Behavior Matters!

Harnessing the power of behavioral science to improve how organizations, leaders, and people work

Tag: business

Top 5 survival tips for small businesses – guest blog by Paul Schoening (3 of 3)

The following is the final blog of 3 posts from our guest blogger Paul Schoening, President of Plan C.  He is bringing a unique perspective on what it takes for a small business to survive.  In his first two posts (here and here) he talked about the difficulty of starting a business based on passion and how that passion is both good and bad.  He discussed how entrepreneurs need to look at building a sustainability plan and not a business plan.  In this blog are his final two tips.  Let us know what you think.  Enjoy!

4. Continually learn: I’ve mentioned education already but I need to stress how it’s important to stay ahead of the competition.   To do that, you need to carve out time to learn.  It doesn’t matter how you learn, but you must be constantly learning.  I’m not saying that you need to take classes – but you do need to keep up on things.

Read, attend conferences, sit through webinars, go to the library (I know – old fashioned but it works), find a mentor, network and learn more about your business than you think you will ever use.  Using the internet to learn is easier than ever – enter a topic in google and you have thousands of links to explore.  Subscribe to websites that help you learn and stay up on leading thought in your industry.  University sites offer a lot of free classes via the web (see here).  Apple even has iTunesU that you can get on your iPhone or iPad and learn while you are on the go.

When you are starting a business, finding time to learn can feel like you are taking away from other important aspects of the business – but it is key to long term survival. You’ll need to prioritize your time and make critical choices which will allow you to learn and grown your business at the same time…including how to more efficiently sweep the floors! Engaging your new employees through continuous learning is also a key factor in retaining the talent you need to succeed. Rick Osborn, president of the Association for Continuing Higher Education says, that’s a mistake.

“It doesn’t make sense,” said Osborn. I understand that when businesses are looking to make cuts, these are the kinds of programs that are the first to go. In the short term, those kinds of cuts might work for a business. But, in the long run, you’re going to have to restore the cuts.”

Businesses that offer professional development often have a strong track record for employee retention. In fact, employees cite continuing education programs as the No. 2 reason they stay in their jobs, said Susan Porter Robinson of the Washington, D.C.-based American Council on Education.

Source; www.bizjournals.com December 7, 2009

5. Connect, connect, and connect some more: Get connected with people in your industry, other small business people, and anybody else that could potentially be of benefit to your business.  Do this so you can understand the challenges, opportunities and resources available to be successful.   Research by the IBM T. J. Watson Research Center indicated that the effects of networking and connecting with other people have a long term positive impact.  The research found that 9-months after a networking “mixer” event, participants rated the top five benefits as

  • Being networked professionally
  • Feeling energized by the interaction
  • Gained a business insight
  • Established a collaboration opportunity and
  • Had found professional inspiration

Source: Enhanced Professional Networking and its Impact on Personal Development and Business Success, 2006

While every social engagement is not a sales call, it can be a potential opportunity to talk about your business and what you do.  Join Linked-In groups, start a channel on You-Tube, expand your twitter accounts.   Utilize your network of friends, family and acquaintances.     Make the effort.  You never know where the next sale is going to come from.  Don’t leave anything on the table, this is your livelihood!

Let us know what you think – leave a comment below.  Join in the discussion!

Top 5 survival tips for small businesses – guest blog by Paul Schoening (2 of 3)

The following is the second of 3 posts from our guest blogger Paul Schoening, President of Plan C.  He is bringing a unique perspective on what it takes for a small business to survive.  In his first post (here) he talked about the difficulty of starting a business based on passion and how that passion is both good and bad.  He discussed how entrepreneurs need to look at building a sustainability plan and not a business plan.  In this blog are his next two tips.  Over the next few weeks, the final post will outline the final two survival tips.  Enjoy!

2.  Show me the money:  When starting a new business, oftentimes entrepreneurs focus on sales revenue or profit figures to assess how they are doing.  I know I did.  In fact, we had record sales in our final quarter as a business and yet we couldn’t make it last.  money

While it is good to be profitable and increase sales – it is absolutely critical to have a positive cash flow!  You need to have enough cash flow to give yourself time to get off the ground and pay your ongoing bills. Fast growth and increased sales are great, but this can create a sense of overconfidence that can skew your decision-making especially with early business success. Conversely, when times are challenging and a business owner is under pressure we can easily make rash decisions fueled by emotion, not logic (i.e., “how the hell am I going to pay for this?”).

One example of cash flow issues was custom cabinet seller M&J Kitchens – who had survived the Great Recession even when its revenue from homeowners and builders dropped by more than half in 2009.  They weathered the storm.  Then, late in 2011, with sales almost 42 percent higher than the prior year, they were unable to pay their bills and owner Drew Davies was forced to shut the  26-year-old company down. What happened?  M&J highlights how important cash flow is.  The issue was a “cash-flow crisis precipitated by his bank and trading partners, who Davies says, abandoned payment agreements that had been in place for decades.”  M&J’s cash inflows were coming in slower and it’s payments still needed to be made. In this instance “M&J had to float their customers—builders, architects, and home remodelers—who had slowed their payments, typically from 30 days to 60 or 90. At the same time, his own suppliers changed agreements that had been in place for decades by cutting credit lines or requiring deposits, which Davies says could tie up between $60,000 and $120,000 per month.”  After more than 25 years of business, the company was forced out of business, not because sales were down, but because it couldn’t cover its cash flow.

Source: Businessweek.com February, 2011

What happened to M&J is not atypical.  It can happen to all of us.  Which is why we need to have cash flow plan.  One way of looking at this to think about how much cash is required to make payroll, pay suppliers, and cover other expenses each month – then figure how many months of cash reserve you will need to have if things don’t go smoothly.  In my case with the bike business, I usually looked out 3 to 4 months.  I should have been looking out 6 to 9 months.  Each business is different – so think hard about what a downturn or change in situation would mean to you.  How fast do your customers pay?  How long can you push out your own payments.

One way to avoid these mistakes is by finding a great accountant or financial consultant and using them to map out a plan for this.  Look at ways you can collect money faster by offering discounts for payments early or requiring a deposit.  See how you can restructure payments on goods and services that you use.  Look at payroll differently – offset high bi-weekly pay by using quarterly or annual bonuses that provide flexibility for you and rewards your employees for great work.  If  you can’t afford to hire an accountant full-time, there are many firms that you can outsource part of the accounting of the business to or hire in for consulting.  The voice of reality (a shrewd accountant) will keep you in check.

3.  Double the time you think it will take:  Time is a resource that is often underestimated when starting a new adventure.  In the passion of developing out this great new idea, we forget about how long things can take.  Particularly the little things.   You can celebrate that you are the President or CEO of your business and be very happy to have the title. But you are also the janitor, the sales person, marketer and customer service rep. You need time to handle all of these responsibilities, take time to do research and to ensure that you are continuing your education and staying on top of the latest trends and facets of the marketplace.

Here are a few examples of some rough time estimates that an entrepreneurial friend put together for me for some of the things that he does that are not part of his core business.

  • Accounts payable: 2 hours per week
  • Accounts receivable: 1 hour per week
  • Payroll: 1 hour per week
  • Social Media Outreach: 3 hours per week
  • Developing marketing campaign: 2 hours per week (varies, but this is an average)
  • HR: 1 hour a week (up to 8 hours a week when issues arise with employees or when hiring)
  • Scheduling: 1 hour per week
  • Responding to sales requests: 1 hour per week
  • Networking: 2-4 hours per week
  • Miscellaneous (IT trouble shooting, equipment purchase/repair, responding to solicitations, etc..): 2 hours per week

This totals up to over a day and a half out of the week for work doesn’t even include business development, sales, or anything that has to do with the work that drives value for his customers (granted, he could probably reduce his Social Media Outreach – I mean really, 3 hours on Twitter, Linked-In and Facebook?).

One way to overcome this time crunch is to look at outsourcing some of the functions of your business so you can focus on the areas of which you have immediate control and greatest value-add. This might require you to increase your outflow of cash (which can be troublesome – see #2) but if it can allow you the time to focus on the important things for success, then it is worth it.  Another option is to think outside of the “box” and look at creating partnerships and alliance where you can trade services or leverage each others core competencies.

“We are human beings, not machines”

I just read a blog post by Michael Lee Stallard entitled “Should Leaders Care About Employee Happiness?” in which he talks about how happiness is important to business and how organizations need both “task” and “relationship” excellence.  What struck me hard however, were two simple sentences he wrote:

“We are human beings, not machines.  Emotion matters, even in business.”

How very, very true.  “Emotion matters, even in business.”

This should be a no brainer.  We shouldn’t even need to bring this up and yet we do need to bring it up because leaders often forget this.  We lead like our employees are parts of a big organizational machine and if we just push and pull the right levers, we will get the desired output.  We build systems looking for optimal performance and use incentives as if they were the gasoline that runs our engines.

We forget that “we are human beings, not machines.”  And as Dan Ariely points out, we are “irrational” human beings.

We need to stop thinking about business as a machine, and think about it more as a volunteer service club.  Imagine you are the president of a Rotary Club and you need to get your club members to work on a project.  You don’t offer them an incentive.  You don’t command that they give up their Saturday to build a music park in North East Minneapolis or spend two years working to build a high school in Haiti (FYI – our Rotary Club did both of these – see here).  You don’t give them new computerized systems that churn out delivery plans.  You can’t.  Service clubs don’t work that way…

What you do is you appeal to their “humanness” and their “emotion.” 

  • You tap into their drive to want to make a difference.
  • Ensure that they feel that they are being challenged and give them an opportunity to grow.
  • You make sure that they have friends in the club that they bond with so they can work on the projects together.
  • You make the work as fun as you can.
  • You focus on the good that you are doing in the community and the world.
  • You appeal to people’s pride in what they can bring to the table for this project.
  • You connect them to others with similar interests.
  • You give them opportunities to develop and lead.
  • You support them when they run into problems.
  • You recognize their success and hard work.
  • You celebrate success!

Yes, if you want to be an effective leader, you definitely need to focus on the very human side of things.  Remember “We are human beings, not machines.  Emotions matter, even in business.”

Would love your human thoughts on this – click on “leave a comment” below

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