Today I will be watching the Super Bowl along with millions of others. I thought it is only fitting to add a little sports analogy to my business blog.
The Cardinals take on the Steelers tonight and the team that scores the most points will win. It's pretty simple, we tally up all the touchdowns, field goals, point after touchdowns (1 or 2 point conversions) and safeties. The team that ends up with the most points in the one hour of playing time will win (unless it goes to overtime).
In business, there are also scorecards. These are what I refer to as the holy trinity of financial statements -- the cash flow sheet, the profit & loss statement and the balance sheet. Unfortunately, too many small business owners do not pay close enough attention to these scorecards.
The problem is that too many small business owners try to operate their businesses on an intuitive basis. I was certainly guilty of this in the past, and that is the reason why I did not maximize my the performance of some very successful businesses. Some business owners tend to focus on only their cash balance in their checking account or their year end profitability. Others may track their inventory levels or accounts receivable balances or maybe they judge performance by how much they still owe to the bank.
Still the fact remains that business owners would be more successful if they developed a more holistic understanding of financial statements, and more importantly, some of the key performance indicators that dictate success for their particular industries. Sometimes, cash flow decisions can hurt profitability or vice versa and business owners should think about both aspects when making business decisions.
Forecasting successful operations means keeping score and establishing specific measures of success. Business is definitely a competitive enterprise and with competition their needs to be some performance measures. Keeping score means tracking transactions, whether it is through a manual ledger or a computer accounting system.
I encourage all small business owners to revisit their business plans and set up specific financial goals for the next few months. Keep score and try to exceed those goals.
One of the benefits of keeping score in your business vs. the sports world is that you can establish your own goals for winning. You can set the profitability measures, the cash flow balances and the net worth you hope to achieve. Still, you have to keep score to win.
Sunday, February 1, 2009
Wednesday, January 21, 2009
Beyond Hope is Action
Like so many Americans, I was inspired by the inauguration of our new President, Barack Obama. My initial impression is that he is an eloquent speaker, a caring soul and a thoughtful leader. His comprehension of the complex issues related to governing this great nation appears to be strong and he seems poised to foster an improved level of cooperation and bipartisanship among our lawmakers.
Millions of Americans flocked to Washington, D.C. for one of the greatest celebrations of the 21rst century. In Barack Obama's inaugural address, he said, “We have chosen hope over fear,” yet he was also sobering in reminding us of the challenges that remain, both from an economic and a national security standpoint.
It was a historic day on January 20, 2009 and it was a great day for the United States of America. “Hope” was a word that was used quite a bit throughout the day. It is a beautiful word that spurs dreams of promise and opportunity. It can be used as a noun or a verb. We can possess hope or we can hope something will happen (thanks Ms. Lierni, Oak Tree Elementary School).
President Obama can inspire us with hope the noun, but if we utilize hope the verb too much, nothing will get accomplished. Hope is not an action verb; it is a passive verb (thanks Ms. Ward, John Adams Junior High). I can hope I don't get hit by a train, but I will if I just sit on the tracks and hope. I have to move, jump, run, walk or take some other action beyond hope if I am going to survive.
As we take to heart the inspiring words of our new President, the reality is that if we expect things to change we have to take action and not just hope for change. Barack Obama also added, “Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America - they will be met.”
While some people may have listened to his words and heard a promise, I heard a call to action. He went further to remind us of the words that George Washington spoke during the Revolutionary War, before his famous crossing of the Delaware River, "Let it be told to the future world...that in the depth of winter, when nothing but hope and virtue could survive...that the city and the country, alarmed at one common danger, came forth to meet (it)."
It was a historical day for our nation, yesterday and many of us were inspired and filled with hope. Yet President Obama alone will not solve our problems. We can hold on to the hope from his message, but beyond that we all need to use our minds, our strengths and our passions to meet the challenges facing our nation. There is nothing stopping us from making tomorrow another historical day with a new accomplishment of grand scale.
How does this relate to small business? Well, I have to admit I am slightly off topic again. Yet our economy is driven by small businesses and I am tasked with helping our clients operate more successful businesses. To me, President Obama's call to action has only inspired me further to do my part and help our clients bring their dreams to a successful business reality. It starts with hope, but the achievement only comes with a good plan and a commitment to action.
Millions of Americans flocked to Washington, D.C. for one of the greatest celebrations of the 21rst century. In Barack Obama's inaugural address, he said, “We have chosen hope over fear,” yet he was also sobering in reminding us of the challenges that remain, both from an economic and a national security standpoint.
It was a historic day on January 20, 2009 and it was a great day for the United States of America. “Hope” was a word that was used quite a bit throughout the day. It is a beautiful word that spurs dreams of promise and opportunity. It can be used as a noun or a verb. We can possess hope or we can hope something will happen (thanks Ms. Lierni, Oak Tree Elementary School).
President Obama can inspire us with hope the noun, but if we utilize hope the verb too much, nothing will get accomplished. Hope is not an action verb; it is a passive verb (thanks Ms. Ward, John Adams Junior High). I can hope I don't get hit by a train, but I will if I just sit on the tracks and hope. I have to move, jump, run, walk or take some other action beyond hope if I am going to survive.
As we take to heart the inspiring words of our new President, the reality is that if we expect things to change we have to take action and not just hope for change. Barack Obama also added, “Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America - they will be met.”
While some people may have listened to his words and heard a promise, I heard a call to action. He went further to remind us of the words that George Washington spoke during the Revolutionary War, before his famous crossing of the Delaware River, "Let it be told to the future world...that in the depth of winter, when nothing but hope and virtue could survive...that the city and the country, alarmed at one common danger, came forth to meet (it)."
It was a historical day for our nation, yesterday and many of us were inspired and filled with hope. Yet President Obama alone will not solve our problems. We can hold on to the hope from his message, but beyond that we all need to use our minds, our strengths and our passions to meet the challenges facing our nation. There is nothing stopping us from making tomorrow another historical day with a new accomplishment of grand scale.
How does this relate to small business? Well, I have to admit I am slightly off topic again. Yet our economy is driven by small businesses and I am tasked with helping our clients operate more successful businesses. To me, President Obama's call to action has only inspired me further to do my part and help our clients bring their dreams to a successful business reality. It starts with hope, but the achievement only comes with a good plan and a commitment to action.
Thursday, January 15, 2009
I Refuse to Participate in This Recession
I was at a very inspiring meeting in Lake Placid this morning. At the meeting, Jim Williams, from radio station WSLP, gave me a button that said, “I refuse to participate in a recession.” I quickly put the badge on and wore it with pride!
Mr. Williams also sent me a link to a video by Dr. Ivan Misner, who is the founder and chairman of Business Networking International. Here is that same link:
http://www.youtube.com/watch?v=9266NvfUHrk
While I give my usual disclaimer that this is not an endorsement of any particular product or service, I will not hide my feeling that that Dr. Misner is a kindred spirit. His message resonated and clearly articulated so much that I have been trying to communicate in previous posts.
I hope you listen to his message, but if not, at least let me share this quote that came out of his inspiring monologue, “Don't let a bad economy be your excuse for failure; instead, make it your opportunity to succeed!”
I think back to that last article I referred to in my previous post. Some of those businesses interviewed claimed the economy was forcing them to close. Looking at some of the businesses and the reasons given for their difficulties, I just had a hard time accepting that the economy was the root cause of the problem. I obviously don't have access to all the details from these businesses and I don't want to diminish any of the challenges they have faced. Yet, I still refuse to believe all opportunities were exhausted.
Opportunity comes in many forms. Adding product or service lines, expanding markets and, the granddaddy of all opportunity, developing innovation -- finding new solutions to meet market demands.
As Dr. Misner said, this is not an attempt to ignore reality. There are real problems in so many areas of our economy. But we can't pull a magic blanket over heads and hide. Rather than dwelling on all the problems, we can choose to seize the opportunity to be a part of the solution.
I welcome you to join Dr. Misner, myself and all the others who refuse to participate in a recession. Choose instead to be a part of a recovery.
Since I was a young child, I have admired the writings of Shel Silverstein, author of the “The Giving Tree.” I share this poem of his:
Listen to the mustn'ts child.
Listen to the don'ts.
Listen to the shouldn't haves, the impossibles, the won'ts.
Listen to the never haves, then listen close to me.
Anything can happen child.
Anything can be.
Mr. Williams also sent me a link to a video by Dr. Ivan Misner, who is the founder and chairman of Business Networking International. Here is that same link:
http://www.youtube.com/watch?v=9266NvfUHrk
While I give my usual disclaimer that this is not an endorsement of any particular product or service, I will not hide my feeling that that Dr. Misner is a kindred spirit. His message resonated and clearly articulated so much that I have been trying to communicate in previous posts.
I hope you listen to his message, but if not, at least let me share this quote that came out of his inspiring monologue, “Don't let a bad economy be your excuse for failure; instead, make it your opportunity to succeed!”
I think back to that last article I referred to in my previous post. Some of those businesses interviewed claimed the economy was forcing them to close. Looking at some of the businesses and the reasons given for their difficulties, I just had a hard time accepting that the economy was the root cause of the problem. I obviously don't have access to all the details from these businesses and I don't want to diminish any of the challenges they have faced. Yet, I still refuse to believe all opportunities were exhausted.
Opportunity comes in many forms. Adding product or service lines, expanding markets and, the granddaddy of all opportunity, developing innovation -- finding new solutions to meet market demands.
As Dr. Misner said, this is not an attempt to ignore reality. There are real problems in so many areas of our economy. But we can't pull a magic blanket over heads and hide. Rather than dwelling on all the problems, we can choose to seize the opportunity to be a part of the solution.
I welcome you to join Dr. Misner, myself and all the others who refuse to participate in a recession. Choose instead to be a part of a recovery.
Since I was a young child, I have admired the writings of Shel Silverstein, author of the “The Giving Tree.” I share this poem of his:
Listen to the mustn'ts child.
Listen to the don'ts.
Listen to the shouldn't haves, the impossibles, the won'ts.
Listen to the never haves, then listen close to me.
Anything can happen child.
Anything can be.
Monday, January 12, 2009
Survival of the Fittest
Another gloom and doom story about small businesses in this economy has somehow managed to make its way into the mainstream media. I found this Associated Press (AP) article on the homepage of MSNBC.com before heading to work this morning. The title, Small Businesses Struggle to Survive Downturn obviously caught my eye.
First and foremost, the struggle to survive is a daily consideration for most small businesses. At any time, in any economy, there are factors that threaten every businesses' very survival. Natural disasters, new entry of competition, the health of the leadership team; there are so many other possible factors that could extinguish the livelihood of a small business, it is a wonder that so many people still consider it the American Dream to pursue business ownership.
Like in nature, business mortality is an unfortunate reality. Survival is reserved for those businesses that are poised to grow and adapt. The businesses that can evolve and meet the changing demands of the marketplace will ultimately succeed and those that can't will not survive.
If you could indulge me, I would like to address some specific claims in this article. The following bullet points are contained in just one paragraph of this article:
* Financing is hard, if not impossible, to come by
* Vendors are being skittish about extending credit for inventory
* Rents are rising
* And profits are falling — or vanishing altogether as sales slip
First of all, I know a number of lenders in my area who are trying to fight this misconception that financing is impossible to come by. The credit markets are not frozen and credit is quite available. Of course banks are learning their lessons from some of the looser underwriting practices that allowed defaults to increase. They are paying closer attention to the borrower's capacity to service any new financing. Yet banks can't succeed without lending out money. Lending money is still an income source for them and I know of a number of financial institutions that are still quite eager to extend credit.
And banks are not the sole source of financing. For ventures that require a little bit more risk than what banks may be comfortable in underwriting, now is a perfect time to consider private equity. There are investors out there who have money sitting on the sidelines waiting for that right deal to come along. The prospect of having a more intimate review of a business model may be enticing in these days of corporate greed and mismanagement. The key is to craft an investment deal that provides a win/win situation. More flexibility to the business owner and a good prospect for return on investment to the investor.
To address the comment about vendors being skittish about extending credit for inventory, I would like to know when have vendors not been skittish about extending credit? Nothing has changed here. Vendors are always enticing their customers to pay quicker, but if they don't want to experience their own drop in sales, they are going to make some deals and extend credit terms. Maybe not for those businesses that have abused credit terms in the past, but again, that is another form of business Darwinism. Vendors are looking for the right partners to bring their products to the marketplace and they are going to pair up with the stronger businesses who have show a commitment to making timely payments.
The comment that rents are rising baffles me to a certain extent and contradicts so much that I have been hearing with all the gloom and doom economic data on the fall of property values. Yes, I know there have been some property tax issues in various communities, but with the fall of property values, the increased tax rates will eventually be offset by the decrease in property values. Now is a great time to consider negotiating lease terms. Many landlords that I know have been rewarding their long term tenants with discounted lease extensions and it is up to each individual business owner to negotiate the best terms to meet their needs. Of course, it has to be reasonable and beneficial to the landlord, as well. But just because the MSNBC article says rents are rising, don't believe it until you get the bill. And if rents are indeed rising, decide what you are going to do to adapt to this change.
The final claim from the MSNBC article that I will address in this post is that profits are falling or vanishing altogether as sales dip. I am absolutely astounded by this astute financial observation. If I may be as bold, I offer my own prognostication that if you jump into Lake Champlain, you are bound to get wet.
I apologize for being so flip, but sometimes stating the obvious just isn't the answer. Survival in operating a small business is definitely a challenging prospect, no matter what state of our economy. Yet there are plenty of resources for those who wish to find solutions. Our NYSSBDC Research Network has published some good articles on their blog. Here is a link to one:
http://sbdcrn.blogspot.com/2008/12/recession-survival-guide.html
While searching for other resoources to help business owners, I came upon this excellent article by Christine Corelli:
http://www.creativeimpactgroup.com/PDF/Generatingbizchallengingeconomy.pdf
I am also a big fan of these two retail blogs:
http://www.ricksegel.com/blog/
http://bobphibbs.wordpress.com/
As I noted in other posts, your business can also contact a local Small Business Development Center counselor to help you develop specific strategies to deal with challenges or to explore new opportunities to grow your business.
W. Edwards Deming is known for developing the management training that was shunned by many American companies and often attributed with leading the revolutionary improvement of Japanese manufacturing practices. The author of the great management book, Out of Crisis, Mr. Deming once said, “Learning is not compulsory... neither is survival.”
First and foremost, the struggle to survive is a daily consideration for most small businesses. At any time, in any economy, there are factors that threaten every businesses' very survival. Natural disasters, new entry of competition, the health of the leadership team; there are so many other possible factors that could extinguish the livelihood of a small business, it is a wonder that so many people still consider it the American Dream to pursue business ownership.
Like in nature, business mortality is an unfortunate reality. Survival is reserved for those businesses that are poised to grow and adapt. The businesses that can evolve and meet the changing demands of the marketplace will ultimately succeed and those that can't will not survive.
If you could indulge me, I would like to address some specific claims in this article. The following bullet points are contained in just one paragraph of this article:
* Financing is hard, if not impossible, to come by
* Vendors are being skittish about extending credit for inventory
* Rents are rising
* And profits are falling — or vanishing altogether as sales slip
First of all, I know a number of lenders in my area who are trying to fight this misconception that financing is impossible to come by. The credit markets are not frozen and credit is quite available. Of course banks are learning their lessons from some of the looser underwriting practices that allowed defaults to increase. They are paying closer attention to the borrower's capacity to service any new financing. Yet banks can't succeed without lending out money. Lending money is still an income source for them and I know of a number of financial institutions that are still quite eager to extend credit.
And banks are not the sole source of financing. For ventures that require a little bit more risk than what banks may be comfortable in underwriting, now is a perfect time to consider private equity. There are investors out there who have money sitting on the sidelines waiting for that right deal to come along. The prospect of having a more intimate review of a business model may be enticing in these days of corporate greed and mismanagement. The key is to craft an investment deal that provides a win/win situation. More flexibility to the business owner and a good prospect for return on investment to the investor.
To address the comment about vendors being skittish about extending credit for inventory, I would like to know when have vendors not been skittish about extending credit? Nothing has changed here. Vendors are always enticing their customers to pay quicker, but if they don't want to experience their own drop in sales, they are going to make some deals and extend credit terms. Maybe not for those businesses that have abused credit terms in the past, but again, that is another form of business Darwinism. Vendors are looking for the right partners to bring their products to the marketplace and they are going to pair up with the stronger businesses who have show a commitment to making timely payments.
The comment that rents are rising baffles me to a certain extent and contradicts so much that I have been hearing with all the gloom and doom economic data on the fall of property values. Yes, I know there have been some property tax issues in various communities, but with the fall of property values, the increased tax rates will eventually be offset by the decrease in property values. Now is a great time to consider negotiating lease terms. Many landlords that I know have been rewarding their long term tenants with discounted lease extensions and it is up to each individual business owner to negotiate the best terms to meet their needs. Of course, it has to be reasonable and beneficial to the landlord, as well. But just because the MSNBC article says rents are rising, don't believe it until you get the bill. And if rents are indeed rising, decide what you are going to do to adapt to this change.
The final claim from the MSNBC article that I will address in this post is that profits are falling or vanishing altogether as sales dip. I am absolutely astounded by this astute financial observation. If I may be as bold, I offer my own prognostication that if you jump into Lake Champlain, you are bound to get wet.
I apologize for being so flip, but sometimes stating the obvious just isn't the answer. Survival in operating a small business is definitely a challenging prospect, no matter what state of our economy. Yet there are plenty of resources for those who wish to find solutions. Our NYSSBDC Research Network has published some good articles on their blog. Here is a link to one:
http://sbdcrn.blogspot.com/2008/12/recession-survival-guide.html
While searching for other resoources to help business owners, I came upon this excellent article by Christine Corelli:
http://www.creativeimpactgroup.com/PDF/Generatingbizchallengingeconomy.pdf
I am also a big fan of these two retail blogs:
http://www.ricksegel.com/blog/
http://bobphibbs.wordpress.com/
As I noted in other posts, your business can also contact a local Small Business Development Center counselor to help you develop specific strategies to deal with challenges or to explore new opportunities to grow your business.
W. Edwards Deming is known for developing the management training that was shunned by many American companies and often attributed with leading the revolutionary improvement of Japanese manufacturing practices. The author of the great management book, Out of Crisis, Mr. Deming once said, “Learning is not compulsory... neither is survival.”
Sunday, January 11, 2009
Work the Plan, Not the Idea
I've often commented that my clients like to ask me what I think of their ideas. My standard response is, “you have a great idea, now let me see your plan.” Here is where my clients reactions to this will vary, as some clients will show me their drafts and others will ask how to go about writing a plan. Unfortunately, a good number of others will tell me that they don't have the time to be bothered with this process. My feeling is that if you don't have time to plan, then you don't have the time to achieve success.
I don't care how great the idea may be, the actual process of developing a business should involve a planning process. And planning is not just an exercise of putting your idea on paper. It is a process where you think about how you are going to make your business work.
It is actually a fairly simple process and I like to refer to what I call “the four cornerstones of success” that are the foundation of any successful business. This includes:
* Marketing
* Operations
* Financials
* Leadership
The planning stage should encompass a process that will bring your vision into reality. From the marketing perspective, this involves thinking about who will be your customers, what is your competition for those customers and what message will you send to effectively entice enough of them to purchase your product or service.
On the operations side, this is envisioning the process of everything it takes to produce your product or service and effectively deliver it to your customers. It should also involve contingency planning for things that can interrupt this process.
The financial side of planning involves thinking about how much it will cost to start or expand your business and the holy trinity of financial documents: cash flow statements, profit and loss statements (or income statements) and the balance sheet. Since you are in the planning process, you should plan what they will look like in the future. Usually a three year period is a good starting point (projections are sometimes referred to as pro formas)
Leadership is identifying the direction and goals for your business. It also identifies who will be responsible for the different roles in managing the business and should include some accountability for what dictates success. I've written in a previous post that everyone should own a number. The business plan is a great starting point to identify who owns which numbers.
Probably the most frequent question I get about the business plan is, “How long should it be?” My answer is always, “As long as it needs to be.” Ask a good question, get a good answer!
First of all, as long as the business is going, the planning process never ends. It is something that should be revisited and refined over and over again. I refer to a great book by James D. Murphy, entitled Flawless Execution. Mr. Murphy is a retired Top Gun pilot from the U.S. Air Force who runs a business consulting firm, named Afterburner. In his book, he refers to a cyclical process that involves the Plan, the Briefing, the Execution of the Plan, the Debriefing and then the process begins over again. I highly recommend this book to those who are serious about improving their businesses.
While the business planning process never ends, there are obviously times when your business plan will need to be presented. Usually, it is because financing is needed for the business and any reputable investor, whether it is a banker or a private investor, will want to see a business plan before making an investment decision.
Of course, if you want to get a positive response from a potential investor, you have to think about what they want to see in a your business plan. The key in the business plan is to sell your plan for success, not the idea. The biggest mistake I see in most business plans is it focuses too much on what is wonderful about the proposed product or service, rather than focusing on how the business will be successful and, more importantly, why this is a wise investment decision for the potential investors.
While I am not going to speak for bankers and say that they could care less about your business proposal, certainly they are more concerned with how they are going to be paid back rather than consider how wonderful your business idea may be. So think about risk and reward analysis in your business planning process.
Speaking of risks and rewards, I can't stress enough the importance of the business planning process to assess feasibility of your proposed business start-up or expansion. Think about the risks and rewards as they relate to your particular situation. While the your business plan may have a good chance of providing you the opportunity to do something you love, it may not provide enough financial rewards to justify the financial (as well as time) investment you may have to make.
There are a number of great resources for providing assistance in writing business plans. Consider visiting your local SBDC as a good starting point (go to the "Find Your Nearest Small Business Development Center" and search by zip code or State).
I also provide a caution about paying someone to write your business plan for you. While you may use a consultant to provide advice for you in assessing market potential, develop operating systems or to help you format financial documents, the business plan has to come from you.
“Setting a goal is not the main thing. It is deciding how you will go about achieving it and staying with that plan.” Tom Landry
I don't care how great the idea may be, the actual process of developing a business should involve a planning process. And planning is not just an exercise of putting your idea on paper. It is a process where you think about how you are going to make your business work.
It is actually a fairly simple process and I like to refer to what I call “the four cornerstones of success” that are the foundation of any successful business. This includes:
* Marketing
* Operations
* Financials
* Leadership
The planning stage should encompass a process that will bring your vision into reality. From the marketing perspective, this involves thinking about who will be your customers, what is your competition for those customers and what message will you send to effectively entice enough of them to purchase your product or service.
On the operations side, this is envisioning the process of everything it takes to produce your product or service and effectively deliver it to your customers. It should also involve contingency planning for things that can interrupt this process.
The financial side of planning involves thinking about how much it will cost to start or expand your business and the holy trinity of financial documents: cash flow statements, profit and loss statements (or income statements) and the balance sheet. Since you are in the planning process, you should plan what they will look like in the future. Usually a three year period is a good starting point (projections are sometimes referred to as pro formas)
Leadership is identifying the direction and goals for your business. It also identifies who will be responsible for the different roles in managing the business and should include some accountability for what dictates success. I've written in a previous post that everyone should own a number. The business plan is a great starting point to identify who owns which numbers.
Probably the most frequent question I get about the business plan is, “How long should it be?” My answer is always, “As long as it needs to be.” Ask a good question, get a good answer!
First of all, as long as the business is going, the planning process never ends. It is something that should be revisited and refined over and over again. I refer to a great book by James D. Murphy, entitled Flawless Execution. Mr. Murphy is a retired Top Gun pilot from the U.S. Air Force who runs a business consulting firm, named Afterburner. In his book, he refers to a cyclical process that involves the Plan, the Briefing, the Execution of the Plan, the Debriefing and then the process begins over again. I highly recommend this book to those who are serious about improving their businesses.
While the business planning process never ends, there are obviously times when your business plan will need to be presented. Usually, it is because financing is needed for the business and any reputable investor, whether it is a banker or a private investor, will want to see a business plan before making an investment decision.
Of course, if you want to get a positive response from a potential investor, you have to think about what they want to see in a your business plan. The key in the business plan is to sell your plan for success, not the idea. The biggest mistake I see in most business plans is it focuses too much on what is wonderful about the proposed product or service, rather than focusing on how the business will be successful and, more importantly, why this is a wise investment decision for the potential investors.
While I am not going to speak for bankers and say that they could care less about your business proposal, certainly they are more concerned with how they are going to be paid back rather than consider how wonderful your business idea may be. So think about risk and reward analysis in your business planning process.
Speaking of risks and rewards, I can't stress enough the importance of the business planning process to assess feasibility of your proposed business start-up or expansion. Think about the risks and rewards as they relate to your particular situation. While the your business plan may have a good chance of providing you the opportunity to do something you love, it may not provide enough financial rewards to justify the financial (as well as time) investment you may have to make.
There are a number of great resources for providing assistance in writing business plans. Consider visiting your local SBDC as a good starting point (go to the "Find Your Nearest Small Business Development Center" and search by zip code or State).
I also provide a caution about paying someone to write your business plan for you. While you may use a consultant to provide advice for you in assessing market potential, develop operating systems or to help you format financial documents, the business plan has to come from you.
“Setting a goal is not the main thing. It is deciding how you will go about achieving it and staying with that plan.” Tom Landry
Saturday, December 27, 2008
Spinning This Economy
I have to admit that I have an addiction to reading online news stories. Every night, I come home from work and surf between MSNBC.com, CNN.com & FoxNews.com to read the same stories and the different spins from each news organization. At first, I thought this was a relatively safe habit, not nearly as dangerous as being hooked on drugs, alcohol or some other vice. Yet I am starting to worry that my mental health is at risk and before long I will actually start believing the negative blather populated in those headlines rather than taking the time to understand the true story of what is happening in our economy.
Here is a perfect example of what I am blogging about. The below link is to a story on CNN.com with the title, For Stores, a Very Unmerry Holiday.
http://money.cnn.com/2008/12/26/news/economy/holidaysales_finalnumbers/index.htm?postversion=2008122611
I will let my readers peruse this link on their own time and make their own judgment whether these sales figures really represent a reason to be unhappy, or worse yet, whether this is a sign of Economic Armageddon. I'm sorry, I take that back. I can't let this one slide by without some commentary.
$470 Billion in projected sales for a holiday season and we are upset? In a nation of about 305 million people, that equates to about $1,540 per person. That's not yearly, that is just for the holidays. Hey Mom and Dad, I know I am over 18, but you gave me less than average gifts this year. Luckily, my children don't pay attention to my blog, because I am also below average in gift giving. Thanks CNN for highlighting another one of my inadequacies!
It really is all about spin. But when it comes down to it, there is no denying the statistics show that reality is not nearly as dire as what the headlines implicate. People are still earning money and people are still spending money. Our economy is a fast moving animal and trying to take a snapshot of where it stands now requires some high speed analysis that will be outdated the moment it makes it to the presses.
Here is a little thought that I would like to throw out there. Every year consumer buying habits will fluctuate. And while the spinmeisters will give global economic theories on what is happening, the basic fact is that they just don't have a clear understanding of the emotions of the American consumer as a whole. Furthermore, what our emotions were yesterday, will change tomorrow. We are all complex individuals with complicated and fickle emotions that influence us to make purchasing decisions.
Don't believe me. Explain to me the past fervor over Atari? Cabbage Patch Dolls? Tickle Me Elmo? Wii? Every year there are hot items that consumers want that defy all logic for the mass demand and often includes pricing that just defies economic theories on demand elasticity. Remember the bidding wars for some of these items? Those events also defy logic, but it happened in the past and some new magic item will warrant this type of spending frenzy in the future.
In the aforementioned CNN article, I found a line that just shows how little the experts understand the psyche of the American public. The reporter refers to a discussion with a consumer strategist with Global Hunter Securities. She notes in her article that Richard Hasting said, “there's no enthusiasm to shop if you really don't need anything.” I dare anyone to take an inventory of all our holiday gifts that we actually needed. Insert your own fruitcake or soap on a rope joke here! With apologies to Mr. Hastings, his comment was probably one line taken out of context from a discussion, but it still shows how the media chooses to spin their understanding of our consumer's psychology.
To all the small business owners who are looking for a ray of hope to weather this economic storm, remember that purchasing is not about needing. It is about wanting! Find out how to deliver at a profit what everyone wants and you can rule the world. Excuse the hyperbole, but obviously, this is impossible. Still, we can aspire to sell at a profit what some of the market wants.
Every year during the holiday season consumers buy things that are not necessary staples of sustenance. This season was no exception. I still encountered throngs of holiday shoppers as I defiantly ignored the gloom and doom prognosis for our economic future and went to the mall to get my daughter the purple, Chuck Connor's Converse sneakers that she absolutely needed. (I was all for spending that money on a practical pair of snow boots, but hey, we really don't need that in the North Country according to the logic of my daughter).
To all the small business owners out there who are reading the news, I encourage you to get past the negative spin and figure out what you can do to be more successful next year. You can spin this economy any way you want, but spin is reactionary. Demand will change all the time and there may be no logical reason. Ultimately, you will only succeed if you think about your existing and potential customers and fulfilling their wants. Be proactive and position your business to meet the fluctuating market demands.
People will always want things. Those wants are based on the emotional state of the consumer. That also changes over time. It is obvious that all the spin in the media is sparking some fears in consumers and this in itself is changing demand. Can you figure out how to fight this?
So the challenge is how can you convince your customers that they still want what you sell? Can you create an emotional message to help maintain the demand for your products or services? Can you sell something else that they want if you your demand falters with existing product or service lines? I'm asking more questions and my answers are sparse. But I am not the one running your business and it is your responsibility to find the path to success.
I do add this bit of advice. People talk about bear and bull markets. Now is not the time to feed the bears! If a product or service line is not producing, consider making a change.
It's obviously easier said than done, but in a competitive marketplace, those who move to meet the demand will ultimately succeed. Just remember that in our marketplace, emotion will always trump logic. Now, more than ever, you have to develop a compelling marketing strategy. I would love to tell you what the marketplace will want in the coming months or years, but I refer you to this Bertrand Russell quote, “The demand for certainty is one which is natural to humans, but is nevertheless an intellectual vice.”
Here is a perfect example of what I am blogging about. The below link is to a story on CNN.com with the title, For Stores, a Very Unmerry Holiday.
http://money.cnn.com/2008/12/26/news/economy/holidaysales_finalnumbers/index.htm?postversion=2008122611
I will let my readers peruse this link on their own time and make their own judgment whether these sales figures really represent a reason to be unhappy, or worse yet, whether this is a sign of Economic Armageddon. I'm sorry, I take that back. I can't let this one slide by without some commentary.
$470 Billion in projected sales for a holiday season and we are upset? In a nation of about 305 million people, that equates to about $1,540 per person. That's not yearly, that is just for the holidays. Hey Mom and Dad, I know I am over 18, but you gave me less than average gifts this year. Luckily, my children don't pay attention to my blog, because I am also below average in gift giving. Thanks CNN for highlighting another one of my inadequacies!
It really is all about spin. But when it comes down to it, there is no denying the statistics show that reality is not nearly as dire as what the headlines implicate. People are still earning money and people are still spending money. Our economy is a fast moving animal and trying to take a snapshot of where it stands now requires some high speed analysis that will be outdated the moment it makes it to the presses.
Here is a little thought that I would like to throw out there. Every year consumer buying habits will fluctuate. And while the spinmeisters will give global economic theories on what is happening, the basic fact is that they just don't have a clear understanding of the emotions of the American consumer as a whole. Furthermore, what our emotions were yesterday, will change tomorrow. We are all complex individuals with complicated and fickle emotions that influence us to make purchasing decisions.
Don't believe me. Explain to me the past fervor over Atari? Cabbage Patch Dolls? Tickle Me Elmo? Wii? Every year there are hot items that consumers want that defy all logic for the mass demand and often includes pricing that just defies economic theories on demand elasticity. Remember the bidding wars for some of these items? Those events also defy logic, but it happened in the past and some new magic item will warrant this type of spending frenzy in the future.
In the aforementioned CNN article, I found a line that just shows how little the experts understand the psyche of the American public. The reporter refers to a discussion with a consumer strategist with Global Hunter Securities. She notes in her article that Richard Hasting said, “there's no enthusiasm to shop if you really don't need anything.” I dare anyone to take an inventory of all our holiday gifts that we actually needed. Insert your own fruitcake or soap on a rope joke here! With apologies to Mr. Hastings, his comment was probably one line taken out of context from a discussion, but it still shows how the media chooses to spin their understanding of our consumer's psychology.
To all the small business owners who are looking for a ray of hope to weather this economic storm, remember that purchasing is not about needing. It is about wanting! Find out how to deliver at a profit what everyone wants and you can rule the world. Excuse the hyperbole, but obviously, this is impossible. Still, we can aspire to sell at a profit what some of the market wants.
Every year during the holiday season consumers buy things that are not necessary staples of sustenance. This season was no exception. I still encountered throngs of holiday shoppers as I defiantly ignored the gloom and doom prognosis for our economic future and went to the mall to get my daughter the purple, Chuck Connor's Converse sneakers that she absolutely needed. (I was all for spending that money on a practical pair of snow boots, but hey, we really don't need that in the North Country according to the logic of my daughter).
To all the small business owners out there who are reading the news, I encourage you to get past the negative spin and figure out what you can do to be more successful next year. You can spin this economy any way you want, but spin is reactionary. Demand will change all the time and there may be no logical reason. Ultimately, you will only succeed if you think about your existing and potential customers and fulfilling their wants. Be proactive and position your business to meet the fluctuating market demands.
People will always want things. Those wants are based on the emotional state of the consumer. That also changes over time. It is obvious that all the spin in the media is sparking some fears in consumers and this in itself is changing demand. Can you figure out how to fight this?
So the challenge is how can you convince your customers that they still want what you sell? Can you create an emotional message to help maintain the demand for your products or services? Can you sell something else that they want if you your demand falters with existing product or service lines? I'm asking more questions and my answers are sparse. But I am not the one running your business and it is your responsibility to find the path to success.
I do add this bit of advice. People talk about bear and bull markets. Now is not the time to feed the bears! If a product or service line is not producing, consider making a change.
It's obviously easier said than done, but in a competitive marketplace, those who move to meet the demand will ultimately succeed. Just remember that in our marketplace, emotion will always trump logic. Now, more than ever, you have to develop a compelling marketing strategy. I would love to tell you what the marketplace will want in the coming months or years, but I refer you to this Bertrand Russell quote, “The demand for certainty is one which is natural to humans, but is nevertheless an intellectual vice.”
Friday, December 12, 2008
The Bravery of Being Out of Range
Everybody seems to be weighing in with their opinion of what went wrong with the economy. We all have our opinions, but focusing on what went wrong won’t necessarily fix the problem. That is not to say that we can’t learn lessons from our mistakes, but the solutions to improving our economy will not come from placing blame or pointing fingers. We have to roll up out sleeves and get to work to make things better.
I’ve stated in numerous posts that I am against all of the bailout plans. They are too complex and they utilize the resources derived our tax dollars for the benefit of a few select businesses. Another issue with the bailouts is that they do not address solutions to one of the key fundamental problems with our economy.
This problem is that too many people are making key financial decisions with the “bravery of being out of range.” What I mean by that is that those who are running these companies into bankruptcy are not suffering the consequences for their failures. These executives have the so called “golden parachutes” in their compensation packages to ensure they can live a life of luxury well into the future, whether their companies succeed or fail. Meanwhile their employees get laid off, usually with minimal severance packages and a complete loss of health benefits.
Entrepreneurism, whether on a large scale or small scale, refers to a very simple concept of running enterprises to be profitable. By definition, entrepreneurs are people who have possession over companies, enterprises, or ventures, and assume significant accountability for the inherent risks and the outcome. (http://en.wikipedia.org/wiki/Entrepreneur, target="wikipedia"). Yet if we look at the leaders of the companies at the forefront in this economic crisis, you will see compensation packages that eschew all risk and accountability. How else does a CEO fly a luxury jet to Washington to ask the government to help them from failing? How else does an executive ask for a $10 million bonus after losing billions of dollars and laying off thousands of workers (yes, I am referring to John Thain from Merrill Lynch, who has since come to his senses and withdrew that request).
I have to admit that I feel quite a bit of anger that people who don’t get it, somehow got placed in these positions of great power. But anger won’t solve the problem, so I’ll get over it.
Now comes the solutions part. I am a firm believer in Occam’s Razor, which refers to a principle that basically states, “All other things being equal, the simple solution is the best.”
So I’ve come up with 3 simple steps we could take to help fix our economy:
1. Invest in assets that will generate revenue. I wrote quite some time ago about the simple genius of this strategy that is covered in Robert Kiyosaki’s book, Rich Dad, Poor Dad. If government wants to invest in turning the economy around, then government has to put more thought into the development of its assets and how it derives income from those assets. Things like our highways, ports, our military and our national parks are all assets that could be generating more income. We have to change the paradigm of how our government invests so we continue to be innovative in developing these assets to provide more lucrative revenue opportunities. For our government, that means using the development of our assets to generate jobs and income opportunities (user fees at National Parks, resource development on government owned lands, selling of government funded technology, etc.). As for the private sector, this step will happen out of necessity. There is an old saying that cream rises to the top. Eventually the last investors standing will be those who are wise enough to follow this basic strategy.
2.Make accountability a part of all financing and investment decisions. Everybody talks about regulation, whether we should increase it or decrease it to spur the economy. To me, there is no need for this debate if accountability is included in all investment decisions. Consequence is an amazing regulator. Our problem is that we have allowed too many people to be insulated from the consequences of their poor decisions. We could change this by having shareholders demand that executive compensation be tied to company performance. There could also be an insistence by all lenders that there is some form of personal investment made in any financial investment deal to make sure decision makers have some “skin in the game.” If I had my say with our Congress, I would make sure that all executives who are making decision with bailout money have some of their personal assets pledged as collateral. Then we would find out how confident they are in their ability to properly utilize that public investment. Those who are not willing to be accountable should not ask for handouts and should wait this crisis out on the sidelines.
3. Increase financial education. William Durant wrote, “Education is a progressive discovery of our own ignorance.” One of the things that we have learned in this economic crisis is that quite a few people had losses in the marketplace and they really had no clue in regards to the level of risk they were taking with their investments. The use of mutual funds and IRAs as an investment tool really didn’t gain traction until the late 80’s and early 90’s. It brought millions of new investors into the marketplace, with many of them not having a clear understanding of what they stood to lose. Most people didn't realize what they should be researching or even have a clue as to whether their investments were high risk or safe. That is because times were good and they believed their advisers as long as they were making money. But now that people are watching their values dwindle, all of a sudden they are starting to take notice and ask questions. Well, let’s not forget this progressive discovery of our ignorance and insure that we learned our lesson and teach others what we have learned. The fundamentals of business and investment should be taught in all secondary schools and community colleges should make financial educational more accessible as a non-credit curriculum so anyone who wants to learn more can.
I remain optimistic about our economic situation. I am obviously over simplifying some complex issues, but this is where we have to begin. We live in a big world with quite a bit of consumers who need products or services. Eventually more entrepreneurs will recognize this and profit from their ventures. That is if they maintain the bravery to be accountable for their actions and work responsibly towards achieving success.
I’ve stated in numerous posts that I am against all of the bailout plans. They are too complex and they utilize the resources derived our tax dollars for the benefit of a few select businesses. Another issue with the bailouts is that they do not address solutions to one of the key fundamental problems with our economy.
This problem is that too many people are making key financial decisions with the “bravery of being out of range.” What I mean by that is that those who are running these companies into bankruptcy are not suffering the consequences for their failures. These executives have the so called “golden parachutes” in their compensation packages to ensure they can live a life of luxury well into the future, whether their companies succeed or fail. Meanwhile their employees get laid off, usually with minimal severance packages and a complete loss of health benefits.
Entrepreneurism, whether on a large scale or small scale, refers to a very simple concept of running enterprises to be profitable. By definition, entrepreneurs are people who have possession over companies, enterprises, or ventures, and assume significant accountability for the inherent risks and the outcome. (http://en.wikipedia.org/wiki/Entrepreneur, target="wikipedia"). Yet if we look at the leaders of the companies at the forefront in this economic crisis, you will see compensation packages that eschew all risk and accountability. How else does a CEO fly a luxury jet to Washington to ask the government to help them from failing? How else does an executive ask for a $10 million bonus after losing billions of dollars and laying off thousands of workers (yes, I am referring to John Thain from Merrill Lynch, who has since come to his senses and withdrew that request).
I have to admit that I feel quite a bit of anger that people who don’t get it, somehow got placed in these positions of great power. But anger won’t solve the problem, so I’ll get over it.
Now comes the solutions part. I am a firm believer in Occam’s Razor, which refers to a principle that basically states, “All other things being equal, the simple solution is the best.”
So I’ve come up with 3 simple steps we could take to help fix our economy:
1. Invest in assets that will generate revenue. I wrote quite some time ago about the simple genius of this strategy that is covered in Robert Kiyosaki’s book, Rich Dad, Poor Dad. If government wants to invest in turning the economy around, then government has to put more thought into the development of its assets and how it derives income from those assets. Things like our highways, ports, our military and our national parks are all assets that could be generating more income. We have to change the paradigm of how our government invests so we continue to be innovative in developing these assets to provide more lucrative revenue opportunities. For our government, that means using the development of our assets to generate jobs and income opportunities (user fees at National Parks, resource development on government owned lands, selling of government funded technology, etc.). As for the private sector, this step will happen out of necessity. There is an old saying that cream rises to the top. Eventually the last investors standing will be those who are wise enough to follow this basic strategy.
2.Make accountability a part of all financing and investment decisions. Everybody talks about regulation, whether we should increase it or decrease it to spur the economy. To me, there is no need for this debate if accountability is included in all investment decisions. Consequence is an amazing regulator. Our problem is that we have allowed too many people to be insulated from the consequences of their poor decisions. We could change this by having shareholders demand that executive compensation be tied to company performance. There could also be an insistence by all lenders that there is some form of personal investment made in any financial investment deal to make sure decision makers have some “skin in the game.” If I had my say with our Congress, I would make sure that all executives who are making decision with bailout money have some of their personal assets pledged as collateral. Then we would find out how confident they are in their ability to properly utilize that public investment. Those who are not willing to be accountable should not ask for handouts and should wait this crisis out on the sidelines.
3. Increase financial education. William Durant wrote, “Education is a progressive discovery of our own ignorance.” One of the things that we have learned in this economic crisis is that quite a few people had losses in the marketplace and they really had no clue in regards to the level of risk they were taking with their investments. The use of mutual funds and IRAs as an investment tool really didn’t gain traction until the late 80’s and early 90’s. It brought millions of new investors into the marketplace, with many of them not having a clear understanding of what they stood to lose. Most people didn't realize what they should be researching or even have a clue as to whether their investments were high risk or safe. That is because times were good and they believed their advisers as long as they were making money. But now that people are watching their values dwindle, all of a sudden they are starting to take notice and ask questions. Well, let’s not forget this progressive discovery of our ignorance and insure that we learned our lesson and teach others what we have learned. The fundamentals of business and investment should be taught in all secondary schools and community colleges should make financial educational more accessible as a non-credit curriculum so anyone who wants to learn more can.
I remain optimistic about our economic situation. I am obviously over simplifying some complex issues, but this is where we have to begin. We live in a big world with quite a bit of consumers who need products or services. Eventually more entrepreneurs will recognize this and profit from their ventures. That is if they maintain the bravery to be accountable for their actions and work responsibly towards achieving success.
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