Tis the season

We are in the midst of the holiday season. A good time to reflect, recharge, and plan. In that spirit, I’ll be taking a break from my daily blogs for a few days, and will resume on January 5.

Happy New Year to one and all.

Preparing for 2009

Yes, the dreaded “R” word is in common use, and we’re told we’ve been in a recession for over a year now. Of course, that is no news for those of us in the trenches. The reality is that the economy has dramatically changed, and we are entering a new economy that is going to be different from what we have experienced over the past twenty years or so. Just look at the huge sums of money the federal government is infusing in the guise of bailouts, the insane amount of money that’s been spent on a needless war, the additional money Obama is proposing to put into “infrastructure” projects, the changing face of corporate America, and rising unemployment.

This is Christmas eve – and I don’t mean, or even intend to be negative. Just realistic. And I want all of us small business owners to be realistic as we end this year and embark on 2009.

But what is key is this. As small business owners we can not let ourselves get caught up in the economic woes. The stock market remains uncertain, so it is not prudent to invest in corporate stocks. But this is a great time for us to invest in our own businesses.

As I have written in a recent blog, we need first to examine our products/services/markets. We need to drop unprofitable services and products. We need to fire unprofitable customers. We need to terminate unproductive employees. Now is the time to revise our business plans to reflect the reality facing us in 2009.

Now is the time to invest in upgrading our products, training our employees, communicating with our customers, and revising our marketing messages. We need to start 2009 with a clarity of purpose, and a clarity of mission that we communicate well to customers, prospects, employees, investors, and suppliers.

This is the time of year for joy. Let’s end the year with joyful thoughts and with a renewed sense of purpose.

Merry Christmas

Business Plans – Part 4

This is the first of the elements of for business plan of a start-up business:

1. Vision Statement

The vision statement answers the questions: What do want to be? What do you want to be known for?

A vision statement tells what you want to become. It is an embodiment of your goals and is always forward-looking. The vision statement will guide the remainder of your plan. The vision statement ideally will be SMART:
Specific
Measureable
Achievable
Relevant
Time bound

An effective vision statement must paint a clear and vivid realistic picture describing a bright future. It must be clear and free of ambiguity. It must align with your goals and values. The best vision statements are memorable and worded in an engaging manner.

Consider this vision statement for a startup picture framing business: “Within three years FrameUp will be billing $75,000 per year, framing fine art for the top six galleries in Philadelphia”.

Buisness Plans – Part 3

In this third installment of business plans, we take a look at What makes a good plan. In this and following blogs I am focusing on a simple business plan for use in starting and operating a small business. More comprehensive plans will be needed for larger, more complex businesses, or for seeking funding.

A plan is no better than the thought, analysis, and planning that goes into it. A good business plan is simple, realistic, specific, and complete.
1. A plan should be simple so it’s easily understood, communicates the intentions of the business, and is easy to act on.
2. A plan should include realistic goals, dates, and milestones that are achievable.
3. A plan should include specific actions to be taken, with measurable objectives.
4. A plan should be complete with all of the information needed for the intended purpose.

Elements of a simple business plan
As you write your plan, know that the process of planning is even more important than the resulting plan. As you develop each element of the plan you will be critically and strategically analyzing parts of your business concept.

The simple home-business plan should include:
1. Vision statement
2. Mission
3. Market
4. Objectives
5. Strategies
6. Actions
7. Financial forecasts

We’ll discuss each of these elements in future posts.

Missing Ingredient: Entrepreneurs

The title of this blog was the title of an article in the business section of yesterday’s Cleveland Plain Dealer. “Experts” said that what is missing from Cleveland is seasoned entrepreneurs, and that entrepreneurial leaders need to be imported from the coasts and from abroad. While there may be a leadership void for the very few companies that aspire to, and may have the capability of, becoming the next Google, the problem with entrepreneurship in our region, or for that matter, many regions in the country is not leadership for large entrepreneurial companies, but leadership support for the millions of small entrepreneurial ventures.

Incubators, early stage funding, and venture capital groups focus on a miniscule number of start-ups – typically in technology, polymers, or bio-technology – that have the potential (slim, but still potential) of hitting home-runs. Ohio provides funding for technology start-ups, but good luck if you need money for developing and marketing something as a low-tech gun lock that may prevent many children from being accidentally shot.

There are thousands of un-glamorous business concepts that sprout daily but wither on the vine because nobody cares. Those that do take root provide employment for thousands of people. How many more thousands could be employed by small firms if the firms could receive support and even small amounts of grants or other funding? These small firms do not require executives brought in from silicone valley. They need local support, training, advice, and money.

Consider the impact of even micro businesses that are run from home. The government estimates that there are over 20 million home-based businesses with an economic impact of over $350 billion dollars. Many of these businesses provide work not only for the owner but others in the community.

Almost daily I see non-glamorous business ideas, with real market potential, that are just waiting for a modest amount of seed money.

The void we have is a lack of vision and leadership to help the majority of small buisinesses.

Business Plans – Part 2

Yesterday I wrote of the necessity for a business plan. No matter the size or stage of business, a well thought-out plan is a strategic tool.

The size and detail included in a plan is determined in large part how the plan will be used. A simple plan will guide a start-up and short-term strategy for smaller businesses. A comprehensive plan may be needed for guiding a more complex enterprise. Plans are also needed for attracting partners, key employees, bank loans, and investors.

Start-up and small business plan

For a start-up or very small business a simple plan will guide you through the operation of the business. It will describe your core values, explain what your business goals, and out-line the core strategies and tactics you need to achieve the goals. The text of a carefully written plan for business will often be no more than a page or two in length.

Operational Plan

An operational plan for a larger enterprise may be many pages long as it describes strategy and tactics, budgets, schedules, and personnel

Business loan plan
If you need to borrow money you must convince the lender that you have carefully thought through the model for your business, can explain what it is and how it works, and, most importantly, show how the business will make enough money to pay its expenses, pay you, and still have enough cash to repay the loan. A plan for a banker will necessarily contain more detail than a simple operational plan.

The lender will need to know:
a) how much money is needed
b) what assets are available as collateral
c) how will loan proceeds be used
d) how does the business generate, or intend to generate, income
e) what expenses will the business have
f) how the loan will be repaid
g) your record in handling credit and money

So, what’s important to present to a lender is a brief narrative that explains your business and a detailed and substantiated financial forecast.

For a small privately-help company the bank will check the owner’s FICO credit scores and ask to see your personal and business tax returns for the prior three years. No matter how good your business plan is, as the owner of a small business it is you that the bank will count on to repay the loan. A great business plan is no substitute for a stellar credit record.

Investor plan

An investor provides money in return for partial ownership in the company, and will generally need to see a potential of reaping a substantial return on the investment.

There are two types of business investors: angel investors, and venture capital inves-tors. Angel investors are typically wealthy individuals willing to put their own money into a growth business that they become passionate about. A venture capital investor typically is a company that has amassed pools of money that are invested in carefully selected business with potential for phenomenal growth. Both types of investors will look for very significant returns on their investments.

An angel investor or venture capitalist will need to be satisfied that you have thoroughly thought through every aspect of the business, can defend your as-sumptions, and can make a solid case for extremely rapid growth over the next few years. A plan to be presented to investor can easily be the size of a small book.

In the next post we’ll discuss the elements of a simple business plan.

Business Plans – Part 1

Is either of the following the way you respond when someone suggests that you need a business plan for your business:

“I’ve been running this business for five years without a plan. I know what I’m doing. Writing a business plan is hogwash!”

“Ugh! Why do I need a business plan? I’m just going to be a one person operation providing marketing services. I know what I’m doing. Anyway, writing a plan will take me away from more important tasks.”

These are common reactions. Let me be clear at the outset that a plan is not busy work. For a startup, creating a business plan is a process for clarifying that your great idea for a business is solid enough to financially support you while achieving your goals. For an existing business, a plan will help you crystalize your business goals and point you in the direction of continued growth and success.

There are times when business plans are absolutely necessary. They need to be available when seeking funding or loans. Well articulated plans may help you attract key employees. But the greatest value of a business plan is to you, the business owner. You don’t start on a long trip without a destination, a map, or knowing where you will sleep. The business plan will give you the same focus and certainty of direction for your business.

In writing a plan you force yourself to critically evaluate your business model and think through all aspects of running the business. By writing the plan before you start the business, you may avoid stubbing your toe or even making big mistakes. I have seen seemingly great ideas tabled because the plan proved the business would not be viable. I have seen promising businesses stumble for lack of planning. Once you have a plan, it becomes the blueprint for running the business.

The process of developing a plan will help you clarify your vision, your goals, your products or services, your markets, and your core competencies. Using the plan will help you and your team focus on the strategy and tactics to arrive at your destination without taking needless detours. No business is too small or too large to benefit from the planning process and the resulting business plan.

Once written a plan is a living document to which you should constantly refer, and which you should modify as the business evolves.

During the next few posts I will describe the important elements of a business plan and how to structure a meaningful plan.

Eight habits for effective hiring

Consider the amount of time spent in recruiting, hiring, and training a new employee. Consider your lost productivity in conducting the search and interviewing. Consider the lost productivity of having a vacant job that is not being performed.

Some estimates put the cost of hiring at about three quarters of the annual pay for an employee.

As a hiring employer, you need to minimize mistakes. The stakes are just too high.

Here are the 8 habits of effective hiring:
1. Have a strong mission statement and vision for your company. Share these with job candidates. If you know where you are today and where you are going, you can excite candidates about you and your organization.
2. Develop a job requirements document for the position to be filled. Know exactly what capabilities you are looking for.
3. Develop a thorough job description for the position. be able to tell a candidate exactly what is expected.
4. If possible, subject the job candidate to personality and skills test to help assure that the individual can do the job and fit in with your style of organization and management.
5. Develop good interviewing techniques in order to conduct effective job interviews.
6. Check all references, and do background checks.
7. Research prevailing wages and benefits for the type of job being offered to assure competitiveness in the market.
8. Welcome new employees and make them at home, comfortable, and productive from the day they are hired. Train them. Monitor and provide feedback on their performance.

Oh, and if a mistake is made in hiring and the employee does not work out, terminate the relationship sooner rather than later. This will be best for both you and the employee.

The Return of the Family Business

I was talking with a friend last week about the proliferation of small businesses as more and more people are losing their jobs from large corporations. The millions of small businesses, including about twenty million operated from home, will only increase during the coming years.

My friend observed that the concept of large business is a very recent one spawned by the industrial revolution. Prior to the mid-nineteenth century, most businesses were family owned and operated – as either farms or as small shops. During past decades small shops have had a negative connotation as “mom and pop” stores.

Fortunate, the stigma of such micro businesses is gone. Even home-based businesses which, for years were not taken seriously, are now mainstream. While most new home-based businesses are started by one member of a family, they often draw in a spouse or children – who do bookkeeping, design the business web site, help produce merchandise, prepare mailings and much more.

While big-business will never disappear, small businesses have retaken their rightful place in our economy and hearts.

Cold Call

An architech friend called me today asking how to go about cold calling to drum up some business. Sould he send letters, should he make phone calls, should he go door-to-door. Good questions.

Given the nature of his business I suggested he could waste a great deal of time by going door to door. In his situation, like many business to business situations, a practical approach is to start by mailing a letter, followed up by a phone call a few days later. The call will thus not be as “cold” as if there were no introduction at all.

Better yet is to get a referral from a customer or contact and use the contact name to make the call a warm rather than a cold call.