that indirectly relates to achieving one
of your goals. These tasks don’t carry as much of an immediate need to
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complete. The important element here is to make sure that these tasks are
done after any “A” priority tasks. For example, reading a book on giving
special presentations might be a “B” priority task.
An important thing to remember about time management or selfmanagement is that priorities can change often, even daily. You must be
flexible, allowing change when new opportunities arise. Many business
owners feel as though they are always busy, working long hours but not
necessarily accomplishing what they wanted to do. Poulos refers to this
experience as the “barrenness of business taking over.”
Being “gold-minded” together with “time-minded” is the key to getting
out of this time trap. There are many scheduling and organizing tools on
the market, some of them quite expensive. There is no way to recommend
one over another because every business and every person has particular
needs and styles. Be sure that the system you choose is easy to maintain and
does what you want it to do.
The fine art of delegation is an extremely important skill for you to learn
regardless of whether you manage a business with several employees or
just manage yourself. No one can function effectively alone; those who
attempt to do so fall prey to burnout. Although delegation can be a difficult
process for anyone accustomed to keeping tight controls over their business
operations, it can greatly improve efficiency.
The best way to strengthen a small business is to delegate to outside experts.
Consider asking a banker, an accountant, a management consultant, an
attorney or another local business owner to serve on an informal board of
directors. A monthly meeting of such a board can yield good advice and
become an ongoing source of business development. The group can also be
used as a sounding board for future business decisions.
You’ll find that you can delegate and still keep control if you follow some
very simple guidelines:
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Let go of responsibilities for tasks that don’t address your top
priority.
x Know exactly what your goals are, and then make sure they are
measurable and specific. Prioritize expectations.
x If you have an overload of work, find someone—perhaps even a
competitor—and subcontract small projects to them. Find someone
who can deliver and doesn’t cut corners. Consider training, ability and
availability.
x Establish reasonable checkpoints for communication ahead of
time so that fellow professionals don’t feel you’re questioning their
competence.
x Consider delegating the entire project—based on the project’s
complexity and your subcontractor’s expertise.
x When a project goes sour, consider allowing the subcontractor to
take responsibility and correct any problems he or she has caused.
Patience in this area can lead to profitable long-term business
relationships.
x Have an agreement specifying the performance standards, budget,
deadline controls and procedures for final review (when and how a
formal review will be handled). Be free with your feedback—positive
and negative. This enables subcontractors to know if they are on track.
x
Managing Your Matrix Organization
We’re believers in the adage “Success is a journey, not a destination,”
one in which we’ve spent many years living. Beyond the process-aligned
organization is another model which has evolved from the marketplace
(where all great ideas take root—as opposed to the conference room which
usually produces more mold in the bottom of old coffee cups).
After weathering a few years of business ownership, you’ve grown from
fighting alligators and focusing on survival, entrepreneurial to the hilt,
into experiencing new growing pains and gains. Your administrative and
accounting infrastructure and all your functions and key processes are in
place. Your business identity is gaining recognition. You, and everyone you
work with, know what your product is, who your target market is, what
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price ranges you function in and how you get your message and product out
to that targeted market. You have a pool of satisfied customers and a track
record of dependability and profitability. If you find that your business
is lacking in any of these areas, look back at prior chapters to determine
exactly what you need to do to bring your company up to speed.
You are now ready to evaluate where you are and what your next stage
of development will include. Not all businesses want to become megacorps with hundreds or thousands of employees. In fact, current wisdom
stresses a preference toward staying small for optimum market flexibility,
even if that means you create a holding-company structure to keep your
interdependent value propositions lean and focused, and leverage service
providers to keep you efficient and nimble.
At the three year point you may begin to feel the need to change and
do something different. Often a major overhaul in image, marketing
procedures, location or even business status “Whether to continue on or to
try a new venture” is decided upon. This is also where you run the highest
risk of burn out.
Many entrepreneurs instinctively know when they’ve come to a fork in the
road and that major decisions need to be made to continue growing. These
professionals come to the realization that they can no longer reach their
maximum potential by working harder or faster. At the same time, successful
entrepreneurs know that any change needs to be a logical outgrowth of
what has gone before; and be rooted in their core competencies, strengths,
and customer value proposition.
Now, it’s time to work smarter, using the knowledge and skills accumulated
through the startup period and drawing on a history of successes with
customers. In this context we introduce The Matrix Organization.
The Matrix Organization optimizes the entrepreneurial spirit, the
efficiencies of functional alignment, and the effectiveness of key core processes
which cross those functional areas to keep the company delivering quality
products and services to the marketplace. It is based on the deep knowledge
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that no single person can do everything, that no executive, no matter how
wired for success or knowledgeable about the business, can continue to
be the central pivot in an organization. In the flatworld of today and the
crowded marketplaces of tomorrow, those days are over.
The pivot … is your people. Being able to build networks and “think to
link” in terms of building and maintaining value-based and profitable
relationships inside and outside your company are now not just critical
success factors for the best CEOs in the country, they are critical
behaviors for everyone from the C-level to the mailroom clerk. Linking,
communicating and leveraging both corporate and individual circles of
relationships is the foundation of the emerging business people who are
dramatically improving their careers and the profitable growth of their
companies.
The Matrix Organization is a business model which takes advantage of a key
attribute within the business organization, an attribute that functionally
aligned and process aligned businesses have not historically leveraged
appropriately: Profitable Individuality (PI).
Profitable Individuality is required in companies with functional silos,
where good ideas in marketing rarely make it to field personnel; where the
customer service group doesn’t include net landed cost analytics showing
improved ways of delivering products and services; where there is a culture
of business as usual that stifles creativity; and where there are not enough
transparent exchanges between talented individuals across the organization
to make a material financial and sustainable impact.
The Matrix Organization is a response to the “arthritis of the joints”
between functions and processes. It is designed to free the individual
knowledge worker inside a company to participate in activities, in addition
to performing their job, that create value for the enterprise.
Companies which are deploying this business model have the following
corporate culture components in common:
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x
x
x
x
x
x
Learn continuously.
Endorse experimentation.
Break old patterns.
Identify commonalities…not differences.
Build new networks.
Optimize assets (people, brand, infrastructure, reach).
The Matrix Organization is an enabler of a future where all entrepreneurs
manage and grow their companies through initial stages, past functions,
past processes, into an environment where every individual in the company
is participating not only in the areas where their skills generate the most
value for customers and shareholders, but where their aspirations and
their behaviors generate that value as well. This model requires an ego-free
environment (not easy to attain), a common cause and belief in the quality
of the product or service the company is delivering to customers, and an
open, fertile culture of “The Genius of the And” designed to assist every
associate, every customer, every supplier to be the best they can be…to the
benefit of the entire ecosystem.
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Social Glocal
Do you remember the entrepreneurial survival skills we described earlier?
By now they should be your credo.
Be ethical, even in hard times.
Know your customers’ needs and satisfy them.
Take the time to do something extra for your customers.
Focus your energies on the bottom line.
Pay attention to accounts receivable.
Control your inventory.
Reduce expenses
Minimize paperwork.
If you’re an entrepreneur, you are a survivor. You constantly demonstrate
to yourself and to others that you are in for the long haul. You exhibit
rare commitment to do whatever it takes to get the job done. You face
struggles with your eyes wide open and have learned to turn problems
into challenges and opportunities. You thrive on risk, challenge and
accomplishment. You use your eco-system (both personal and professional)
to meet customer expectations and to better understand expectations that
you are not meeting.
With knowledge and expertise, you are now capable of taking more
calculated risks. You can try new tactics based on probable outcomes. When
you do so, you should have a firm idea of where you are and where you
want to go. You developed a business plan when first starting your business.
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However, what you’ve noticed on a personal level—using social media to
stay in touch with ex-colleagues, school-mates, and friends, but perhaps not
fully taken advantage of for expanded business growth—is the incredible
network effect provided by the convergence of Content, Communications,
and Capabilities over the past few years; in other words, the emergence of
Social Glocal.
As we stated earlier, your eco-system is a very under-tapped asset. Expanding
your eco-system in a viral, profitable way is now a necessary component of
any successful business launch and expansion, whether you’re in Dallas or
Delhi. We’re not talking about having a Facebook or e-Msg account to
collaborate with customers, associates, or suppliers. We’re talking about using
Facebook, Google, Twitter, YouTube, etc., as social media mechanisms to
communicate with current and prospective customers. Many Fortune 500
companies spend hundreds of millions of marketing dollars in managing
domains, keyword search rankings, link priorities, etc., in the increasingly
critical virtual flatworld we live in today. As an entrepreneur you’ll not need
to make the same investment to gain equivalent results from a world which
has grown increasingly Social Global-Local in nature.
For example, if you’re a custom egg-basket manufacturer, placing your eggbaskets into a Second Life household or virtual retailing scenario extends
your icon, brand, and identity reach to tens of millions of individuals you
couldn’t possibly touch through traditional physical mediums.
Another example is the arbitrage which happens when the hundreds of
millions of searches which occur daily from consumers who type in a
keyword to Google. This in effect triggers a real-time auction involving
all of the companies and all of the products and services linked to that
keyword, literally millions of marketplace matches per second, and has
proven enormous potential as a channel to capture both articulated and
unarticulated demand patterns and profitably connect you with customers
you never knew you could have.
Another example in the changing dynamics of ecosystems and marketplaces
is not just for you as a business runner to post what you’re selling but for
consumers to post what they want to buy, what they’re willing to pay, when
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they want delivery, how they want it packaged, and have that open bazaar
where you compete to meet their demands. We’re talking about social
commerce and the emergence of consumer-driven economics. Just think
about the Persian traders from 5000 years ago replicated into the modern
age and you’ll understand the new dynamic and the new opportunity.
In contrast to traditional use from the last decade (companies posting
specifications and accepting bids for product development, sourcing,
transportation, call center services, maintenance agreements, etc) the
emerging power of the consumer is taking a direct path to control and is a
primary driver of business innovation.
Whether you’re a small, medium, or large enterprise; whether you
geographically operate in a mature, emerging, or growth market; whether
you have patented assets or are offering a commodity service—social
media, social commerce, and the global-local effect of the continued
maturity of the Internet as a vehicle to adopt best practices, reach new
customers, design new products, or collaborate more effectively with valuechain partners has already proven key to maturity and expansion. It’s time
to get on board in a big way if you have not done so to date. This is an area
of importance whether you are a home business or a fledgling newco and
may be one of the key areas of your business model in which you leverage
external consulting or advisory services to create your digital footprint. As
anyone who has ever viewed a viral YouTube posting knows, the world is
“Flat as a Pancake” to quote an old HeadEast album from the ‘70s…and
that presents huge opportunities for growing your successful business.
Finally, if you haven’t been using your business plan regularly to create
monthly or even yearly action plans, it’s now time to look at it again, to
make it a living document. Updating this plan will keep you on target and
propel you to the next plateau of business growth. It will also demonstrate
to potential lenders (private equity, venture capital, etc.), if you choose to
take this route, that you are indeed on top of a viable business.
Short-term goals should consist of plans for the next year. Long-term goals
will include no more than three-year and five-year projections. Anything
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beyond that is irrational to assume in today’s flattened and chaotic
economics. Remember, however, one of your greatest strengths as a small
business person is that you can move quickly to meet unforeseen changes in
the economic environment and the market. Your plans must be adaptable
for changing conditions in the marketplace.
Moving beyond survival, you need to provide strong organizational
leadership and vision for yourself and your business. Somewhere between
the inception of your business and the point where it will reach peak
development, you need to make some serious decisions.
Do you want to diversify and expand your business, offering new products,
services, hiring more employees, entering new markets? Maybe, maybe
not, depending on the goals you set. At every plateau in the growth of
your business, there are trade-offs. For every change you make in your
operations and structure, there will be ramifications that you need to be
prepared for.
For example, if you decide that you’ve been working alone long enough
and now want to take on employees, you don’t just hire a new person to
work with you. Will an employee produce enough to justify the payroll
cost? You need to restructure your accounting processes, rethink your IRS
requirements and realign your workload—perhaps delegating more and
taking on new managerial roles.
Many business owners avoid planning. They think planning limits their
flexibility, is impossible in an uncertain business climate, or takes too much
time away from day-to-day business. Their definition of an “agile” company
culture results in behaviors which are often unstructured and immeasurable
and ultimately unprofitable. Garage Growth may be necessary to launch
an innovative enterprise, but quickly needs to yield to prudent decisionmaking, passionate pursuit of your vision, and operational excellence
guided by the people, process, and technology optimization necessary for
all business models and all enterprises, big or small.
Marion Foote, a specialist in strategic financial management for small
businesses, offers several reasons for creating a plan for your business.
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Flexibility: Planning expands your options. If you don’t know
where you’re going, you often end up somewhere you didn’t intend to
go. When you know where you want to go, you can decide how to get
there. Then, if you run into a roadblock, you can find a new route to
your destination.
x Change: Planning reduces uncertainty and helps you share ideas
with your associates. To operate in a changing environment, you need
everyone’s talents and ideas to find the best route through the changes
affecting your business.
x Time: Studies show that small-sized to medium-sized businesses
currently spend four to ten days per year on the planning process—
less than five percent of annual working time. This is a small price to
pay for one of your most valuable assets—a map for success.
x Direction: As you develop plans for the business, you share your
goals and objectives with the people who can help you reach them.
A shared understanding of where you’re going helps everyone work
toward the same goal.
x
The entrepreneurial journey can at times be a lonely one. The resources
contained in this book have been compiled to provide you with help along
the way. We have walked the path you’re walking.
We know how it feels to strive, fall down, pick ourselves up and start all
over again. In fact, we believe that the purpose of the fall is so that we learn
how to better pick ourselves up. Although not recommended, through our
experiences we’ve noted that many of the most successful entrepreneurs
and business owners are those who’ve declared bankruptcy, closed the
doors on a failed business, or lost a key enterprise at least once. They made
early mistakes, recovered, and ultimately meshed the great idea with the
great business model, great people and a great network which led to their
ultimate success. We also know the incredible thrill that accompanies such
success.
We understand the addiction of the entrepreneurial challenge and we
wouldn’t live our lives any other way.
Someday, perhaps we’ll have the opportunity to do business together.
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In the meantime, here’s to you. We won’t say Good Luck—because luck
seldom has anything to do with building and growing a successful business
and power network. It’s perseverance, passion, and execution. Fair sailing
to all!
David Stover
Melissa Giovagnoli
www.networlding.com and networldingblog.com
or call us at 312-560-0982 for a free consultation.
We are all about helping you build better business faster
through lowest-cost-highest-quality implementation of social
media initiatives.
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