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The Business Plan Financial Template & Startup Model is free. The guide to finmodel4.xls is now available on Amazon.com. Go to Download now.
Doing business is a series of negotiations. From the moment you plan to start a business to serving your customer, you find yourself negotiating. For most people negotiations brings to mind price, but there are many other areas you must negotiate.
For the service provider, the details of the service, the delivery time-frame and the definition of “complete” are some of the many items that must be determined. For the product company, delivery time-frame, extended warranty, financing options, product specifics (color, options, etc) all must be negotiated.
Negotiations is a required skill all business people must learn and refine. Many experienced business people will tell you they are still learning how to be a better negotiator. For those getting started, here are a few points to consider;
Practice your skills of negotiation every day. Not just with customers but with vendors, partners, employees and others you come in contact with. After each encounter, think through what you did, what worked and what you could have done better. This will pay off in the long run.
An angel is a high net-worth individual who invests his or her own money in start-up companies in exchange for an equity share of the businesses. ACA recommends that entrepreneurs work with investors who are accredited investors (who meet requirements of the Securities and Exchange Commission) and who can add value to the company via high quality mentoring and advice. Other important things to know about angels include:
The key thing to me at the end of the day is can the angel investor add value to the company. This is commonly referred to as “smart money”, or money that comes with skills, connections, knowledge, or other valuable resources.
Remember, if you take outside capital from angel investors or other sources, you need to plan in advance how you will return the capital with a good gain. As stated above, this generally occurs when the company is sold or merged with another company.
Many of the clients I advise are in partnerships. It is a common situation. Two or more people get together to solve a problem and the next thing you know a partnership is born. If you listen to the first-time partners, they will tell you their priorities are to get the product into the market and grow the business. If you listen to partners who have been through years of business together, you will hear something different.
What older, wiser partners will tell you is to plan the divorce. It is coming. It is guaranteed. At some point the partnership must end. Whether for reasons of death, indifference, disagreement, or a multitude of other reasons, it will happen. The key these wise people will tell you is to plan the divorce in advance. Setting the value of the company and how one partner might buy out another partner well in advance sets the rules if things go bad. I sincerely hope that things will not go bad for you in your partnership. But in case they do, have the ground rules set in advance.
My good friend Rush Nigut at Brick Gentry has presented on this topic many times in the past. Check out the video of him on this subject “Rush Nigut on Partnering” for an in-depth analysis of why this is so critical and how you can protect yourself.
So the other day I was getting ready for yoga class when one of my classmates told us about something she saw on Facebook. Someone, I do not know who, posted “Let Go or Be Dragged” on their page. As the class talked about this from the standpoint of life in general I thought about how this applies to startup and growth businesses.
One of the key failure points in a business is when the owner or general manager cannot let go of certain aspects of their business. Recently I was working with a VP of marketing at a small manufacturing company. She was adding a dedicated sales manager to her team. Her manager, the president of the company, who was probably trying to do the right thing, interjected a whole different organization structure on this VP. While it is his prerogative as her manager, he unintentionally cost her a lot of time and trouble. She was having to drag him along to where she needed him to be. He needed to trust her and let go.
The problem here is knowing what things to let go of and what things to stay in control of. If you want a company to grow, you have to get the right people engaged in the team. Once you do this, you have to let go. Keeping tight control of a talented, motivated employee is a fast way to lose that employee.
The same thing holds true for founders. While they are the ones that start the company, that is no guarantee they are the right ones to grow the company. In fact, I will argue that in most cases the founder will not be the right one to grow the company. The necessary skills are not the same. Sure, there are exceptions, but they are few.
In the end, if you are an owner or manager, stay aware of the people on your team. Are they dragging you along? Do you need to let go?
How do I tell you?
How do I tell you that you are killing your own business?
Mentors play an important role in business. Most successful business people I know will attribute some of their success to having good mentors. So what makes for a good mentor? Well, it depends on you. First you have to decide what you want from your mentors. You will notice I say mentors plural as you likely need more than one. One place to start is where you are weak. Face it, we all have weaknesses. The best mentors for you are probably strong where you are weak. If you are strong in finance, you may not need a financial mentor. Whereas if you are weak in sales, you may want to find a mentor who is experienced in this area. A great way to figure out your strengths and weaknesses is through a book and an assessment tool called Stengths finder.
Next, how often should you meet with your mentors? Should you meet with several at once or each individually? This is very dependent on what your needs are. If you have the ability to have regular meetings with your mentors, do it. I find monthly meetings about right for me in most cases. Use this time to explore not only tactical issues you have in their area of expertise but also ask for their help on longer term strategy. For large scale decisions you may want to meet as a group in a more advisory panel approach. What ever you do, make sure you are not taking too much of these people’s time.
Recently I drove by a closed restaurant. It had been a steakhouse most recently. I thought about how tough it would be to compete against the other steak houses in the area and wondered if that was why it did not survive. As I drove on, I thought about all the types of food available today at restaurants from German to Italian, to Mexican to Chinese to Thai, to bagel shops, well, you get the picture.
I realized the one thing harder than competing against the steakhouse or any other type of restaurant probably would be if a new restaurant came along with a whole new type of food or way of doing business. At least if you are a steakhouse, the customers will know what to expect. This is the paradox of a new idea. While many customers will say that they are seeking something new, they tend to gravitate to the familiar.
If you are starting a business that is truly a new idea, how do you get customers to try you out? Groupon leveraged the analogy of a coupon, something everyone already understood. When Yahoo became be one of the first mainstream search engines, they spent a lot of money on memorable ads that demonstrated what a search engine was, then added a unforgetable holler of “Yahoo!”
How does the small business or startup entrepreneur best compete with a new idea? After all, they do not have the millions of dollars Yahoo. That is one of the most challenging questions for the truly new idea based business. Here are a few paths to consider:
Offering a brand new, unrecognizable product to a market that does not know what it is, will most likely lead to failure. Make sure your new idea can be recognized and understood in context to it’s use.
There was an interesting article about a new start-up company called AutoSlash in the New York Times this past weekend. AutoSlash says they will get you the best price on a car rental by constantly checking for better deals even after the reservation is made. What caught my attention was how many of the auto rental companies had decided to allow AutoSlash to work within their reservation systems and coupon systems to deliver these low prices.
This seems like an interesting move. I can understand why the low dollar rental companies may want to pursue this, but one company that is connected is Hertz. Given their reputation for being on-premise and having covered parking for the cars among other ammenities, it just seems odd. Maybe they figure that in a tie on price they will win the business?
For a new business starting out or a business trying to grow, competing on price does not make sense long term. Sure, you can use price to bring new customers into your business, but only if you think you can keep them over time for repeat sales or sell them something else while they are there. Walgreens is famous for this strategy. They will discount something heavily to get customers to the store but they make up for their loss leader sales with other purchases.
Competing on price alone signals to the customer they should always expect the lowest price. While this will win you some business, you will have a harder time keeping your customers long term. A price-only buyer does not tend to be a loyal customer.
Use price where needed to bring customers into your business. But when doing this, make sure you know you will keep them over time at reasonable margins or sell them other items that will make up the margin hit.
In the aftermath of the controversy surrounding the Susan B. Komen foundation decision and the reversal of the same decision, perhaps the best thing we can all do is learn from the situation. Regardless of the side you might be on, if you own a small business, you should be thinking about how to avoid these types of situations.
We all live in a time of increasing polarization concerning issues. When you combine this with the ability of almost everyone to speak with a loud voice via Facebook, Twitter, Blogs, and other social media platforms, you have a situation which is entirely new. In a matter of hours, the opinion of literally millions can be heard. And there is nothing you can do about that.
Now take that same combination to the local level. These days it is common to comment on local news sites, in fact it is encouraged. Any issue can get amplified to a higher level than desired. Some time back, a local restaurant owner found out the hard way when his not-too-polite comments were broadcast around the Des Moines metro for all to hear, over and over again.
If you own a business, you must take extra care not to cast your business into the light of polarizing issues. Sounds easy, but it isn’t. Who decides what is polarizing? Everyone. Here are a few polarizing issues that may or may not surprise you:
Are these polarizing? The answer is yes, for a certain group of people. What will cause the loudest of outcries will most likely depend on your response to someone raising the issue as polarizing in the first place. Does the funeral parlor ask the woman to leave because others are complaining? Does the hardware store respond to an accusation of bias? How does any business person deal with this? The answer is complex, but here are some guidelines to consider.
Lastly, don’t lie. People have a much greater ability to sense when someone is lying that most people understand.
Growing a business quickly requires that you can bring new employees into your business and bring them up to speed in their tasks. Too often, bringing a new person on requires one of your best employees to take precious time to train the new person. The same can be said about developing new processes which you want everyone to start using. Whether these are processes used in serving the customer or managing information, everyone involved needs to know how to do these new procedures correctly.
I have had great success managing this problem through my employees. Many of my employees would ask for opportunities to learn new things on the job or just work on something different. My solution was to have the employees write written instructions on how do do certain procedures. I fell into this by accident one evening late when I was trying to create a document for my employees. It finally dawned on me that many of the employees knew the details much better than I did. I can be a bit slow at times! Perhaps this sounds simplistic, but think about it.
Finally, asking the employees to develop, write and improve the processes your company uses, engages the employees in the business and enables you to grow faster.
I was taught that saying many years ago. You get what you measure for. If you measure only for profit, you may have fewer but profitable sales. If you measure for sales volume, you may not get the profit you want. If you measure everything, you will run out of time!
Choosing what you measure is critical to long term success. Just as critical is to make sure you re-evaluate those measurement targets to make sure you are measuring what is relevant at that time.
In a startup business, number of users / customers and cash flow break even are two critical measurements. In a more mature company you probably want to measure profitability and return on invested capital. Deciding what to measure when is the key.
You need to find a balance of enough relelvant measurements without overloading. You also need to spread out the job of measuring to everyone on your team. The act of measuring the business will hopefully more fully engage team members in what is important.
I was at the local Applebees in Ankeny the other evening. It is a favorite place of mine. The food is good but not the reason I go there. I go there because of the staff. The staff they have stays long term because of the culture. The general manager is one of the hardest working people in the place. He never stops moving. He is the first to wipe down a table or sweep up the floor. He treats his employees as equals.
I see a similar attitude in the staff of HyVee. I recently was checked out by a manager at my local HyVee because her staff were already helping others. She opened a lane and checked me out. I did not have to ask or encourage her. You could tell that it is just the way they do business.
The actions of you and your staff are what we customers use in understanding your culture. If you own a restaurant where the tables are filthy and the manager is leaning against the bar talking to the hostess, I know your culture.
I personally do not like spending a lot of time talking to my teams about culture. I believe you simply model the behavior you expect of everyone else. Those who can emulate your model are the ones you keep and reward. Those who do not need to leave.
Make sure you are modeling the culture you expect from your employees at all times. It is the strongest form of communications you possess.
It is truly a disadvantage to be a new business owner. To start with, you are an unknown to most potential customers. You probably do not have a long list of referral accounts or a line of customers out your door. So how do you make up for this disadvantage?
There is one thing you can do that will make up for most of the “new business owner” challenges. Professionalism. It is a big word both in number of letters and in fulfilling the attribute. Professionalism is not accomplished through a single action or method. It is a constant state of being. Here are a few examples. See if you can spot the professional.
You make an appointment over the phone with an auto repair facility. At the end of the call, the person on the other end says:
b) See you then
c) Repeats back to you the time, date and expected work to be accomplished.
You walk into a retail store. The clerk is at the back of the store is talking to another person. The clerk:
a) Keeps talking to the other person
b) Makes eye contact but does not engage you
c) Greets you and tells you s/he will be right with you
You are working with a consultant. You ask for a proposal for the cost of doing some work you have been discussing. The consultant respond with:
a) A verbal cost
b) An email with a “Thank you for the opportunity” and a price
c) A written proposal including all terms, conditions, scope, price, payment terms etc.
Being professional will set you apart from the crowd. If you have employees, make sure they understand the same concept and are professional at all times.
Stand at the base of a set of stairs, 10 to 15 steps will do. Now get ready and leap to the top! That is what many entrepreneurs attempt to do when starting a business. Unfortunately most do not have the strength or skill to make it on the first leap.
It is easy to convince yourself that you must have everything done the day you begin. Take the marketing for a new business. While you may want to have all of your marketing in place before you begin, many of your best marketing ideas will come from the first few customers you serve. Start with a simple approach of what you offer to the market. Stick with the problem you solve and the value you provide.
That can be your first step.
As you gain a couple clients, ask for a testimonial to use in future marketing, perhaps on your website or on your ads. That is good second step. As you move forward, ask your clients what made them choose you. Revise your ads and promotional copy to bring in some of the new things your customers told you as an additional step. Next, start to look for other businesses that are complimentary to your business and ask them to work with you in marketing each others businesses through referrals or working together. Another step.
Moving step-by-step through your marketing or any other area of your business will allow you to use your your funds more efficiently and stay focused. It will also keep you from falling down from trying to leap to the top step.