Suze Ormond and Business

During the Larry King interview last night with Suze Ormond, a business owner called in asking when she should close her business. It turns out that the business has no debt and pays vendors in cash, but has no reserves.

Suze’s rather incredible advice was that rather than take on any debt to pay operating expenses, she should close the business. If this woman and every other business person watching this show takes Suze’s advice literally there will be thousands, if not millions, of additional unemployed people next week. The caller’s business was in much better shape than most small businesses which have rivers of debt.

What Suze did not explore with the caller was what untapped sources of income were available, or whether there were costs that could be cut. With no current debt, this woman is in an enviable position to make sure costs are at a minimum and that she can laser focus into new market opportunities. How many business owners would love to be in her position?

Suze is right that consumers should cut back on debt. But she did not acknowledge the potential leveraging effect that taking on some debt can have in growing a business.

I would have explored with the caller what untapped potential her business might have. Can she raise prices? Can she upsell existing customers? Can she use low-cost marketing to attract new customers? Can she modify services or products to appeal to a broader market? Are there areas in which she can cut costs? I would then advise her on how she could use the untapped potential to grow the business and improve her cash position. With her enviable cash position she might be able to make significant improvements from cash flow. If not, then it would be prudent to do an analysis to determine whether a loan or line of credit would be a sound business decision.

What is your growth potential, and how do you plan to exploit it? How can you improve your cash-flow?

Customer Driven Business

I was at a breakfast meeting this morning when a gentleman asked the following question: “How do we get our engineering department to make better specifications for our products?”. The leader, a six-sigma master black belt responded, “That is the wrong question. It is always the customers who should be driving the specifications.”.

This got me to thinking about how often businesses don’t really listen to their customers. The entire reason a business exists is to make money, and the only way to make money is to be responsive to customers. How often do sales people try to sell you the latest gadgets, fads, gizmos, or stuff that the company wants to clear out, rather than asking questions about what you really need and want? In my experience it does not happen very often. Those companies that put customers first, really, really put them first, will beat competition every time.

Does your business really listen to customers? Do you really know what they want? Do you design your products and services to satisfy their needs or to satisfy your ego? Do you ask questions of customers when designing a new product or service? Do you ask questions when selling to assure that you are providing the best possible solution to the customer wants? Do you have a process for handling complaints to a) assure that the complaint is handled to the customer’s satisfaction; and b) assure that future customers will not have reason to make the same complaint?

If your business is not 100% customer-centric, it’s time to examine why not, and make the process, management, and cultural changes needed to be so. The payoff to your bottom line will be amazing.

Financial advice

Small private company owner-managers are very private people, especially when it comes to company finances and money matters. Understandably they don’t want strangers to know their financial secrets.

But when it comes down to survival, I’m constantly amazed at their reluctance to accept outside objective advice. Perhaps it is fear that they might be scolded like children for financial mistakes and lack of real knowledge in handling money. Many owners, even once that have exposed their mistakes, are reluctant to take proven and sound advice for turning the businesses around.

The problem is usually a total lack of fiscal discipline. Dinner out on the company credit card. Buying the latest gadgets. Looking the other way as employees help themselves to inventory. These and so many other abuses can make the difference between being able to pay the bills or turning out the lights.

So when I, or other advisors and consultants, suggest implementation of controls, or tightening of belts, huge walls are erected because operating in a fiscally sound way removes some of the freedoms that the owners have come to enjoy. They just can’t accept the fact that the business is going down until the landlord locks the door or vendors start suing.

It is such a pleasure, then, when I run across a business owner who not only recognizes that he or she has a problem, but is willing to listen and to act on advice that will improve their financial situation. This is, after all, a time when every dollar counts if a small business is to survive.

Business Plan – Part 5

Mission Statement

Second only to a vision statement, is a statement of mission. While a vision statement exposes what the business will become, what impact it will have on the world, the mission statement explains what the business is and what the business does. In effect it answers the question “What business are we in?”

A mission statement expresses the purpose of the business, stated in the present tense. A mission statement should be simple, succinct, and differentiate you from your competition. The mission statement can be an expression of future goals, but expressed as though they exist today. It explains the purpose of the business – why it exists.

A mission statement should be succinct and define what the company is and what makes it unique.

A lawn maintenance service might say that it is in the “lawn beautification business”.

Buy Local

Happy new year. Having survived the holidays, and having enjoyed some R&R including quality time with grandchildren, I’m ready to get back at it!

An article I read over the past week supports two posts I have made in the past few months regarding the benefits of buying local. The article, titled “Why Buy Local”, was in the COSE Connects section of the November 2008 issue of the Cleveland-area magazine called CBC. The highlight of the article was this:

“If each household redirected $100 of planned spending from chain stores to locally owned merchants, the local economic impact would reach approximately $13 million.

“When you buy from an independent local business, 68 cents on the dollar stays in the community compared to 43 cents on the dollar when you buy from a national chain.”

Those of us who own small local businesses want local people and firms to buy from us. It stands to reason that we need to return the favor of buying from local businesses. Pass the word along to family, friends, employees, neighbors, suppliers, and customers. Working together we can all help our local economies.