How can you create value without funding?

I read in today’s Bloomberg Businessweek Report that the chairman of the Federal Reserve Ben S. Bernanke said that small business is having trouble getting access to credit needed to keep the U.S. recovery going.

The article referenced  Bernanke attending one of the series of meetings in Detroit last month and today recalling a business owner’s comment there that, “If you thought housing had declined in value, take a look at what equipment is worth.”

It’s absolutely true of course if business isn’t growing and equipment is at a surplus banks, which are conservative in good times, aren’t going to want to lend money on it. Most of small business collateral is either in plant buildings and / or equipment. The combination of real estate and equipment values being low makes collateralization difficult.

On the positive side I just had a client refinance his term debt at a great rate and excellent amortization schedule. The load was 90% guaranteed by the USDA rural enterprise program. Which is essentially a program that is working to create jobs in rural high unemployment areas.

First the company must be “bankable” that is approved by a bank subject to the USDA guarantee. A complete package of the loan evaluation by the bank along with company financial performance for the past three years and a detailed business plan showing sales and job forecasts three years out then goes to the USDA for approval.

Credit isn’t easy to come by but there are ways to get it. A company has to have solid financial performance, a well documented strategy and credible financial forecasts to go long with the collateral.

It goes back to what I’ve been preaching for a few years now. You have to have a plan that’s documented. You have to show progress toward making your projections and goals, and you have to have a credible plan moving forward.

Collateral alone isn’t enough anymore. Banks certainly don’t want to foreclose on your buildings or equipment, they used to get 10% to 25% of the loan value in a distressed sale. Depending on the equipment that number may be optimistic in the current environment.

It really goes back to a blog entry I made a few months ago, the strong find a way to survive and prosper in a poor economy and the weak don’t.

Leaders must take steps to clarify their vision for their organizations, document it, eliminate internal waste, and look for internal sources of cash before they will be successful looking at banks as a lending source. One bank I spoke to that specialized in USDA loans said they get anywhere from 12 to 25 deals a week to look at. They can afford to pick the best deals for them.

It is incumbent upon business owners and leaders to understand that there are sources of funds but competition is fierce, and only the best will be looked upon favorably. Strong economic times allows business to become complacent, weak economies make it imperative that they learn and adjust or perish.

In today's environment you had better have value before you look for funding.If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

Use investment to fuel growth and sales & marketing effectiveness

When companies think of return on investment, (ROI), theytypically consider capital investments. Purchases of new machines or softwareaimed at specific tasks with a measurable return on invested capital such as productivitygains, increased production, faster billing etc.

However does investing in non-tangible items provide a realreturn to your business, and how do you measure that return?

Most companies are reluctant to spend money on intangiblessuch as employee training and development, or nonproduction related expensesrelated to plant and equipment. Let’s face it, its tough to measure a clearreturn on investment of intangibles.

It might be easier to measure the impact of not making theinvestment, such as high employee turnover, poor quality, poor customerservice, and lost market share.

I am working with a client that has made significantinvestment in what would normally be called intangibles, and has seen anexcellent return on that money. I typically don’t name clients but since thisarticle is focused on the positives I think he won’t mind.

Aardvark Memphis is a full service property maintenancecompany, with the largest fleet of sweeper trucks in the tri-state area. Theyalso do warehouse sweeping and scrubbing, retail teardown and build outs, floormaintenance and nearly everything related to maintaining retail or industrialproperty.

I’ve worked with them for about a year on strategicplanning, diversification and sales and marketing effectiveness.

One of the reasons I’ve had to work with them on sales andmarketing is they’ve never done any. The company has been in business for 14years, has been profitable for 13 of those years and has never done any reallevel of sales. They have experienced excellent growth entirely throughcustomer referrals and word of mouth.

What sets them apart? A high level of commitment to qualityand doing whatever they do right. The owner spends money on things that mostowners wouldn’t consider. For instance he washes his fleet of trucks everyday.He maintains all of his equipment to original OEM specifications, and investsin technology from GPS to track routes to maintenance logs. He has a high levelof commitment to employees and customer alike.

While the return on the money he spends on “intangibles” maybe had to justify in hard numbers, the results are hard to argue with. The highlevel of commitment he gives to quality and appearance creates expectations forhis employees. They clearly see his commitment and follow that lead whethercaring for the equipment or performing work at a customer location, theexpectation is, only best effort is enough.

The results speak for themselves, growth, profitability,customer loyalty and limited sales expense.

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

Can Small Business concepts work in big corporations?

I read an article in Forbes on-line today by Matt Symonds asking “Can Entrepreneurship be Taught to Big Business”?  It seems that several business schools are trying to find a way to develop a term called “intrapreneurship”, or corporate entrepreneurship.

They see the need to drive small business innovation and flexibility to large corporations. While I certainly see the need to do so I will never believe that most large corporations will ever embrace those qualities with anything other than “lip service”.

Large companies have basically insulated themselves from their customers through cost cutting, and outsourcing. When was the last time you called a large company with an issue and got a live person on the phone without going through a series of maddening prompts? I had an issue with a credit card charge a few months back and was actually given the option of paying a fee for the opportunity to talk to a customer service representative. I have to admit I opted out.

The issues with large corporations go much deeper than the obvious however; the issues are fed by fear of liability, seemingly lack of trust of employees and turf management.

I’ve had experiences with numerous large companies over the years and am constantly amazed that many remain viable.  

One in particular that I’m familiar with is an excellent example of what I’m talking about. It’s a large Fortune 100 company in a highly regulated market. Product sales were historically driven by high quality and name recognition. As is common in most industries new competitors are entering the market putting cost pressures on the market leader.

They have responded by:

·     Increasing sales goals on field reps, while:

o   Cutting costs in inventory for sale

o   Cutting levels of service personnel and spare parts

o   Cutting billing and support personnel

o   Eliminating training and customer education

o   Centralizing all quotes and pricing delegations to headquarters functions, while maintaining almost no customer contact from that level.

In short there are conflicting goals and little or no customer contact beyond the sales reps in the field. To me this is a recipe for failure.

Large corporations whether through fear of litigation or lack of trust have layers of management and hundreds if not thousands of policies and procedures aimed at standardizing everything, where is the room for innovation in this environment?

Many years ago I worked at a senior level of a then Fortune 500 company. The saying there was “nails that stick out get hammered down”. I fear that’s as true today as it was then, maybe just more eloquently put.

I agree that lack of innovation, flexibility, poor communications are issues that are making large companies less competitive and vulnerable to smaller faster businesses. I also think that every company runs the risk of growing to a point that it loses the things that made it successful in the first place.

Only the most effective leadership can address these issues and prevent them or turn them around. That leadership ability must permeate through all levels of the organization. In a small business there are less layers to filter and interpret the message. Large corporations have many more opportunities to block out even the most effective focus and direction.

Until business schools can understand and resolve these issues which are based in human nature I do not see small business concepts being embraced by most corporations.

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

Biggest problems facing small business may be small business

Ask any businessperson what the biggest problems are that they face in this or actually any economy, and they will invariably list three or four external issues that have a negative impact on their business. While the issues they list may be real, they are probably impacting every business to some degree; they all deal with them differently.

When I was doing research for my book, “Bottom Line Focus”, I ran across some interesting data that validated the theme I was using.

In the United States only about 3% of all companies provide the majority of revenue and job growth. They were referred to as high impact companies.  They went further to say it took an average of 17 years to become a high impact company.

What was disturbing was that after 4 four years 75% are no longer high impact!

My experience tells me that there are several reasons for this, but most all come back to leadership issues. A small business finds a profitable niche and the founder is hands- on. It grows quickly and adds people without clear vision and adequate processes. The business grows beyond it’s ability to execute. For the record in m coaching business small business is any organization with less that 500 employees.

In my research I found from numerous sources that the following is fact:

·     Over 50% of small businesses do not have a documented strategy or business plan.

 ·     Only 10% of businesses execute their strategy.

 ·     75% of business improvement initiatives fail due to lack of sustainability.

 ·     85% of leadership teams spend less than one hour per month on strategy.

 ·     On average 95% of employees are unaware if or don’t understand the company’s strategy.

 All of these factors can be traced directly to leadership. While external factors certainly impact business my advice to clients is to take care of the things they have direct control over and they will be in a much stronger position and have more options in dealing with the external issues that they have limited control over.

One of the most common things I run into on a regular basis is management so busy with fighting fires and hand holding poor processes that they tell me they simply don’t have time to develop a strategy. It is hard to convince them that having a solid foundation with a thorough S.L.O.T. analysis would go a long way in identifying root causes of current problems and inadequate processes. It is also a great forum to develop a team approach to strategy, vision, and problem solving.

The planning process is also useful in developing leadership qualities within the management team, as well as identifying potential weaknesses within the management structure.

Successful businesses develop management teams that function together to empower employees to innovate and solve problems. Unsuccessful companies often don’t progress beyond the point of a top down management style that becomes less and less effective with growth. 

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

Biggest problems facing small business in 2010

A while back I wrote an article on the biggest problems facing small business in general. It generated a lot of interest and is by far my most read article. That tells me that business leaders are not only searching for answers but are also searching for the right questions.

To clarify that point, many business leaders know their organizations aren’t doing as well as they want they just don’t know why.Things such as declining revenue, shrinking profit margins, and losses ofcustomers are obvious, but they are the result of problems not the real issue.This is further confused by a poor economy, is my company doing poorly because the economy is slow, or are the causes internal?

Poor economic times allow weak organizations to fail. That may sound harsh but think about it, dollars are still in circulation, there arejust fewer of them. Consumers still need goods and services, they are just more cautious about buying them. I used the example if there are five auto repair shops in an area, people still need their cars repaired, they just won’t do it as quickly or as often. The top service providers with the loyal following will survive, the marginal ones will not.

The top problems for business in 2010 aren’t new, they are simply being magnified, and they will continue to become more and more critical. We need to accept that “business as usual” will never mean the same thing. Technology is making the world smaller. There are new competitors entering nearly every market every day. The Internet has created an environment where small companies can level the playing field with large corporations by reaching millions of people with their message with little or no cost. Good news as well as bad news on a product or service travels far and fast.

So the biggest problems for business in 2010?

1.    Lack of a clear vision and plan – Most companies don’t have one. Throwing something at the market and hoping it will stick will become tougher and tougher. Find a niche and excel at it.

2.    Lack of execution– When you decide on a strategy execute.

a.    Over 90% of strategies that are developed are never executed.

b.    75% of improvement projects fail.

c.     85% of leaders spend less that 1-hour per month on strategy.

d.    Over 90% of employees don’t know the company’s strategy. (This is a direct result of top management not documenting and communicating it)

e.    Well over 90% of organizations don’t have meaningful performance measurements in place.

                                             

3.    Ineffective leadership – Things are moving faster and are more complex, and an effective leader must develop an environment that fosters innovation and open communications to take advantage of all human and capital resources.

4.    Sales and marketing effectiveness - this leads back to planning and leadership. Many companies have not taken the time to decide what their USP is. They try to compete in conflicting areas, such as lowest price and highest service. One takes away dollars and the other adds cost. Part of the planning process should include a very clear answer to one simple question, “with all of the products and services available to my customers why should they buy from me?”

In my book I had a chapter that stated flatly that all businesses have problems.While this may seem obvious my experience has taught me that not all leaders deal with problems in the same way. Many unfortunately try to deal with them by ignoring them, others by treating a symptom, still others by trying to blame someone. A few actually use meaningful data to get to the root cause and fix the issue.

The economy seems to be rebounding in 2010. The questions iswhat have you done as a business leader to position your organization to take advantage of it?

 

 

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

Use a process for better sales results

Sales is a process just like any other business function.There are steps that every salesperson must go through in order to be successful over the long term.

There have been numerous books and articles written about the pro’s and con’s of relationship selling but one thing to remember, sales activity invariably involves an interaction between people. We all have our internal thought processes, attitudes, and personality traits and that will spill over to both the buyer and seller in the sales process.

 A quote from Zig Ziglar says it very well, “If people like you they’ll listen to you, but if they trust you they’ll do business with you”.

So they have to like you enough to listen to your preliminary fact finding questions, and you have to use that opportunity to build trust.

The illustration below was discussed in my book, “Bottom Line Focus” relative to the steps in the buying process

 

The first step is you must develop a basis of trust between you and the prospective customer. They must trust and like you before they will even look beyond that.

Then they have to trust your company. Does your product or service have a solid reputation in the marketplace?

Third they have to have a need and understand that your product or service is the best solution for that need.

Then they will move on to price and delivery.

Taking a shortcut on any of these steps introduces doubt into the equation. If you walk in the door and cut price immediately you may get a quick sale but you will have cheapened you product or service in the eyes of the customer. Any effort to increase prices without establishing value and trust will be met with opposition.

Sales is like any other worthwhile venture, for better sales results, follow the process.

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

Use inbound marketing for better sales results

First many of you are probably thinking what the heck is inbound marketing? It’s been around for a while but hasn’t had great exposure until recently.

Traditional marketing or “outbound marketing” is blasting your marketing messages outward. It can be in the form of TV commercials, newspaper and magazine adds, direct mail, email marketing and so on. The biggest question that surrounds this traditional method is how do you know your message is being heard?

Inbound marketing is establishing your company or yourself as the “subject matter expert” in your chosen field. You make relevant, timely, and current information,  that your potential clients are looking for, available, and they’ll find you. When they do you have a prospect that is directly interested in the products or services you’re offering.

As I said this isn’t a new concept, why then is this just getting exposure?  In a word, noise. There is such a glut of information thrown at us everyday it’s impossible to sort through the noise to get at the information we want. We are bombarded with email marketing, TV commercials that we all mute, direct mail that even if excellent provides a 2% hit rate. We are buried with stuff!

It is getting harder and harder to see an acceptable return on investment from traditional marketing methods.

If you can’t get the market’s attention, you can’t get them consider your products or services let alone buy them.

In my book, Bottom Line Focus, I talk about marketing being your platform to educate your market why they need the product or service you are providing, what to look for when they decide to buy in order to get the most value for their money.

The next step toward better sales results is convincing them that with all of the products or services available to them in your particular market, yours is the best value and the obvious choice.

Like someone said long ago, “build a better mousetrap and the world will beat a path to your door”. Update that and to say provide meaningful information and the world will beat a path to your website.

 

 

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

Small business planning must include health care costs.

Based on what little is known about the new health care bill that was just passed it will have a huge effect on small to mid-sized businesses. One of the line items as reported in a summary by the Wall Street Journal is that in 2013 companies with over 50 employees must provide “affordable” health care or face a fine of $3,000 per employee. (Excluding the first 30 employees). It doesn’t state what “affordable” means.

In the same paragraph it states that the insurance industry must pay an annual fee of $8 billion starting in 2013 and rising in subsequent years.

I guess it’s lost on me how an industry can pay $8 billion in annual fees and still provide affordable insurance packages to small business.

I don’t know all of the intricacies of the proposed bill. I guess that makes me about as smart as the folks who passed it, they didn’t read it either. What I do know as a mid-sized company CEO for over 15 years affordable health coverage is in the eye of the beholder.

I cannot think of a single year where our health care costs were not increased to one of my companies. Every year we scrambled to try and balance plan benefits against rising costs while trying to keep employee contributions down.

Large corporations have bargaining power and volume, and are able to secure better pricing. The small and mid-sized business owner has no such advantage. While the new plan talks about Insurance exchanges to allow small business the opportunity to shop their coverage I don’t see that as any different than what they do currently. We had to shop our coverage every few years to keep costs in line.

The bottom line of all of this is costs for business will increase, and employers will take a harder look at hiring full time employees. Prudent companies will consider health care costs in their strategic planning process, deciding whether to make investments in automation vs. full time employees with an ever increasing cost base, It will make the playing field even more uneven with countries such as China where benefits and regulation are not a concern.

Health care reform is certainly needed. It’s unacceptable that so many Americans, especially the “working poor” as they are called, are without health care. The United States spends roughly twice as much as other developed countries on health care and millions are uncovered. There simply has to be a better way. But history has shown us that a government mandated and controlled program isn’t it.

One of the chief reasons why we spend so much on health care is the cost the insurance companies and health care companies absorb trying to deal with government bureaucracy. To see government health care effectiveness you don’t have to look any further than the VA and how our veterans are treated.

The full impact of this bill on business is unknown, even by those who passed it.

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

What’s the value of the strategic planning process?

Maybe that question should be addressed to individualcompanies as “what’s the value of your strategic plan?

 

We’ve all read that the majority of small to mid-sizedcompanies don’t have a strategic plan. Of those that do have a documented planonly 10% execute them.

There must be a reason why strategic planning is such a lowpriority with the majority of businesses.

 

Since becoming a business coach I’ve had the opportunity to review numerous documents and work with many companies in developing their plans. The one common thread that came through from most of them was, they simply don’t know how to plan.

 

In many cases if they documented one it was poorly conceived and soon became lost in the day-to-day realities of business. Many are nothing more than a series of spreadsheets built to show increasing sales and profit year over year. Some financial forecasting is warranted in a plan but they area measurement of plan attainment, not the plan itself.

 A good strategy starts with a clear vision. This is the first step and one that is frequently overlooked. If you don’t start yourplanning process on a solid foundation, how can it ever be successful?

 

Most management teams have great difficulty committing wherethey want to go and what they want the business to look like in five years. Iusually get a response I want to grow X% or I want my sales to be X dollars bythat timeframe. That isn’t a vision statement, that’s an off the wall forecast.A clear vision is one you can articulate to all stakeholders and use as adecision tool by asking does this investment take me closer to or further frommy strategic goal?

 

A vision statement must include specifics, what will we looklike in 5 years? How many locations? What markets will we be in? What productswill we sell? What will we be known as within our chosen industry?

 

After you can answer questions like this and articulate thevision clearly then you are ready to begin the planning process.

 

 

 

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Small Business Needs Credit Help!

Any kind of real recovery and job creation is impossible without access to credit by small to mid-sized businesses.

A newsletter from the Small Business Administration dated September 2008 provides the following interesting figures about U. S. small businesses. It says the firms with fewer than 500 employees –

• Represent 99.7% of all firms with employees.
• Employ about half of private sector employees.
• Create between 60% and 80% of all new jobs during the last decade.
• Generate more than half of non-farm gross domestic product.
• Employ 40% of our nation’s scientists, engineers, and computer workers.

In spite of that information loans are tough to get for small to mid-sized businesses.

Banks are looking for businesses that present no risk. Loans if they make them, must be over capitalized, and in nearly all cases personally guaranteed by the owner.

Even profitable small to mid-sized businesses in the U.S. have trouble getting asset-based financing using receivables and inventory as collateral.

New entrepreneurs, and even experienced business people, often ask me to help them write plans to get SBA financing for a new or troubled venture. I tell them it just doesn’t happen that way. The SBA, USDA, and most other federal loan programs simply guarantee bank loans. You have to get the bank to approve your loan first. But banks are not in the venture capital business. They want secure loans.

Every business owner or CEO must start with a vision and a well-constructed plan. Then evaluate all decisions about securing and spending working capital against that plan.

If you don’t have a clear vision, a well-constructed plan, and well-defined goals, you can burn lots of cash going down blind alleys and chasing false opportunities. That can cause you to loose credibility with your lenders and investors. Or even worse, lose your shirt!

When you need additional capital, know how much you need and exactly how you’re going to use it. With every trip to the well, you may have to pay higher costs in terms of –

• Equity dilution.
• Additional personal guarantees.
• Additional debt service costs.

Conserve your cash. If you don’t, the day may come when you can’t get any more.

Evaluate non-revenue-based activities most critically.

It’s relatively easy to calculate the return on investment for things such as new machinery or raw materials that you’ll use within thirty days to manufacture products and generate sales. It’s much harder to evaluate the ROI for overhead expenditures, such as information systems or employee benefits. But you still need to do it.

For example, suppose you’re considering investing in additional employee benefits with the goal of reducing turnover. Do your best to assess the recruiting, retraining, and other costs associated with turnover. Then project how much reduction in the turnover rate you can realistically expect as a result of the proposed new benefits. Finally, estimate how much money the reduced turnover will save you and calculate your ROI.

Look inside your organization for cash before you look outside.

Seek to free up working capital by –

• Reducing inventory. Inventory is cash on your floor. Even asset-based lenders generally won’t loan you more than 50 percent of the value of your inventory.
• Reducing rework and scrap. These soak up cash for materials and labor, but they generate zero sales.
• Retraining or dismissing underachieving employees. The investment for underperformers is about the same as for high producers, but the return is far less.
• Increasing quality. This frees up cash by reducing the amount of rework, scrap, and customer returns.

We’ve all heard the expression “Cash is King.” That’s even truer when you don’t have it and someone else does.

Over the years, I have gained (with considerable pain) a greater understanding of and appreciation for the real cost of money. One this is certain,

The golden rule: “He who has the gold makes the rules.”

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business".