The Vail Centre (formerly the Vail Institute) is a great organization that is exploring the boundaries of how people lead and understanding what it takes to make a difference in the world. I am honored to be on their advisory board and working with them on some cool new projects.
FYI – I have a son and a daughter – not two daughters as it states in the article…I’m sure my son would appreciate my clarification on that.
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.
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!
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.
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.
The following is the first 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. Over the next few weeks, the remaining posts will outline the other survival tips. Enjoy!
In today’s climate, it seems like we are seeing more people start their own businesses. Often this first business is based on something that they are passionate about. That isn’t always a bad idea, but sometimes it can cloud our judgment.
I launched my first startup in 2004 in an industry that was also my passion: Cycling. I assumed if there were enough people like me who were passionate about high-end European bike products, my business would thrive. But just because you like cupcakes, doesn’t mean you will thrive in the cupcake business.
As they say, proof is in the data…
Less than 1 in 3 new companies are still around at the 10 year mark. The chart below shows the proportion of new businesses that were founded in 1992 that were still in business each year for the next 10 years*.
*While these data look at the 1992 cohort of new single-establishment businesses, the failure rate percentages are almost identical for all the cohorts that researchers have looked at. So, these are pretty much the one through ten year survival rates of new firms.
For me, my passion skewed my business planning and although we had great success in the first 2 years, the final 2 were difficult, ultimately resulting in my divestiture out of the business. Technically, we did just about everything right: created a business plan, networked effectively, and continually grew sales. However, we didn’t focus on a sustainable business model that took into account how we’d overcome changes in the marketplace. For me, it was a fluctuating (i.e., rising) exchange rate that we couldn’t overcome. Here are the five, sometimes contrarian thoughts, on small business survival based on what I’ve learned: 1. Don’t build a business plan: Wait a minute — aren’t business plans supposed to be Entrepreneurship 101? What about all those popular books telling you that you can’t get to first base without a plan? Not always. To survive, you definitely need to understand the market. You need to know who your competition is, what are the products/services available in the marketplace, who are your potential customers and what is your differentiating value proposition. But that doesn’t mean you have to create a business plan to achieve that.
One question in a 2002 survey of Inc 500 founders asked whether they had written formal business plans before they launched their companies. Only 40% said yes. Of those, 65% said they had strayed significantly from their original conception, adapting their plans as they went along. That means that less than 15% built a business plan that they followed. In a similar vein, only 12% of this year’s Inc 500 group said they’d done formal market research before starting their companies.
Source: Inc. Oct 15, 2002
More important than a “business plan”, you need a sustainable business model that ebbs and flows with your success and growth. Something that allows you to quickly adapt to new opportunities or threats (i.e., rising exchange rates).
Neither Bill Gates nor Mark Zuckerberg had business plans. They did however create sustainable models for continued growth and survival. To do this, you must understand what drives your business, your profits and your sales – and understanding what the potential hazards are. You can help achieve this by forming a small advisory group who meet regularly to bring a “non-passionate” perspective to the table. These people can provide you with a sounding board so you don’t get stuck in a quagmire because you are only looking at things from your “passion” base.
It is important that this group of advisors has people on it who are willing to be contrarian and point out flows in reasoning and judgment. The group needs people who are willing to challenge your opinion and assumptions. It is also nice to have advisors who can advise you in areas where you are not as strong or familiar (i.e., finance or marketing). Finally, the group needs people who will also bring in ideas and create synergies with other ideas.
Focus on getting the right mix of advisors to take on these roles. Sometimes that means a bunch of people – other times many roles can be filled by just a few or even just one. Make sure that you set up regular check-ins with these people. It doesn’t have to be formal – you can get together with one or two over lunch every month or quarter. You can go to a basketball game with them. But make sure that it happens more than just by happenstance.
Confusing your hobby and passion with a good business model is a common mistake. With my “Cycle Import” company I soon learned that it’s not always passion that creates success, but a flexible business model that is sustainable beyond the terminal 3-5 year window. I could have used a few trusted advisors to help me look out at that time horizon before it was too late.
Please let us know what you think by leaving a comment. Our next blog posting will be up first part of next week…part II.
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