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HOW TO GROW A GREAT BUSINESS AND POWER NETWORK by Melissa Giovagnoli and David R. Stover

First printing 2011 Copyright © 2009 by Networlding Publishing. All rights reserved. No portion of this book may be reproduced, stored in a retrieval system, or transmitted in any form or by any means – electronic, mechanical, photographic, recording, scanning, or other – except for brief quotations in critical reviews or articles, without prior written permission by the publisher.

Published by Networlding Publishing For information www.networlding.com

ISBN 978-0-9835446-0-9 1. Business 2. Self-Help 3. Non-Fiction

CONTENTS Foreword by Jay Conrad Levinson

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Introduction - How to Use This Book

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Chapter 1: What Does it Mean to Grow a Great Business? Launch Requirements Buying an Existing Business

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Chapter 2: What Does it Mean to Have a Power Network? The Value of Networlding

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Chapter 3: The New Entrepreneur Who is the New Entrepreneur? Risk and the Entrepreneur How to be Successful The New Entrepreneurial Climate Entrepreneurial Survival Skills From Idea to Execution

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Chapter 4: Launch Kit Overview Critical Launch Elements What is in Your Toolbox?

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Chapter 5: Business Planning What a Business Plan Can Do The Management Plan Putting it All Together Update Your Plan Regularly

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Chapter 6: Financing Planning and Funding The Financial Plan Revenue & Cost Models Strategies for Securing a Launch Loan Investors & Other Financing Budgets & Bookkeeping Cash Flow Management

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Chapter 7: Legal Planning

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Chapter 8: Marketing Marketing Strategies Marketing on a Shoestring Public Relations Advertising Closing the Sale Customer Service

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Chapter 9: How to Network and Use Sources The Networlding Support Exchange Networking Channels: Social Media Associations Qualifying Associations for Potential Membership Networlding at Events: Strategies to Guide You

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Chapter 10: Building your Team of Experts Internal & External Resources Alliances & Partnering Flatworlding

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Chapter 11: Managing Your Business in Stages

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Business Functions & Processes Managing Your Matrix Organization Chapter 12: Social Glocal

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FOREWORD Establishing and growing a business is hardly a piece of cake. Making it a great business is even tougher. And creating a powerful network is no easier. There are no shortcuts. David Stover and Melissa Giovagnoli serve as your Lewis and Clark as you attempt to navigate the rugged terrain of succeeding and flourishing with your own venture. Because of the wealth of information they provide in this book, your foray into business will have fewer wild adventures and more valuable discoveries and rewards. In these pages, you’ll be taken by the hand and guided through the minefields of potential mistakes. You’ll be led by the bright light of wisdom directly to your goals. The authors do not make it sound easy (because truthfully, it’s not). But they do make you realize that it is possible. You can have a great business. You can have a powerful network. You definitely can do it—if you know how. Once you’ve read How to Grow a Great Business and Power Network in the United States and tapped the rich resources it reveals, you’ll know how. This is hardly a Get-Rich-Quick book, mainly because growing a great business is hardly a Get-Rich-Quick activity. But this is a You-Can-Definitely-Get-Rich book. And if you follow the path illuminated by the authors, you can attain your goals. Almost every possible pitfall is pointed out to readers before they get tripped up by them. Numerous details of successful businesses are laid out—clearly and understandably. I often get asked by people with dreams of running their own business, “Where do I start?” This book is the answer. Many frustrated business owners would have their frustration replaced by exhilaration if they had started with the insights and information presented in these pages. The book is easy to read, i

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easy to follow, easy to use, and easy to understand. It will help give wings to what were once only business dreams. One of the best things about the book is not the answers that it gives to crucial questions, but the questions themselves. The authors strive to ask the right ones, the ones many business owners overlook, and then the authors provide enlightening answers. They show, as Aristotle said, that excellence is not a goal as much as a habit. By delving into the minds of successful business people throughout America, and investigating failure as much as success, the authors provide you with the perfect foundation for launching your enterprise and guiding it to glory. What you don’t know about business and networking can work against you. But once you’ve read this book, there will be little that you don’t know. If the authors don’t give you the specific information you need, they carefully point you in the direction of a source that will give it to you. If you’ve ever looked for a book that ought to be mandatory reading for business owners, look at the book you’re holding in your hands right now. It’s exactly what you’ve been looking for. It’s exactly what you need. - Jay Conrad Levinson Author, Guerrilla Marketing series of books Over 14 million sold; now in 39 languages

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Introduction

How to Use This Book

From the many previous books Melissa Giovagnoli has co-authored, such as Networlding; Building Relationships and Opportunities for Success, Melissa, one of the ten leading experts on social media and networking, has been supporting people to become their best—for themselves, their families and their communities. This is again true in How to Grow a Great Business and Power Network in the United States. David Stover is an international advisor and entrepreneur with decades of experience as a business owner, c-level executive, and global transformation leader. He has been developing and advising successful businesses in BRIC and dozens of other countries throughout his career and brings to every aspiring entrepreneur, savvy business owner, and chief executive, a set of keys and a roadmap to profitably grow their business. Over the past few years, both authors have interacted with thousands of business owners around the world who are searching for the strategies needed to grow their businesses in the new reality of emerging, growth, and mature markets. Many of these companies have grown successfully during boom-times when every consumer or company is a potential customer and have adapted to current times of contraction when every customer is a celebration and a gift. These business owners are weary of hunting for scarce funding sources; information on business plans; where to go for point-of-need legal and accounting support; and where to discover cutting edge growth strategies that actually work in our disparate verticals and economies. They need clear, concise answers. In How to Grow a Great Business and Power Network in the United States, the authors have provided the answers, insights, strategies and tips that many of the world’s great business leaders shared with them that help eliminate the frustrations iii

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of business owners in this new millennium. Many of their insights derive not just from the traditional paradigms (boom or contraction) which have guided business and network growth in the United States and elsewhere, but from synthesizing best practices across our “flatworld” into a successful how-to. How to Grow a Great Business and Power Network in the United States is a valuable tool for those who desire to become effective and profitable business owners and entrepreneurs. This book addresses the most common and critical concerns of growing profitable businesses. When you know what to look for, there is no end to the amount of assistance available. Today, more than ever, small business is a (perhaps the) most viable, valuable market segment; and, new resources are needed to support development. In fact, in these extremely challenging economic times, small businesses are seeing a revitalization—a re-growth that will not only create new channels for the profitably creative but also lay the foundation for our next two decades of growth. Understanding the world is flat and leveraging global labor pools and time zones is necessary for success, not just adjunct to it. Small businesses are already delivering the 21st century version of the cornerstore: doctors who offer virtual house calls using common technologies; the auto repair shop who fixes your car on a Sunday; the virtual librarian who finds that rare book; and the seamstress who custom tailors your shirts in Hong Kong and delivers them to your home in New Jersey the same week. All these and more are part of the new paradigm where small businesses have access to global capabilities that as recently as ten years ago were the purview of only the largest domestic or multi-national companies. Global capabilities for researching, understanding, embedding, designing, building, sourcing, shipping, supporting, enhancing, delivering and meeting your value propositions are at the fingertips of every business owner and every consumer. Our collective challenge is to not just predict macro trends and respond to them with agility, but to understand how to leverage this flatworld to better meet our customers’ needs and position ourselves for first-mover or fast-follower profits in satisfying them. For example, it’s nearly as easy if you are a retailer to open a store down the street from your headquarters as it is to open a store 9,000 miles away in iv

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Shanghai, or Dubai, or Makati, or Muscat. In fact, expanding your brand, capturing new markets, delighting new customers, and profitably growing can be a global play for the 5 employee startup as readily as for the multinational looking to leverage into new markets. What is the key? Business Intelligence, finger-tip access to information and best practices, and an eco-system of social commerce and networking which has grown over the last eight years to offer a quick and innovative way to grow your business successfully. Nearly every business starts small. For every Microsoft or Intel, there are thousands of businesses that never get past the first obstacle or their first business plan. We believe that the infrastructure difficulties in growing a successful business stifle and choke more business ideas than the legitimacy of the idea or the skill of the management team. After the Internet Boom of the late ‘90s and early ‘00s, there was a veritable bone-yard of technologies available for 5¢ on the $1; excellent technologies whose death was due more to poor infrastructure than poor ideation, creation, or management teams. This book is designed to prime you on the assets available today to avoid the boneyard, remove as many obstacles as possible from your path, and leave you free to pursue your company’s destiny in the marketplace. In addition to this version, we will be releasing localized editions with advice on How To in various markets in the USA and globally. Whether you’re in Denver or Dubai, St Louis or Shanghai, one of the key foundations in growing a successful business in the 21st century is the concept of networking based on a simple set of principles: values. Whether you call it ”Networlding” or simply a return to the successful business-networking methods of the past, this is the concept of creating a deep level of connections and alliances with people who share your business values, co-exist in your eco-system, and complement your product and service offerings. It goes far beyond the concept of networking and is explained in greater detail in Chapter 9, as well as in the book Networlding: Building Relationships and Opportunities for Success, by Melissa Giovagnoli and Jocelyn Carter-Miller. The number of new small businesses entering the market throughout this 2nd decade of the new century will be staggering. That increase, however, should not be surprising. It’s a natural response to current economic v

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conditions, including: downsizing; loss of jobs at both blue-collar and white-collar levels; the trend toward integration of family and personal goals with career goals; and the recognition that we’re seeing a permanent and significant shift in labor and value creation toward a flatworld model. In 1900, 97% of all American jobs were agrarian; by 2000, 3% were. Between 1990 and 2000, Fortune 500 companies eliminated 3.4 million jobs. Companies with fewer than 500 employees created 13 million jobs. In the last decade, we’ve seen an accelerating shift away from large corporate employment and toward small and medium-sized companies leveraging global capabilities to profitably deliver local experiences. Showing how we can collectively profit and grow from this shift is an objective of this book. An entrepreneurial approach works well in new business startups as well as subsidiary launches or spinoffs. The key is equipping the management team with as many tools for success as possible and ensuring the proper balancing of personal (delivering knowledge capital, expertise, experience) and business (delivering structure, economic capital, branding, and reach) demands. We have discovered from the thousands of individuals and companies we’ve interacted with, that working for oneself (whether as an entrepreneur or as an executive in a subsidiary/spin-off/channel extension) is far superior to clocking in someone else’s office, trying to achieve someone else’s goals, or executing someone else’s business plan. We have also found that, despite times of economic struggle, running your own business does in fact work. It puts food on the table, puts your stamp on the market, builds deeper more meaningful relationships and network partners, while giving all of us a deeper sense of satisfaction not gained from any other endeavor. As a business owner, you know that you work much longer and harder than you ever did for any employer. Your drive, energy and talents are tested as never before. Your agility, flexibility, and stalwartness are demanded on a daily basis. But the rewards are enormous. We will be among the first to stress that running your own business is not for everyone. If you’re considering starting a business, or in a position to take over an autonomous business unit from a large corporation, and you attempt to do so for the wrong reasons or without adequate preparation, you may be destined to fail before you even start. For this reason, we urge you to think through your approach vi

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carefully and research your business ideas thoroughly before making the leap. Taking the big change on as a challenge is not for the faint of heart. For the growing business, we’ve compiled this information to help you achieve your maximum potential. Take advantage of the information to create your own opportunities. While we can’t do the work for you, we have created a road map to mark the way. Be patient. You’ll need to ask many questions and do countless hours of homework. You still need to doggedly pursue the specific answers you need, but this book will save you many days and weeks of research. The mission of How to Grow a Great Business and Power Network in the United States is to provide an accessible, easy-to-use guide containing the wisdom of business leaders and the resources we have uncovered during our years of doing business as business owners, runners, and entrepreneurs. Much of our knowledge comes from our many years of counseling other business owners. We wrote this book in the following manner. All of the generalized information, strategies, tips and guidance are in the main body of the book. Much of this comes from our experience, and much has been provided to us through either contributions or interviews with highly successful business owners and executives around the world. How to Grow a Great Business and Power Network in the United States is organized into chapters that address the major needs of startup, established entrepreneurs, and new business executives. This book addresses money issues, financing, in sourcing and outsourcing of activities, and overall business planning. Use the Table of Contents to target the areas where you need help. How to Grow a Great Business and Power Network in the United States should be your reference on where to find help for whatever business enterprise you are launching or growing. Our overriding goal is to make you as informed as possible. The resources referenced in this book are inexpensive and the best use of your time and money. Please note, however, that we cannot guarantee the effectiveness of any resource. While we, and our colleagues, have personally used many of these resources, we cannot ensure results. We have attempted to be comprehensive. It’s up to you to decide whether a particular resource is helpful, given your circumstances. vii

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A Word of Advice Keep an open mind when contacting resources. You’ll have better results if you are patient and make multi-sourcing part of your long-term plans. Realize that the person who might be helping you is just one person in an organization. If you don’t get the results you’re looking for, ask for someone else’s advice. Take advantage of the information boom. Never before have there been so many resources available for your benefit, and never before does it make clear business sense to not have a single source for a particular product or service, but to have multiple sources, properly managed, to optimally extract the best leverage from the local, national, and global business landscape we live in. As you read this book, we hope that you will discover many useful resources for building a successful business. Throughout our research and writing, we have been surprised by the deluge of information that is constantly being developed for the business owner, runner, and entrepreneur. At the pace we are now receiving new information, it is likely that by the time you finish reading this book there will be dozens of new classes, associations, support systems, and Internet assets that you can benefit from. Therefore, we ask that you accept the challenge of staying informed. We expect to update this book regularly and invite you to take an active role in that process. If you find that you have used or are currently using a resource that is particularly beneficial to your business, please take the time to let us know. Visit our website and tell us on the Contact page about the resource that you’ve used. Share your resources with others. If we use a resource you recommend, we will credit you in our next edition. Enjoy the ride! Melissa and David http://www.networlding.com

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What Does it Mean to Grow a Great Business? What does it mean to grow a great business? Well, that depends on what you mean by the terms “grow” and “great” and your personal business objectives. Are you looking to gain market share in an overcrowded market? Are you looking to keep your current market share but increase your margins? Are you looking to improve unsolicited name recognition for an existing brand…or build a new brand? Depending on your business model and objectives, the term grow doesn’t just mean sales growth. There are different focal points to analyze in order to push your business in the direction you desire. What does “great” mean to you? Does it mean happy employees? Does it mean being mentioned in Fortune’s best 100 firms? Or is it to be recognized for innovation, domination, or social impact? Defining what “great” means to you will help you focus on reaching your personal vision. Also, keep in mind that starting the race smoothly is helpful but not enough in and of itself. Finishing the race and accomplishing your goals is the key. Prepare yourself and your organization with the best service model, business processes, technologies, organization and market awareness possible. Remember that there will be obstacles in your way! Sometimes there will be more than you would like or feel that you can handle, but if you’re smart, savvy, and nimble in adjusting to the market you will be successful. The key to building and growing a successful business is preparing yourself to go around, over, or through obstacles. Keep in mind as you move forward 1

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that even the most successful businesses have faced (and continue to face) large and difficult obstacles. Now that we know that the road ahead may be bumpy (even though it’s the path we must take to reach our destination) let’s begin!

Launch Requirements Starting a business can often be confusing. Not only are there local ordinances to follow, but there are also state and federal impediments. Luckily, the amazing Internet makes finding the forms and procedures for starting a business simple and easier than ever. While this chapter provides an overview of how to start up a great business, it is not meant to replace professional counsel. We encourage you to seek advice from your headquarters (if you are launching a franchise, channel extension or subsidiary), and/or an experienced corporate accountant or attorney as soon as possible. Help is also available from any state small business development center. It’s very important that you consider the type of business you plan to open, and select an initial legal support structure that will be most beneficial to your potential growth. The extra time taken at launch will be well worth it. As your business grows, so does your potential legal exposure, so protect yourself now! Additionally, there are tremendous resources available from many easyto-access sources. For example an interview with Joceyln Carter-Miller, ex Chief Marketing Office of Office Depot, revealed what Office Depot provides in the way of support for small business owners: Office Depot has partnerships with the Small Business Administration and local universities, offering consultants who can help you streamline your business plans and strategies.

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Office Depot offers hundreds of classes a year, on various topics from gaining productivity from your employees to marketing ideas.

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Their website www.officedepot.com provides many resources for both business owners and entrepreneurs. There are downloadable forms, human resources background and information, professional business plan ideas, and of course office supplies, furnishing and technology assistance.

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Office Depot’s tag line says it all: “Office Depot has what you need, and what you need to know.” They not only offer office supplies, but they offer the consulting and knowledge for business owners to grow and succeed.

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Following is a list of considerations you should address before opening the doors of your new business:

Check Local Zoning Laws, Municipal Ordinances and Deed Restrictions If you’re planning on starting up a new business and you lack the capital resources to open an office, be aware that some areas restrict home-based business occupations. Call your town or county clerk (at your town hall) to obtain information on possible restrictions in your area and to determine whether you need a license to run your business out of your home. Also, if it applies to your circumstances, check with your homeowners association or examine your house deed for any possible restrictions.

Choose a Legal Name All individuals who will be operating a business under names different than their personal names are required to file an Assumed Name Act Registration Form (to be filed with the County Clerk in the county where you will run your business), often called a dba (doing business as). These businesses are required to publish in a newspaper of general circulation, located within the county, to notify the public of their assumed name once a week, for three consecutive weeks. 3

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Think big. A.P. Giannini renamed his company the Bank of America in the 1920s even though it did not have a single branch outside of California. x Choose a name that describes your business without being too confining. Check the Yellow Pages and professional and business directories for ideas. x Ditto for geographical dictionaries, thesauruses, guides to mythology and so forth. x Coined words—those that are invented and have no preexisting meaning—are especially prized but difficult to create. After all, one of the best, Kodak, dates to 1888, and marketers have been working hard ever since to create equally memorable trademarks. x Invent a person’s name. There never was a Betty Crocker, but her name is one of the best-known, and most successful, in the packaged food business. x Imagine introducing yourself to prospective customers at a business function; does your business’s name roll off your tongue easily? x Avoid names that are hard to pronounce or spell, or that can be misconstrued. x Be careful about being too cute. Flower Power Nursery works, Bloody Bandage Ambulance Service doesn’t. x Consider using a descriptive phrase with your legal name. Two examples: The Hilltop Group [your legal name], Temporary Staffing Specialists [the descriptive phrase]. Atkins Palmer & Associates [your legal name], Computer Systems for Middle-Market Companies [the descriptive phrase]. x Think how your legal name will look when reduced to fit on a business card. x Discuss possible names with friends and business associates. x

Check with the county clerk or secretary of state to see if the name you’ve chosen is available. Additionally, you’ll need to register your company’s name with the federal government in order to ensure that you are not infringing on someone else’s intellectual property or brand. Even if you 4

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plan on launching a company locally, you should be aware of similarly named businesses in other localities around the country so that you don’t build a local brand that can never be rolled out across the country under its original name. Also, run a trademark search. Visit www.uspto.gov (U.S. Patent and Trademark Office’s site) and enter the name of your business and any coined words you will be using to describe products or services. (Ask your attorney if you need to engage a trademark search firm to augment your web search.)

Register Your Company’s dba Once you’ve selected your name—your “dba”—you need to file a name statement, typically with your county clerk. This is important for at least two reasons. First, it will enable you to set up a business checking account at a bank under your legal name. Second, it gives your business legal standing in litigation, such as filing a lawsuit to collect money owed you. As part of the business licensing process, you’ll be required to publish a legal notice of your dba in a newspaper of general circulation, located in your county, usually once a week for three consecutive weeks. Call the advertising department of any daily or weekly newspaper in your area, explain what you want, and the ad rep will send you an application and instructions. You may be able to apply for your business license in connection with the legal notice, which means you won’t have to visit the county administrative offices.

Set Up a Legal Form of Business Nearly all the great corporations of the 19th Century started as sole proprietorships or two-man partnerships. The corporation emerged strongly in the 2nd half of the 20th century due to tax and capital structure advantages. Yet as recently as the 1980s and ‘90s, most advertising agencies, national accounting firms, and security brokers were still structured as partnerships. 5

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Prior to startup it is important to determine the legal structure of your business. Some common legal startup structures are summarized below. From the easiest, fastest structure, to the more sophisticated and expensive ones, you are encouraged to seek additional advice from an attorney and/ or accountant—and remember to think “big.” Most company launches burden themselves unnecessarily with “small” structures and upon later growth, end up with unnecessary legal, operating, or financial issues.

1. Sole Proprietorship One individual maintains complete control and responsibility for the business. Business losses and gains are your personal losses and gains, and are filed on Schedule C Tax Return. Advantages

Disadvantages

Ease of formation.

Less access to capital and financial resources.

Relative freedom from government control.

Less protection with regard to personal liability (you as an individual are not separate from your corporate entity).

2. Non-incorporated Association other than a Partnership This refers to two or more persons who establish a business together with nothing more than a dba. It’s a way for them to quickly and cheaply learn if they are compatible business partners, and if their startup business holds promise. It is particularly suited to certain types of service businesses, such as party-planning and investor relations. But its amorphous structure can cause problems as the business grows. And larger prospective customers may refuse to buy products or services from a company that essentially is just a hand-shake agreement among its principals.

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3. Partnership The business is owned and operated by two or more people who are coowners. Before starting a company under this legal structure, it is highly recommended that a written agreement be drawn up by an attorney, both creating the partnership and specifically covering all of the contingencies. The partnership agreement should define the ownership percentages of each partner, the limits of responsibility and the work requirements, as well as when and how the partnership might be dissolved. The partnership is responsible for filing tax returns with each partner reporting his or her own share of the earnings on his or her individual 1040 tax return. Partnerships enable you to focus on personal strengths while relying on your partner’s strengths. When partnering with an established firm, such an arrangement can provide more predictability of demand for your product/ services. Advantages Easier to form than a Corporation.

Disadvantages As with a sole proprietorship, general (versus limited) partners are personally liable.

Sharing expenses of startup of partnership.

Limited partners are only exposed to liability based on the extent of their investment in the partnership.

Startup costs are shared.

Cannot sell stock to the public.

Two (or more) heads are often better than one when making decisions. Psychological comfort of being part of a team with a common goal. 7

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4. Limited Liability Company This is a relatively new concept, and combines some key advantages of both a general partnership and a corporation. In fact, you can think of a limited liability company as the small business equivalent of a corporation. An LLC can be owned by an individual (who then pays income taxes as an individual, not a corporation), by two or more persons (whose tax liabilities are the same as if they had formed a general partnership), or by any legal entity, including a corporation. Advantages

Disadvantages

Low legal costs to form and operate.

Cannot sell stock to public.

More perceived stability and prestige than sole proprietor.

Vendors may require personal guarantee from owners before delivering services or products.

Generally, company owners are not liable for debts of company.

All capital must come from owners. Bank loans must be guaranteed by owners.

5. Limited Liability Partnership LLPs use the same legal structure as LLCs but are generally limited to statelicensed professionals, such as physicians, chiropractors, dentists, lawyers, accountants, architects and the like. Where permitted, LLPs have pretty much replaced general partnerships.

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6. Corporation This is the legal concept that made possible today’s world of giant companies, with thousands of employees and operations around the world. When states began passing enabling legislation in the early 1800s, the idea was controversial. After all, a corporation exists only in the eyes of the law. In a proprietorship or partnership, the owners are the company, and they are quite visible. Not so with a corporation. Instead, a corporation is a legal entity whose ownership is represented by shares of stock. The shareholders are not necessarily the managers of the enterprise, and are not responsible for its debts or other liabilities. Shareholders may die, but the corporation continues until its charter is revoked by the issuing state authority, which happens usually only at the request of the corporation’s board of directors. In practice, then, a corporation is immortal. Obviously, a corporation is more complex than a sole proprietorship, a partnership or a limited liability company. To create a corporation, you must file incorporation papers with the state and pay a fee, which in some states can be as little as $1,000. You may also need to place a notice in your local newspaper. A corporation may sell shares of stock to fund its startup and the growth of the business. The shareholders elect a board of directors, which in turn elects a president of the company and other officers who run the company on a day-to-day basis. The company is responsible for paying taxes on its income; any dividends are paid from after-tax earnings, and are subject to personal income taxes at the shareholder level. Remember that corporate income is taxable in the state where it is earned, so there is no advantage to incorporating in a low-tax state unless that’s where you will be doing business. An attractive alternative for smaller startups is the Subchapter S Corporation. In an S Corporation, the profits of the company flow through to the individual shareholders without being taxed at the corporate level; losses 9

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are treated in the same manner. There are a number of requirements for qualifying for S Corporation status, one of which limits the number of shareholders to 35. Get a copy of Incorporating a Small Business, a pamphlet published by the Small Business Administration, an agency of the Department of Commerce. Or visit the SBA’s website at www.sba.gov. Clearly, corporations are more expensive to form and maintain than other business structures but provide many advantages otherwise not available. Advantages

Disadvantages

Limited personal liability.

Costly formation and annual fees.

Relatively easy to transfer ownership.

State-mandated reports and other regulations

More attractive to professional managers.

Dividends are taxed at both corporate and shareholder levels.

Stock can be used to reward managers and employees. A corporate structure is usually perceived as more stable by prospective customers than any other type of business structure.

Some Words of Caution As we said earlier in the chapter, this book is not a substitute for legal advice. When you talk with a business lawyer about the advantages and 10

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disadvantages of various legal structures—from a sole proprietorship to a corporation—you’ll hear unsettling phrases like “in most instances” . . . “generally speaking” . . . and “except in limited instances.” For example, the limited liability feature of a corporation owned by one person vanishes if a court determines that there is no separate identity of the owner and the corporation—the “alter ego” doctrine. Likewise, the tax consequences of these business structures can be more complicated than they might appear, which is why you need to consult an accountant as well.

Buying an Existing Business This is the fastest way of getting started, and in some ways the most attractive. The business—its products, services, trade names, employees, physical facilities, and customers—already exists. Unless the business is relatively small, you likely will need to borrow money to buy it. The best source is the seller. Offer a down payment, perhaps 10 percent of the sale price, and ask the seller to take a note for the rest. The monthly payments come from the earnings of the business itself. This is called a leveraged buyout, and is a common means of financing. Often large companies will entertain LBO proposals from the managers of a division or subsidiary that the parent company wants to sell. But beware: just because you’ve been successful managing a division within a larger company doesn’t mean you will automatically succeed once the division is on its own, without the resources of its parent. Entrepreneurs who start or purchase businesses and succeed in running them profitably possess a hardiness, tenacity and willingness to take risks not inherent in everyone. According to Nancy Dodd McCann, president of The Fordham Group, Inc., a Barrington, Illinois business consultancy specializing in acquisitions: 11

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While franchises provide support, owners of new businesses must understand fully the businesses they purchase and possess the skills and personality necessary to operate them effectively. More than assets, a potential stream of profits, and an existing structure, a purchased business is a complex organism of many living parts. It is a strategic plan, a market position and reputation, technology, assets, debts, equity and people. A particular chemistry or culture makes it go or not go. Six distinct cycles surface during the purchase process. Unfortunately, far too many individuals start at cycle three, not realizing that cycles one and two are critical for long-term success. The six cycles are as follows: 1. Determining one’s suitability for the type of business. 2. Understanding that there are different strategies for buying a business and selecting one. 3. Locating potential business for sale (if it is not your current employer). 4. Evaluating all aspects of the business, including “due diligence.” 5. Negotiating and completing the purchase of the business. 6. Planning and implementing a successful transition of ownership. Specificity and analysis during these cycles pays off. For example, you could be unsuitable for sole business ownership but suitable for a partnership with someone of complementary skills. Strategies are critical. The cost of buying a business should never exceed the cost of starting one yourself, unless lack of time or skills are factors; or the business has brand equity that you cannot build yourself. Setting parameters for the purchase will ensure that you don’t fall in love with a business that doesn’t meet your needs. The use of a career counselor who specializes in strategy development for acquisitions, rather than a business broker (often called a mergers and acquisitions consultant), will help in a positive outcome. Counselors of both types may be available through small business institutes at local colleges. However, if you’re not knowledgeable in acquisitions, you should request a referral to a qualified business consultant rather than a broker. After the parameters are understood, the 12

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business of locating a business commences. This is the time to involve a business broker, almost always required in a seller’s market. Brokers work on commission from the sale of a business, and generally work much like a real estate broker. Brokers know where to find businesses for sale, the current market and going prices. While accountants often look primarily at asset value, brokers regularly appraise businesses on market value. Additionally, brokers understand sellers and can often negotiate a successful purchase where a novice cannot. Potential buyers should hire professionals who perform due diligence. This should include a full investigation of not only financial and legal concerns, but also the quality of the products, customers, employees and management. Since confidentiality must be maintained during the prospective sale, potential owners must often negotiate with the potential seller for permission to contact suppliers and customers, or pay for a market research study. A trained interviewer specializing in mergers and acquisitions should evaluate any management expected to remain with the business. This evaluation can provide a potential buyer with a better understanding of specifically how the business operates. A business owner’s failure to obtain this critical (and often non-financial) information prior to purchase of a company is the most common cause of serious problems down the road. A business broker, or merger and acquisition consultant, will negotiate the purchase for you. Even if you don’t use a broker to locate a business, you may purchase their services for the negotiation process. Before the purchase is consummated, a buyer should formulate a plan to manage through the transition. A merger consultant specializing in assimilations, as well as the other phases, can prevent major problems from developing. Business ownership is a viable option, but locating the right business can take a long time. You need to develop a preliminary strategy long before negotiations begin. The entire cycle may well take a few years, a cycle longer than most people realize when beginning the process. 13

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Checklist for Buying a Business What types of business match your skills and personality? What level of risk can you live with? For what strategic reason are you purchasing a business? Are you sure you know the real reason the owner wants to sell this business? x Have you talked with other business owners who might know the current owner in order to find out what they think of the business? x What is the image of the business in the marketplace? x Have you spoken with current customers of the business? x Is the technology of the business current? x What is the company’s value? x If there is a building involved, is it in good shape? x If there is inventory, is it in good condition? x If there is a lease involved, is there a possibility of transferring the lease to you? x Have you compared the cost of buying this business with the cost of starting a similar one yourself? x How will you determine the price you will pay? x Have you made a complete list of all the advantages and disadvantages of buying the business? x Have you talked with the owner about possible financing assistance? x Have you spoken with an attorney? x Have you done your research to see if this is the kind of business that offers growth potential and is right for you? x x x x

Buying a Franchise Buying a franchise is a popular, and potentially a relatively safe way to become a business owner. Instead of reinventing the wheel, adopt a business model that has been proven to be successful. In theory, the answer to nearly every operational question is either in your franchisee manual or at the other end of the phone line. Franchises are available for many kinds of businesses, ranging from 14

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sandwich shops to automobile dealerships, from quick printers to hotels. When you buy a franchise, you become a franchisee and pay the franchisor (the company that grants the franchise) an initial fee plus a royalty, typically a percentage of revenues. If the franchisor also owns the property in which your business is located, you’ll also pay rent to the franchisor, and this too may be a percentage of revenues. In return, you get the right use the name of the business, typically on an exclusive basis in a specific geographic area, and sell its standardized service or products. The franchisor usually will provide market research, site selection, construction supervision or lease negotiation as appropriate, and equipment and furnishings. In addition, the franchisor may be obligated to conduct regional or national advertising (paid for by contributions from you and other franchisees), furnish sales promotional material, and provide the actual products for resale to customers.

Advantages of Franchising Use of an established name that offers faster recognition of your business and a faster return on your initial investment. x Comparatively low franchise fees, especially for certain types of business that have been created to fill new market niches (diaper delivery services, senior day care and pet sitting). x Lower marketing costs because of shared publicity. x Lower supply costs because of volume discounts when many franchisees are purchasing the same supplies. x

Disadvantages of Franchising It is critical that you research the franchise market very carefully. You need to know and understand every detail of the franchise business you eventually select. There are excellent franchises available—and there are some that are not particularly reliable. x Keep in mind that opening a franchise operation is, in effect, forming a partnership with another company. You can benefit from the assets that company brings to the partnership, and you can also suffer from any negatives. The negatives include: x

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o  Having to conform to operation standards. When you buy a franchise, more often than not you are buying a standardized way of operating. Many entrepreneurs end up feeling constrained by these standards. o  You must participate in profit sharing. As mentioned earlier, many franchises charge a royalty on a percentage of gross sales. This ultimately comes out of your profits. Sometimes this fee is required whether you make a profit or not. There are oftentimes other restrictions. Some franchises restrict you from meeting your competitor’s prices, and adding or dropping certain inventory. Your contract may also contain other restrictions that are particular to the franchise you are purchasing. As always, think through the entire process. Ask questions. If you don’t ask the right questions, you won’t get the information you need to make a wise decision. As we’ve recommended several times, seek the advice of an attorney before you negotiate a contract. If possible, use your attorney during the negotiation process rather than after you’ve gone through the contract.

Partnering You can create a partnership by entering into relationships with other related, compatible businesses that might be serving the same end user. You can develop cooperative projects with competitors so that each might profit. Or you can look for opportunities to work with a larger company, or a marketing company to act as their preferred or exclusive supplier. In theory, partnering allows a smaller company the opportunity to create strategic alliances that can result in more business. However, there are advantages and disadvantages. The advantages are obvious: increased revenues, decreased marketing costs, long-term investments based on future sales volume, and more efficient 16

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planning with an increased ability to plan purchases and production schedules. The disadvantages, although fewer in number, must be carefully considered. They include an increased risk if the other company decides to end the relationship, a tendency to become dependent on one large partner, and possible unwelcome demands upon your development schedule. Weigh your options before agreeing to such a relationship. Reduce your risk by becoming and staying attuned to your market. Knowing the inner workings of your market can help you anticipate market changes that can affect your relationship. Also make sure that you have strong contracts with your partners that protect your interests. Again a good attorney can help make sure that you are protected. Additionally, if possible, don’t rely on just one business relationship for more than 30 percent of your business. Even if unforeseen circumstances result in the loss of a relationship, you can downsize moderately while looking for the next opportunity. Although this may be difficult if you launch with a flagship account or customer, you should make it an immediate goal. As with your personal well-being, it’s necessary to protect yourself if you want to have long term success.

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What Does it Mean to Have a Power Network? A power network is that set of relationships inside and outside a company that increases your overall level of success. Having a power network has become an even more critical aspect of business success as we enter the 2nd decade of the 21st century. The proliferation of new startups and businesses (driven by technology proliferation as well as by service innovation) in the past two decades created such an overwhelming supply of products and services that building and maintaining excellent business relationships with employees, investors, alliance partners, suppliers, and customers became one of the few differentiating characteristics of businesses who’ve sustained themselves through the current lower demand market. As we move further into these chaotic (but exciting) 21st century days, the interdependency of your power network and your value proposition in the marketplace has increased even more. What does it mean to have a power network? It means that: x You value the exchange involved with long-term sustainable business relationships; not simply the benefit of short-term transactions. x You understand that the way of managing profitable business isn’t just “economies of scale” but “economies of share” involving employees, investors, suppliers, and customers. x You plan to continuously examine and refresh your “network nodes” to ensure that the value received and given are proper for your business growth plans.

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You act on a daily basis to enhance or release relationships and your network in ways which will mitigate future risk, reduce current costs, and improve future revenue opportunities.

x

A power business network always involves the five basic people components of your business: employees, investors, alliance partners, suppliers, and customers. You could add a sixth, the government, if you specifically are engaged in business activities that bump up against more stringent regulation or monitoring by various governmental bodies (which appears likely to increase in the years to come) but for our purposes, we will stick with the basic five. In each of these five people components, you need to determine what your objectives are and how to achieve them. Again, we go back to how you personally define some basic terms. What does a “great” relationship with your employees mean? To many, it simply means that you will pay above market rate for wages and salaries. To others it may mean that you allow employees a two hour lunch break or a work-from-home telecommuting option. And to others, it means that there are charity benefits, or other non-core services that the employees can take advantage of that make their life-balance picture better. Determining the proper goals and objectives for your power network is important for a number of reasons. First, you may have already articulated your overall business goals, but applying those goals against the five important groups of people that you and your company interact with everyday will help you see potential flaws or adjustments you may need to make in your business model. For example, if you’re starting a pizza delivery business and your competitive advantage is that you promise delivery within 20 minutes or the pizza is free…what kind of stress does this place on your employees? What kinds of compensation might you need to provide to ensure that they can perform at peak efficiency?

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As you think through the development of your power network and its goals, you may find that some of your assumptions about how you wish to successfully build and grow the company need to change. In the case of the pizza delivery business, it may be absolutely necessary to promise the 20 minute delivery service in order to get into that crowded marketplace. However, you may need to adjust the expense side of your operating cash flow model to include more fuel expense and perhaps higher wages to delivery personnel to offset the additional demands they have. Additionally, as you explore and define your goals for the customer components of your network, suppliers, and alliance partners, you’ll make decisions on the associations and clubs and groups of business people you connect with. In a big city like Chicago or New York, you could go to a dinner event, a seminar, or a lunch every day of the year and never improve your business an inch. Why? Because if you don’t know where you’re going, no road can get you there! Networking just for the sake of making connections is ultimately just socializing. Purposeful networking, where you value, understand, plan, and act in accordance with your business goals and objectives is the prelude to having a successful power network.

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The New Entrepreneur: Who is the New Entrepreneur? We used to think of the entrepreneur as the small business runner. Someone with an idea, or a skill, or a unique set of connections who decides to grow that idea from acorn to oak on their own; striking out across new territory to organically create and run their own enterprise. But then came the last two decades, when entrepreneurs began leaking out from all walks of life: academia, government, large corporations, etc. No longer was he or she the stereotypical home business owner or tired corporate executive going to seek their fame and future on their own. Now entrepreneurs are younger, highly connected to sources of capital, big ideas, new technologies, new products, new markets, and new profitable business models. Entrepreneurs launch everything from business-to-business exchanges and business-to-consumer communities to global alliances and corporate spin-offs, captive centers to leverage global labor pools, and new brands which have swept the world in ways no one could have (well, just a few) dreamed of a decade ago. The new entrepreneur isn’t just operating a design shop out of their basement, but is rubbing shoulders with private equity fund managers, angel investors, investment bankers, and patent attorneys. All of a sudden it isn’t enough to have a good idea, a small line of credit from the local bank, and a couple of employees. Entrepreneurship has reached into every home, every office, and every industry. For a few years, if you weren’t writing business plans on the weekend, or joining investment clubs, or moonlighting as a marketing or technology executive somewhere outside of your normal job, then you had already made the jump to a startup and 23

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were enjoying the 80 hour weeks, cold pizza, and sterile warehouse space of the new economy. For many reasons, nearly all of that energy, creativity, capital, and expertise came crashing down a few years ago. Our economy (and many others around the world) is suffering the hang-over from the over-confident mistakes made by thousands of new business runners, investment bankers, and alliance partners. The lessons learned and the metamorphosis of the role of the entrepreneur in the marketplace will forever be changed because of the years that have preceded us. The new entrepreneur has to have more than a good idea, a deep skill, a unique set of connections, and the will to strike out on their own. The new entrepreneur has to be broad and deep across many more areas of their business in order to predict pitfalls, avoid obstacles, and bypass the poor management decisions which wiped out the good business ideas of the ‘90s, crippled the startups of the ‘00s, and stifled growth over the last few years. Today, there are numerous ways in which the entrepreneur or new business runner can launch their business. A deep understanding of all elements of the business can go a long way toward not just starting with the correct things in place, but in creating a model that avoids the pitfalls we’ve seen in the market or at least leverages the weakness gaps. The new entrepreneur needs to understand techniques and tactical strategies covering everything from customers and connections, eco-system and economics, people and culture, processes and information, innovation and integration, to infrastructure and assets. Being aware of all aspects of your business and focusing on how you want to launch is necessary but not sufficient alone to make you a successful entrepreneur. In addition to identifying the basic building blocks (i.e., do you need an office, how much square working feet per employee, an answering service or a receptionist, a virtual IT shop in India or a call center in Iowa?) the new entrepreneur needs to understand whether they are meeting a known need in the marketplace or an unknown need. 24

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Creating demand for a product or service versus just more efficiently satisfying an existing demand completely changes the dynamic interplay of the entrepreneur’s business model. All decisions need to be made with two criteria in mind: 1. What are the direct needs of our targeted customers today? 2. What are the anticipated needs in the “best case scenario” growth situation? The entrepreneur needs to understand that being aware and understanding the proper mix of people, processes, technology, and strategy isn’t enough. They need to share their understanding with every associate and alliance partner in their network. And they need to share not through communications, but through actions. The organizational structure and the way a business does things is a direct reflection of the actions of the owner/entrepreneur. There is no detail too small that doesn’t reflect back on the values and beliefs of the owner. The new entrepreneur doesn’t just understand this, but accepts and communicates this through every decision they make. The deeper your commitment to succeed, the more passionate a chief advocate you will be for your company. Only then can the business evolve into one in which there is a culture of ownership and stewardship amongst the employees, efficient use of assets, and outstanding customer service driven by the day-to-day smart leverage of business and market information. The Small Business Administration defines small businesses in terms of sales or number of employees. Any wholesale business with annual sales below $7.5 million; any retail business with annual sales under $1.5 million; a construction business with less than $3 million in annual sales; or a manufacturing business with less than 250 employees is considered a small business. 25

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But the last decade has proven that real small businesses actually defy this definition. The term previously referred to talented people—frequently working from home—who sold services and products that were the result of their own ideas and resources. Their efforts were generally categorized as lifestyle businesses. We’ve seen a radical re-definition of this over the last decade. Many small businesses reached astronomical growth levels in a few months time, and then gave it all back to the market when they failed to deliver on their promises to customers, investors, and employees. Whether it’s a lifestyle business or a much larger small business (“NewCo”as it’s defined) it remains the fastest-growing segment of today’s economy. Because of the enormous potential for rapid growth, small businesses have been the market’s primary focus for the last decade and will continue to be in coming years. The common element between the old entrepreneurs and the new is that they both strive to realize their fullest potential, working on their own terms while maintaining control of the business. Flexibility and the ability to make quick strategic decisions and unrelenting focus on identifying and capitalizing on opportunities that arise out of shifts in the market are key characteristics of the entrepreneur. As in the past, the new entrepreneur maintains a proactive business style rather than simply reacting to outside pressures. Entrepreneurs take on the risks of decision making and accept responsibility for the successes or failures that result from their decisions.

Risk and the Entrepreneur Entrepreneurs are known to be risk takers—but they aren’t reckless. Some of the techniques they use to minimize their risks include: Asking the right questions: Starting with, “What if…” and “If I take this risk, what is the worst that can happen?” Pre-planning and groundwork are essential to taking calculated risks that help entrepreneurs address the issues and avoid worst case scenarios. 26

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Researching the market: Entrepreneurs realize that customers, competitors and suppliers are integral to their success. They evaluate choices by identifying the range of outcomes from worst-case to best-case scenarios. Entrepreneurs may use a schematic number line from -5 to +5, the Ben Franklin model; listing pros and cons for each choice, case histories, gut feelings or some other method of comparison and evaluation to keep them on track. Looking beyond costs: Examining how easy or difficult a startup would be; understanding user perceptions, timing and other crucial factors, entrepreneurs realize that numbers aren’t the whole picture. Evaluate all risks in terms of overall goals and objectives: Since many entrepreneurs start their business with personal savings or angel round capital, and function on the financial edge, risk-taking skills are critical. Even those who start with solid financial backing will be confronted with risks—and calculated risks can offer the opportunity to grow and move forward. Whether starting a new business or growing an existing one, an entrepreneur needs to be armed with every available resource in order to overcome the challenges ahead.

How to Be Successful Our motto is, “Why reinvent the wheel?” Let it be yours. Startup entrepreneurs often mistakenly believe that in order to succeed they must have a product or service that is far superior to their competition. What’s really needed is a competitive advantage. It only takes a small improvement on what the competition is doing to create a successful business. Remember the analogy of the campers who are awakened in the middle of the night by the prowling bear? When everyone starts to run, the survivors remember that they don’t have to run faster than the bear, they just have to run faster than the slowest person in the group! Survival and success as an entrepreneur hinge on this concept. You don’t have to revolutionize the marketplace with a product or service, you just have to execute X% better than your competition and you will achieve your goals. 27

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Businesses always grow in stages. Those stages require a quiet revolution in the way a company makes decisions and defines roles and responsibilities. Each down-tick in the stages of growth represents significant risks. The new entrepreneur has to understand and forecast those risks. One significant risk which appears across nearly all new growing companies is the risk of not changing your management style as the company grows more complex and sophisticated. This above all else was the downfall of many of the successful startups over the last decade. Business runners didn’t know when to change from entrepreneurial-ship to professional manager-ship. Oftentimes an individual who starts a company is not best suited to run it as it grows increasingly complex. What once you could do on an Excel spreadsheet, you may find requires a costly back-office system in a few years. Recruiting and personnel decisions which once were made over coffee in the morning now require professional recruiting firms and attorneys. The new entrepreneur needs to understand the migration from startup to functional alignment to process alignment; and strategically know when along the growth stages of the company things need to change. Along the way, regardless of the growth stage that you’re in, finding good resources will bring about growth opportunities for your company. Persistence will be your ally. Continuous learning and resource gathering are important keys to your success. You’ll need to be assertive. Entrepreneurs are doers. They rarely say “It can’t be done.” Instead, they say, “Let’s find a way to do it.” One of the most successful business growth stories ever recorded is the case of Reliance in India, who, without any mobile/telecom or retail experience, successfully penetrated and dominated both markets (i.e., to the tune of entering the top 10 telecom companies globally in less than 4 years and entering the top 25 global retailers in less than 3 years). One of the chief philosophies of this company is, “If you can dream it, you can do 28

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it.” They and many others have proven that if you want to be a successful entrepreneur, whether as a channel extension or startup, you must proceed with eyes wide open and ready for dirty fingernails. We recommend that you: Review your business. What could you do to be different to stand out among all your competition, to improve your work, to instill a sense of excitement in your business? Look ahead. Read product and trade papers. Study market trends and keep looking ahead. Ask successful people the secret of their success. Invite them to lunch or coffee. Truly successful people share. Their insights and experience are invaluable resources that can save countless hours of misdirected efforts. Advance your education and follow-up on available resources every chance you get. Libraries, workshops, seminars, colleges, community colleges and publications are irreplaceable support mechanisms for the small business owner. Get rid of your deadweight, wasted time, and nonproductive products or services. Introduce new products or services that speak to the needs of the market. Follow your hunches. If you’ve taken the time to obtain adequate information, these hunches will be solidly grounded and trustworthy. Don’t pin your hopes on luck. Be ready. Prepare in advance. Join the team. Get into the game. Move at the speed of thought. There is no yesterday and tomorrow is too late, there is only today, so just get it done. The New Entrepreneurial Climate Four areas affect the way entrepreneurs will do business in the 21st century:

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1. Rising global markets and the movement toward sponsorship of business by government in foreign countries. 2. Keener competition in an unpredictable environment. 3. Turbulence in the marketplace. 4. The element of surprise that pervades the business climate. You must be able to sense when your environment is changing. Don’t assume that the marketplace is there. You have to research, develop, and build your marketplace and then continually refine it. Flexibility and resiliency are more important now than ever before. Learn by doing, and profit from customer feedback. Be a market-driven business adapting and changing to meet the demands of the market. Remember, most products are incremental improvements, not originals. Look at this as an asset. A small flexible company can change and achieve more than a big corporation because it can adapt to changes more quickly. Begin by taking a good hard look at the market in which you’ll be functioning. Have a clear understanding of how your business can fit into the larger picture. To do this, learn to read the signs that are all around us: The market is in the midst of a tremendous shift—toward smartspending, smart-economics, smart-management. x Companies in specialty market segments are experiencing phenomenal meltdowns of their customer base and their profits; new markets are increasingly hard to penetrate without significant (or smart) use of capital. x Large companies are laying off millions of workers, both bluecollar and white-collar. “Mean and lean” is the economic reality of the year—and perhaps for the rest of the decade. x

Because there are no guaranties for today’s work force, many of the more skilled individuals (who have the most difficulty securing new employment quickly) are looking for alternatives. Despite the fallout from the collapse of the new economies, thousands of new businesses have been started in recent months, and thousands more will be started in years to come. Self30

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employment is a particularly attractive option for those who have come to realize that the real stability is that which they create for themselves; that even large companies can fail quickly in today’s marketplace. This idea is not new. Until the rise of industrialism in the mid-nineteenth century, the United States’ economy was based on individual enterprise. At that point, the focus of business shifted to mass production and market control. No longer was individual enterprise considered worthy or as profitable. Growth and control of the marketplace gave rise to the corporations—the Fortune 500—that we know today. Entire populations moved to the large cities. By the middle of the 20th century, the successful were recognized primarily by their climb up the corporate ladder rather than by significant individual achievements. We are experiencing a swing of the pendulum. We’ve reached and passed the peak of the trend toward industrialization and we’ve suffered the 1st wave and collapse of the information age. Many experts say we are now simply returning to a more balanced economy. Over the past few years, in addition to thousands of startups failing, millions of employees have lost positions with large corporations that were once considered invincible. Those stories dominate the taglines of Internet blogs and headlines of newspapers across the world every day. The employees who are left behind in mean and lean downsized companies still must produce. Downsizing has left enormous holes in the economy where small businesses can fill a need. Since those still employed are limited by capital, time, and resources, they must increasingly rely on outside vendors for services and products that were traditionally produced inhouse. While the thought of creating a small business may seem a very attractive alternative, a word of caution is in order—there are many pitfalls. Get in the wrong business (one that fails to satisfy a real need in emerging markets or a gap in mature markets), take wild risks that you aren’t ready for, fail to 31

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do your homework, ignore market indicators, and you can fall flat on your face, as so many have before. There is a wealth of information and assistance out there. The federal government, state governments, and the marketplace are encouraging us to look at small businesses as a viable alternative. Special training programs, counseling, tax breaks, financial assistance, and educational opportunities are increasing. But no one is going to search them out for you, and no one is going to make it easy. It’s going to be struggle and, as always, those who survive and prosper will be those who use available resources wisely. Until recently, new businesses needed to ferret out resources as best they could. They often discovered that resources were few and far between. They also found a tremendous resistance to their vision of success as individual entities in competition with the market giants. Even today we find pockets where small businesses have credibility challenges. And frequently, it’s difficult for newly created businesses to establish their credibility without vast infusions of monies to support brand recognition or formal customer relationship management programs to sustain them. But this is changing. Today, although it certainly isn’t as easy to establish a business account with banks and suppliers as it was 5 years ago, neither is it as difficult as it was 25 or even 15 years ago. And if you need to, be aware that in many municipalities there are still restrictions on working out of one’s home. Of course, there is a lot more work to do. As we’ve discussed, there is still no single definition for what really constitutes a small business. For example, real estate brokers, artists, writers, and others find themselves disqualified from programs and financing slated for the small business. Frequently, independent proprietors in the business of providing services are told that they really don’t have a business because their receipts aren’t substantial. Small and medium-sized businesses have contributed the majority of jobs for Americans in recent years and today, small business means big business. 32

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Small businesses currently represent more than 98 percent of all United States companies. They employ more than half of the private work force and produce almost 50 percent of the Gross Domestic Product. Nearly two out of every three new jobs are the results of small businesses growth. Contrary to what many believe, it is small businesses—in fact, very small entrepreneurial businesses—that have provided our country with the majority of new jobs during the past two decades. More than 88 percent of all business establishments are owned by small businesses. While small businesses with fewer than 100 employees created almost all of the employment growth, the number of jobs created by big businesses has decreased significantly.

Entrepreneurial Survival Skills Regardless of the economic climate, many entrepreneurs are still surviving and prospering. Common traits of the survivor include: x x x x x x x x x

They are always ethical, even when times are hard. They know their customers’ needs and satisfy them. They take the time to do something extra for their customers. They focus their energies on the bottom line rather than on growth for growth’s sake. They pay special attention to accounts receivable. They control their inventories, keeping them close to sales. They reduce expenses. They know how to minimize paperwork.

Survival also requires caution against the pitfalls of operating a small business. Below are the most common causes of small business failure. Inadequate Capital. Be prepared with hard cash for months—even years of sustained losses. Always prepare for the worst-case scenario. Inexperienced Management. Get some sound experience in managing before you go into business, or seek the advice of a good management consultant as you grow your business. 33

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Failing to detect bad credit risks early. Develop the ability to read the warning signs: collection claims, suits and judgments (get credit reports on your larger customers); reluctance to provide audited financial statements and bank references; partial/erratic payments on account; unusually large orders. Mistaking a hobby for a business. Hobbies can be the basis for promising business ventures if creative or technical skills required for the hobby are balanced with strong business sense and know how. Trying to make the business appeal to everyone. Remember less is more. Focus on a single age category, a single socioeconomic group, a single selling point. Narrow your focus, identify a specific market segment, and utilize every available resource to become a significant factor in that area. Underpricing the Product/service. The right price should balance the company’s need to make a profit and the consumer’s search for value. Establish the range you feel meets both needs, research your market and build intangibles (prestige, status, pride).

Types of Small Businesses Small businesses can take a wide variety of forms, including: Freelancing writers, designers, photographers, etc… Part-Time opportunities in almost every type of business. Consulting practices management, marketing, computer opportunities and more. Professional practices doctors, lawyers, accountants, and other licensed individuals. Manufacturing representatives to represent large companies and their products from your home. Franchises hundreds become available yearly, some with very low startup fees. 34

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Service businesses such as telecommunications, computer repair and maintenance, commercial real estate and leasing, to consumer services like diaper services, home health care and personal shoppers. Manufacturing combining importing and exporting opportunities with a good product. Retail stores filling a need in a niche market. Most professions require that you have formal training and licensing prior to opening your business practice. However, most other business categories require much less in the way of formal schooling. No matter what business you’re in, you must have a solid skill base. Too many entrepreneurs put their time and money into businesses that require more expertise than they currently have. For example, a person with little or no background in computers might start a business selling computers. If you find you need more skill development, consider taking a part-time job in your area of interest. Some businesses are risky even if you have the right experience. It would be unwise, for example, for a couple to quit their jobs and put all their current savings into a restaurant. According to many business consultants, including the financial lending division of the SBA, restaurants are high risks—so risky, in fact, that many banks and the government won’t loan on such ventures. Whatever you do, when choosing a business, make it one that you’re sure you will enjoy. While you’re waiting for the dollars to roll in, you’ll need a business that satisfies more than just your financial needs. So where do you fit in? If you’re looking for the magic guaranteed to succeed, can’t fail road to riches, security and notoriety, forget it. There is no best business, but you can select one that is best for you. Know yourself, your talents, what you enjoy and don’t enjoy doing. Are you creative or more comfortable accomplishing tasks that are predictable and repetitive? If you need help identifying your interests and talents, seek help from career counselors (available though many colleges at very low fees) or personal development specialists. 35

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Research until you find an idea (maybe even one that is working for someone else). Improve it, change it, mold it to fit you and your strengths, and look for ways to make it most profitable for you. Organize yourself. If you don’t take the time to get organized now, you will never catch up. Take a chance. Step out of your comfort zone. Allow yourself to take small risks in order to achieve the possibility of growth and profits. Learn how to live with less for a while. Work smarter, applying your mind, your energy and your spirit rather than throwing money at problems. Get Help. Consult professionals and experts in your industry. Set clear goals and bottom lines for yourself and your business. A solid business plan is essential. From Idea to Execution As you read through the next chapters, take time to investigate the many resources available to you prior to startup. Taking a business from “Idea” to “Execution” is very difficult. Keep a large notebook with divisions for marketing, management, financial and legal information. Schedule weekly sessions to review the material you have collected, either on your own or with another business friend or small business counselor. Constantly summarize the information you have gathered, and incorporate anything relevant in your business plan. Most startups take six to eight weeks, if not much longer, before they open their (real or virtual) doors for business. Remember, a little planning can go a long way. Once you begin operating, you have almost no time for planning. Enjoy this time, and don’t be overly anxious. It’s important to start on firm ground. When you’re in business and several months have gone by (and you’ll be amazed how quickly they do), you’ll have trouble remembering a time when you weren’t working ten plus hour days. The time spent in the planning stage is crucial to the success of your business. 36

Chapter 4

Launch Kit Overview Critical Launch Elements What is in Your Toolbox?

Critical Launch Elements There are numerous ways in which entrepreneurs or new business runners can launch their business. However, there are a limited number of critical elements which need to be considered regardless of the geography, industry, product or service you are committing yourself and your customers to. These elements break down into four foundational areas: People, Process, Technology and Strategy. Within each foundational area, as we briefly discussed in the last chapter, you need to not only make decisions on what you need to launch the business, but in how you will acquire, maintain, enhance those critical elements of your business. For example, if you need sophisticated financial accounting capabilities, because you are providing a unique service to the financial services marketplace and your business will process (and perhaps evaluate) hundreds of thousands of transactions a day, then your front and back-office IT strategy is a necessary launch element. Additionally, you may need to make decisions on whether you use an outsourcing service provider for this transaction accounting or not. And if so, for how long and at what price. Clearly in this case, technology is a critical component not just to the business, but the reporting on the business necessary to invoice customers, capture taxable revenues, etc. 37

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In each business, across each critical launch area, there are decisions to be made and tradeoffs to evaluate. This chapter is designed to outline some of those key decision areas and give you an overview of the kind of launch kit you should prepare for yourself as you complete your business plan and financial modeling, begin hiring your associates, and get the business ready for profitable operations. What’s in Your Toolbox? Below is a list of critical elements across People, Process, Technology, and Strategy which you should consider having answers for …. IN your launch toolbox:

Strategy 9Market Trends/Assessment 9Market Demand Analysis 9Competitive Assessment 9New Entrants Analytics – SWOT 9LCVM – Lifetime Customer Values Model

People 9Organizational Alignment Matrix (as is) 9Job Profile Templates 9Compensation Models 9Organizational Migration Plan (to be) 9Critical Skills/Behaviors Template 9Mission, Vision, Core Values Templates 9Business Plan Templates 9Brand Strategy/Marketing Templates 9PR, Media, Analyst Preparation Kits 9Internal Communication Flow Model 38

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Business Process 9Business Function-Point Model 9Critical Decision Economic Tradeoffs 9Business Process Interdependencies 9Process Maps/Decision Trees 9KPI’s, Key Succcess Factor Template 9Product/Services (P/S) Design Requirements 9(P/S) Attribute Analysis 9(P/S) Price Elasticity Analytics 9Customer Survey Template 9(P/S) Lifecycle/Margin Analysis Model

Technology 9Business Application Requirements Checklist 9Logical Business Data Model 9Information Flow Diagrams 9Application Architecture Template 9Data Architecture Template 9Technical Architecture Template Basically, the critical elements in your launch kit will correlate with the key decision-areas in your business, which offer the greatest potential opportunity for profitable growth or the greatest potential risk for margin erosion, poor performance, or legal liability. So, like all business runners, you need to be prepared to manage the upside and downside of your business with equal efficacy. There are literally thousands of forms or templates which you could imagine being useful in the startup stages of the business. However, what we’ve tried to do is create a focused list of elements addressing the main areas of risk (and opportunity) that we’ve seen repeatedly under-managed in the initial stages of company growth, and to provide you with going-inrecommendations that can more quickly launch your business. 39

Chapter 5

Business Planning What a Business Plan Can Do The Management Plan Putting it All Together Update Your Plan Regularly Business plans are usually written to secure financing. Few, if any, funding sources—banks, venture capitalists, angels or even family members—will lend or invest money without a written plan. They all want to know when and how you’ll pay back the money you want to borrow, or grow the money investment contributed to the company in equity term sheets. A smart entrepreneur also understands that a business plan is an important foundation for a business’s day-to-day activities. Whatever reasons you may have now, after reading this chapter, we hope you will see the importance of a written business plan. The first step in planning your business is to take a realistic look at what your costs will be. Start a list, and jot down every expense category that comes to mind. From this, set up a work sheet containing an estimate for each item. Whether you write your own business plan or decide to hire a specialist to assist you, there will be costs involved for researching, writing and printing. David H. Bangs, Jr., in his book The Business Planning Guide, suggests three major reasons for going to the trouble of writing a business plan: 41

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1. Objectivity: The process of putting a business plan together, including the thought you put in before beginning to write, forces you to take an objective, critical, unemotional look at your business project in its entirety. 2. Effectivity: The finished product—your business plan—is an operating tool that, if properly used, will help you manage your business and work effectively toward its success. 3. Communications: The completed business plan communicates your ideas to others and provides the basis for your financing proposal. Take the time to sit down and put on paper the basic, Who, What, Where, When and How of your business.

What a Business Plan Can Do A business plan can open doors for you. It creates, perhaps, the only solid evidence that you can do what you say you can do. How do you create such a plan? You can use one of the numerous books available, buy a software program designed to aid in the creation of business plans, or find an individual or firm that specializes in writing plans. Rhonda Abrams, in her book, The Successful Business Plan (Oasis Press), sets forth her five fundamental steps to the business plan process: 1. 2. 3. 4. 5.

Lay out your basic business concept. Gather data on the feasibility and specifics of your concept. Focus and refine the concept based on your data. Outline the specifics of your business. Put your plan into compelling form.

Research and develop all the components of your plan. Take the time to know your market. These steps will greatly improve the quality and success of your plan. This is the basic marketing research that will help you better understand your industry and how your business fits in.

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Jill Johnson of Johnson Consulting in Minneapolis, states: “One of the most crucial elements of any plan is going to be tying your projected revenues to your expenses.” Johnson also emphasizes the need for businesses to revisit their business plans as they enter the second critical stage of business development that usually occurs when the business is three to five years old. She adds, “You will be more sophisticated then. It is the best time to go back and rethink your vision.” A lot of businesses neglect long-range planning. Johnson suggests you combine this with long-range, strategic planning. An ongoing business plan helps you to see new opportunities and manage growth. Finally, Johnson notes that the written plan helps you with one of the most important and critical areas to your success—pricing. Many entrepreneurs do not take the time to find out what is competitive in the market. It’s extremely difficult to compete on price. Johnson explains: If you deeply discount your numbers, you will have nothing left for cash or savings. What you have done is discount yourself out of the market. We as a nation have created an image that the more expensive the better. We have conditioned ourselves to believe that if we get it for free or cheap it is not very good. You can lose clients when your low prices decrease your credibility as a valued source of business. This is especially true with service businesses. I recommend people come close to the middle of the price ranges you discover through researching your competition. All the elements of the business plan can be identified relatively easily with diligent research and by giving careful thought to the following questions before you begin: 1. Who are you? What is your business idea? Why do you think this idea will work? What do you expect to accomplish? How will you do it? What does the future look like? This becomes your Executive Summary. 2. What is your reason for starting this business? This is your Mission Statement. 3. What is your philosophy? What are the driving forces that guide and motivate you? 43

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4. What are your goals? If you don’t have a goal, you cheat yourself; you have nothing to strive for and no reason to get there. 5. Do you have a business name and a structure (i.e. sole proprietor, corporation, etc.)? 6. What are you selling? This is very important, and reflects back to your Mission Statement. For example, if you’re going to sell can openers, are you selling them as tools that cut metal cans so you can get food out? Are you selling speed and efficiency so that the user can get on to other, more important activities? Or are you selling the prestige of owning a one-of-a-kind item that buyers will brag about for the next six months to all of their friends? 7. Where and to whom will you be selling your product/service? Who are your suppliers? Who is your competition? What do you know about them? 8. How do you plan to produce this product/service? What raw materials will be used in the production process? What human resources will you need to draw on? What is your production cycle? 9. What price will you be selling your product/service for? What will the market bear? What must you sell it for to make a profit? What do comparable items sell for? Will this price cover your costs and provide ample profit? 10. What is your marketing strategy? How are you going to sell your product/service? How are you going to advertise? Will you hire a sales staff and/or use direct mail solicitation? What public relations efforts do you plan to incorporate? 11. Do you and/or your personnel have the necessary skills, qualifications and technical expertise to keep the business moving at a respectable clip and achieve the goals you’ve set forth? 12. What about your financial plans? How are you going to pay the costs of getting this business off the ground? Where is the money coming from to pay day-to-day expenses? As you grow and develop a track record you’ll be able to call on past performance to predict the future. With or without that track record, you need to know how you’re going to handle financial needs and achieve a return on your investment.

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You may have the answers to these questions already, but chances are you may find some holes in your thinking. In any case, the mere process of putting all of these elements in black and white can help you to focus. The act of preparing a plan forces you to recognize the weakness in your thinking and to identify the elements that you don’t have clearly in place. In the initial stages you don’t need volumes of information in your business plan. Most of the critical questions can be answered in a sentence or a paragraph. The key is that the more precisely you can identify your answers, the closer you will be to success. Your business plan will become your map to success, itemizing your ultimate goals for your business as well as the path you will follow to get there. It will also substantiate your loan-ability. The basic business plan will get you moving and keep you focused. And, particularly during your first months of business ownership, it will keep you from getting sidetracked. As you become better grounded in your business plan and begin using it day-to-day, you’ll begin to fine-tune it. Experience will show you the areas of your business that are shaky and where you need to focus your attention. Typically, the marketing, management, and financial areas of your business require constant adjustment. They are actually plans unto themselves. Each of these sub-plans is fluid, requiring regular adjustment if you hope to continue moving toward your goal. If you allow these elements to remain static, you will lose momentum. Following are overviews of each of these sub-plans. Later chapters cover these topics in much greater detail.

A Business Plan Outline Business plans may take a variety of forms, but they must all contain information critical to lenders or investors. David Bangs, Jr., suggests the following outline: 45

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Outline of a Business Plan Cover Sheet: Name of business, names of principals, address and phone number Statement of Purpose Table of Contents Section One: The Business A.- Description of Business B.- Product/Service C.- Market D.- Location of Business E.- Competition F.- Management G.- Personnel H.- Application and Expected Effect of Loan (if needed) I.- Summary Section Two: Financial Data A.- Sources and Applications of Funding B.- Capital Equipment List C.- Balance Sheet D.- Break-Even Analysis E.- Income Projections (Profit and Loss Statements) 1.- Three-year Summary 2.- Detail by month for first year 3.- Detail by quarter for second and third years 4.- Notes of Explanation F.- Cash Flow Projection 1.- Detail by month 2.- Detail by quarter for second and third years 3.- Notes of explanation G.- Deviation Analysis H.- Historical Financial Reports for Existing Business 1.- Balance Sheets for past three years 2.- Income Statements for past three years 3.- Tax Returns

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Section Three: Supporting Documents Personal resumes, personal balance sheets, cost of living budget, credit reports, letters of reference, job descriptions, letters of intent, copies of leases, contracts, legal documents, and anything else relevant to the plan. Source: Reprinted with permission from The Business Planning Guide by David H. Bangs, Jr. Copyright 1992 by Upstart Publishing Company, Inc.

The Management Plan Perhaps a bit less formalized than the marketing plan and the financial plan, the management plan is important because it delineates how you will utilize the resources—physical, financial, and human—at your disposal to achieve your goals. If you don’t take time to work through the details of the day-to-day business operation, the business will rapidly get out of control. Guidelines, limitations, and development stages need to be thought through and planned for carefully. In management planning, you’ll need to identify how, when, where, and by whom the various functions of your business and office will be handled. You’ll consider such mundane problems as furnishings and supplies, bookkeeping, billing and accounts receivable, taxes, office policies and procedures, and much more. It’s a bit like preparing your car for a long trip. If you don’t plan your gas, oil, tire, and pit stop needs, you simply won’t arrive at your destination. Startup Fees: As a new business owner, you can expect to pay the startup fees that we discussed earlier. Attorney’s Fees: These can include costs of incorporation or drawing up partnership agreements. Whether you plan to remain on your own, take on a partner or form a corporation, we advise that you see an attorney prior to startup. Accounting Fees: Whether or not you’ll need monthly record-keeping services, we advise you to see an accountant prior to startup. 47

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Supplies: Costs for the materials of your profession must be anticipated: stationary, business cards, telephone system, answering and fax machines, photocopier and personal computer. Office Furnishings and Equipment: You will need a desk, chair, filing cabinet(s), bookshelves and lighting. Do what you can to reduce these costs at first by buying second hand. Insurance: Insure your equipment and your office separately. Do not include the equipment under your existing homeowner’s policy unless you use a home office rider or addendum. Purchase a policy that covers replacement costs. You will also need an umbrella liability policy to cover things like customers getting hurt on your property. Miscellaneous Expenses: emergencies.

Add a 20 percent financial cushion for

Working Capital: You must pay yourself to cover personal and family bills. You should have enough in the bank or in liquid assets (mutual funds, pension funds, stocks and bonds), to cover business expenses for three to six months.

Putting It All Together Once you’ve done your homework—thoroughly researched, set your goals and expectations, planned your objectives and day-to-day operations, and determined all the key elements of your business—you will put that information into a formal document. The first step is to assemble your working document. Some find that a threering binder with a separate page or section for each topic allows flexibility and ease of revision. If that works for you, fine. You’ll be reviewing your plan on a regular basis and updating it from time to time. For your own planning purposes, you will want to keep revisions as simple as possible.

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But there will come a time when you’ll need to present this document to an equity investor, a lender, a consultant or others for review. That’s when your communication and writing skills become extremely important. Who is your audience? What do you expect to be the outcome? Use a list of key points that need to be addressed to support your cause. Anticipate and answer your reader’s questions, leading them to the same conclusion that you addressed in the beginning of your document. While you write, keep the structure you’ve chosen. Make smooth transitional statements. Incorporate graphics and supporting documentation where needed. Close by repeating the main points of your opening remarks. Now, edit your plan. Consider asking someone with expertise in these matters to review it so that you can get a feel for any problems with your communication process. Your style and final presentation will follow basic business/technical writing techniques: Watch the white space: Make your presentation easy on the reader. Don’t crowd your pages with details. Use headings for each topic discussed: This will keep your presentation organized and will help the reader quickly locate information. Keep your sentences short and concise: Eliminate editorial comments. Use active, descriptive nouns and verbs to convey your message. Use transitional words and phrases throughout your report that help the reader follow your reasoning: For example, now, because of this, so, additionally, and other strong transitions show relationships and help your reader follow the logical flow of your work. Precede all detailed object or process descriptions with an overview of function or purpose: Anticipate possible reader objections or questions, and incorporate explanations or answers into your plan. 49

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Include supporting documentation: You might consider putting it in a separate appendix so your document flows easily. Make any limitations of your study clear from the beginning. Read over your writing twice: Read once for clarity, and once for mechanical correctness; then ask someone else to read it. An average business plan can take more than 200 hours to write. Hiring someone who knows the process and what it looks like, especially if you are putting a substantial amount of money into your business, should be a strong consideration. The difference between doing it yourself and taking a course in college is the critical perspective. Jill Johnson comments on the role a management consultant takes in the business plan process: A consultant who works with you to develop a business plan will work with you on the research or do the research for you, interpret the information as it relates to you and what you want to achieve. The consultant will give you objective feedback as to how your ideas fit within your marketplace and help you understand how they fit your operating issues, staffing issues and the total financial impact they will have. Some consultants will also act as a guide, helping you develop your own successful plan. Your business plan must be realistic. You need to take an active role in its development even if you’re using consultants to help you. The time spent creating a realistic, workable plan will have a substantial payback as you grow your business.

Update Your Plan Regularly Because you are in business to grow, and growth is predicated on change, you’ll need to review your plan on a regular basis. Your plan should be a working document—it’s even wise to keep it handy for an occasional review, just to see if what you’re doing is in keeping with your plans and goals.

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Re-evaluate every six months or at least every year. (Ideally, financial documents such as profit and loss statements and balance sheets should be updated monthly). You will have to decide the best schedule for your business. Careful re-evaluation is obviously indicated any time you are faced with major issues that may call for you to change direction. You may think you need to invest in a new computer or hire a manager. Don’t do this without consulting your business plan. These are the kinds of steps that need to be evaluated in light of your overall plan. You may reach a point where you discover that your marketing efforts aren’t working—sales are off and you need to do something soon. This is another critical time to check the marketing portion of your plan. Without these plans in place, you might decide too quickly that it’s time to change your company image, before your original ideas have had a chance to work. Your plan should help you to evaluate such issues in light of the bigger picture. View your planning documents as fluid; keep refining them, and they’ll keep you growing.

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Chapter 6

Financing, Planning, and Funding The Financial Plan Revenue & Cost Models Strategies for Securing a Launch Loan Investors & Other Financing Budgets & Bookkeeping Cash Flow Management

The Financial Plan The financial plan is critical to the success of your business plan. Despite the fact that it is usually developed for the benefit of potential lenders, keep in mind that such a plan is first and foremost important for you. Entrepreneurial businesses all too frequently straddle the financial edge, and you must have a firm grip on how financially sound your business is at all times. Fundamentally, every business creates value by generating cash in excess of deployed capital. This means growing your revenues, reducing your costs, and deploying your fixed and working capital to the most profitable channels, products, or services. The chart below outlines this concept. Many business runners forget the basic tradeoffs between incurring smart costs, which can drive increased revenues; locking down too much investment in fixed capital and undervaluing the working capital component of the business; and in how these cost and revenue components interact in general across the business, with its suppliers and with its customers. 53

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Revenue Cash Costs

Value Working   Capital Invested Capital Fixed Capital In your financial plan you’ll detail profits and losses, current assets and liabilities, budgets and the like. You must keep in mind that the timeframe for your return on investment, and the timeframe for profits will differ by line of business, and perhaps even by product or service. Being able to directly allocate costs or working capital to the products and services you’re promoting in the marketplace is essential to being able to produce a financial plan that a) allows you to seek debt or equity financing; and b) allows you to profitably run and grow your business. You’ll need to analyze your current financial health at a specific point in time and use your track record to predict probable future growth. Financing is one of the toughest areas for an entrepreneur to address. During the current recession, drastic cutbacks have taken their toll on a number of financial institutions. There are no simple tricks or shortcuts to getting money—only old fashioned strategies that often aren’t taken seriously enough. 54

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Don’t accept quick and easy solutions. Look at the process from all angles before making any decisions. Be sure that you understand cash flow analysis and financial planning well enough to at least ask the right questions before making any decisions. This chapter provides an overview of the financial planning needs for both startup and emerging businesses. However, an existing business is likely to meet with more success in obtaining financing to meet those needs. Our advice is to use the resources as a starting point to begin seeking funding. Prepare yourself for the process by setting aside blocks of time for researching, planning, writing and meeting potential funding sources. You will find that looking for funding becomes, at the very least, a part-time job. Try to seek loans for growth rather than for working capital. First, look for loans at your current bank. The relationship you have been developing for the past startup years should serve as a foundation for lending, although banks are very reluctant to loan money to startups. You typically will need a stable customer base, revenue, and a year’s worth of operations behind you if you seek a loan from a local bank. Once you’ve developed a financial track record, usually after a couple years in business, you become eligible for loans, lines of credit, and a much broader range of funding opportunities. Both the state and federal governments have a variety of funding programs. You’ll need to meet certain financial qualifications, such as adequate collateral and increased annual revenues. If you’ve shown financial success, you’re in a good position to request funding for expansion. Funding sources are often reluctant to lend for operating expenses. They want to see the funds they lend being used to develop new business opportunities.

Revenue and Cost Models One of the most important aspects of your financial planning efforts is gaining the proper level of detail on your financial forecasts. It’s not enough to list assumptions, gross sales numbers, and basic operating costs. You need to understand: 55

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Which of your costs are variable (i.e., will grow as sales grow), and which are fixed. x What are the costs of maintaining your customers? x Do your customers have lifetime value? Or is every sale a one-off? x What is the margin per customer? Is this different for different customer types? How will your forecast incorporate customer attrition rates? Customer acquisition rates? x Is your selling model predicated on volume? (i.e., the first fax machine ever sold was useless… the millionth sold was highly valuable—how should this reflect in your pricing structure? x Can you pull through sales of complementary products and services? How should you model this in terms of costs/revenues? x What assumptions can you make on creating membership programs or subscription services vs. transaction services and direct sales? x What assumptions can you make on the value of alliance programs, or alternative channels through which your product or service can be sold? x What should be the appropriate sharing/commission on these alternative channels? x

These are some of the hundreds of questions which need to be asked and answered as you build the cash flow, balance sheet, and pricing schedules for your business. The best way to build these revenue and cost models is to make them variable driven so that you can do what-if analysis on different alternatives before you launch the business. A flexible, variable-driven financial model can be used later as a scorecard to benchmark your company performance after each month/quarter/ year against your original assumptions. Being nimble and able to coursecorrect as you go, by either trimming overhead, eliminating unprofitable distribution channels, or allocating more capital to products or channels which appear to be growing more rapidly are critical skills you will need to sustain your business growth.

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Strategies for Securing a Business Loan For those who think their business would be successful if only they had an infusion of capital, here are the strategies that can boost your chances for success:

Create an Excellent Business Plan All funding sources will want to see a comprehensive, concise, and realistic business plan. Your plan will be the primary key for getting funding and, if used as a basis for daily business decisions, will help you reach your goals and give you continued opportunities for funding.

Create a File on Contacts Whether you have a computerized data base or keep a notebook of the many contacts you make with potential investors, it’s important to keep track. Once you’ve completed your business plan, mail it with a cover letter to the investors you have prescreened. Prescreening is important because you shouldn’t waste money copying or mailing to unscreened individuals. Take the time to make the phone calls, and see if at this time (because things change constantly with every business), the bank, angel network, venture capital firm, etc., is accepting applications for your type of investment request. Time taken to target market is the best time you can spend.

Continue to Periodically Follow Up on Your Contacts “If at first you don’t succeed, try, try again,” is an excellent motto when applying for funding. Just as you must constantly sell your product or service, you must also sell the opportunity to others to invest in your company. Make regular phone follow-ups (monthly or every other month) even to contacts who were noncommittal or negative. Your initial negative contact with a representative of a bank or investment firm might have involved just a bad day for the person with whom you had spoken. As long as there was an initial interest in your company, keep 57

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trying. Ask for suggestions on how to improve your plan. The advice you get could mean the difference between wishing for an opportunity and making one happen.

Ask for a Larger Sum of Money Than You Need Many entrepreneurs make the mistake of not asking for enough money. Banks, investors and even the SBA see this as a sign that you don’t have a good understanding of what your needs are. Keep in mind that your success in obtaining funding hinges on your preparation. Take the time to seek advice from professionals. Some banks even offer to help you create realistic financial projections at no cost. SBDCs can also assist you. Take your projections to your accountant, or seek the assistance of an accountant who has worked with companies like yours. This extra preparation may not ensure that you will get funding, but your clear, unshakable understanding of your company’s financial health; its potential for growth; and the value of money will go a long way toward convincing your lenders to invest in you. Lenders no longer—if they ever did—buy the concept of “blue sky.” Money is spent on a realistic, projected return on investment now more than ever before. The key, if you want to become financially strong and if you want to secure funding, is to become money wise in every sense of the word.

Loan Package Checklist Your accountant and banker can be valuable resources in helping you construct the financial section of your loan package, the first step forward obtaining financing. Your financial profile is critical in substantiating your loan-ability. Listed below are the basics of a loan request:

General statement regarding the Loan Request x x x

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Purpose – What exactly will the loan be used for? Loan Amount Repayment Terms

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Definition of Product/Service Sold x x x x x x

Description of product/service Strength/weakness of product/service sales strategy Who is your potential market? Supporting demographics How product is/will be sold Trade area/competition Sales Volumes—historical, projected

Place of Business x x

Location Description of physical facility/equipment/inventory

Resume of Owner/Principals/Management—What are your specific strengths?

Financial Information (three years minimum, if available) x x x x x x

Company Balance Sheet Company Profit and Loss Statement Company Federal Tax Returns Company Pro Forma Statements (minimum two-year forecast) Personal Financial Statements on all principals. Personal Tax Returns on all principals

Ratios That Indicate Loan-Ability Your lender will be interested in financial ratios when evaluating your loan request. Below is an explanation of three key ratios. Current Ratio – This indicates the strength of the company in servicing additional debt. A 2:1 ratio allows a reasonable margin of safety:

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Current Assets ________________________ Current Liabilities Current Assets = cash, accounts receivable, short-term investments. Current Liabilities = accounts payable, interest accrued, etc.

Acid Test Ratio – This indicates whether the company can meet its current debt obligations. A ratio of 1:1 or higher is satisfactory. Liquid (Quick) Assets ___________________________ Current Liabilities Liquid Assets = cash and investments that can easily be converted to cash. Current Liabilities = accounts payable, interest accrued, etc.

Ownership ratio – This indicates what you have at stake in the business. Liabilities ____________________________ Net Worth Liabilities = monies owed by the business Net Worth = amount of owner’s equity or money at stake.

Types of Loans Character: After you’ve built up a history with a bank, an uninsured loan that is basically based on your character may be considered. Lines of Credit: This involves loans for financing a short-term asset. A line of credit is drawn upon either seasonally or during a specific time in the cash flow cycle of a business. This draw is usually paid off during another time in that same cash flow cycle. The rate on a line of credit is usually floating with prime so that it is adjusted by the market. The term of a line of credit is never more than 12 months; however, lines are renewed yearly with updated financial information. These loans are typically referred to as working capital loans. 60

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Term Loans: (i.e., one year, five year, fifteen year) Term loans often require collateral and high credit standards. They are usually installment loans that blend the interest and principal into monthly or quarterly payments. Co-signer Loans: These loans are most typically used in the consumer finance or retail banking industries. The co-signer is one who personally guarantees the performance of the borrower on the loan. Typically the borrower has little or no credit experience, while the co-signer has a significant amount of good credit experience. Warehouse (Field Warehouse) Loans: Commonly known as brokerage businesses. A mortgage loan broker uses the line to fund a loan underwritten to the specifications of a particular securities pool. The line is advanced for a short-term and may then be readvanced numerous times as the proceeding loans are funded and then sold as a security. Equipment Loan/Installment: (usually directed at manufacturing companies) Your equipment is the collateral for this type of loan. Accounts Receivable Financing: Some commercial credit companies will finance a percentage on receivables; however, such loans are usually at very high interest rates. Trade Credit: These loans are made between two or more businesses. Technically, trade credits are an accounts payable that is owed to a supplier and used to purchase inventory. That supplier may offer a trade discount to the purchaser. A discount—two percent/ten days—means that if the supplier gets paid in ten days, the purchaser gets a discount of two percent. This type of lending is secured by the product and is a nonbanking type of financing.

Investors & Other Financing Barry Molz is an entrepreneur who has co-founded three startup companies. He has many years of experience, both on the funding and the granting of funds, in which he gained insight into this difficult, but critical process. 61

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The last company he founded was SciTech where he served as the CEO of this direct mail catalog and e-commerce reseller of scientific, engineering and technical software. Moving from the role of entrepreneur to angel investor, he co-founded Prairie Angels, a group of private investors committed to investing in and mentoring early stage companies and their entrepreneurs. Prairie Angels is recognized and supported by Chicago Mayor’s Office, and Price Waterhouse Coopers Venture capital funding, the most expensive of funding resources, usually looks for a minimum 20 percent equity position in a company and often a share of far more than 50 percent. Most entrepreneurs consider this funding as an alternative only after they have exhausted the possibility of self financing. However, there are businesses, such as high technology companies, that need a great deal of money to position themselves quickly and effectively in market niches. When it’s of the essence and the business has a diverse team of seasoned professionals coming together to build a business, venture capital might be just the right form of financing. For a services business, venture capital is one of the more appropriate resources for a second/round investment in a company in order to ensure continued expansion. The company, initially funded with the owner’s finances, has grown to the point where it clearly demonstrates success and a growth curve that shows reasonable chance of creating an open-ended market. By the time the company needs a second round of financing, the niche should be clearly defined. Again, a business plan is required with sound projections based on a two-year to five-year financial track record. It could take up to a year or more to get funding once a firm is interested in your proposal. Venture firms receive 100 or more funding proposals weekly. Most firms have a board that reviews applicants. It they are interested in you, they can continue to request new information and hold meetings until they are ready to make a decision. 62

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Venture capitalists prefer businesses that are novel and interesting enough to promise a fairly short-term buy-out, an opportunity to go public or generate private dividends, and high profit returns. They like to consider businesses with fairly sophisticated original investors oriented toward longterm investments with intent to reinvest on the second round. Venture capitalists usually want more than 20 percent ownership interest in the business in exchange for certain investment monies. The younger the business, the higher the equity interest requested. Along with the interest comes management support and expertise that maybe beneficial.

Typically Venture Capitalists look for: A track record and a good reputation in your industry as well as in-depth, relevant experience. Usually a minimum of ten years in management and five years in a position of significant responsibility are required. x The potential for serious growth is necessary—usually $50-$100 million in revenues. Venture Capitalists typically look for companies that require at least $1 million, $5 million, or $20 million; although individual tranche releases differ based on management achieving certain milestones, EBITDA numbers, etc. x A strong management team is preferred over an individual. x A concise business plan is required of at least 10 but no more than 25 pages including a summary of financial information for which there’s a lot of back-up. x Executive Summary: a two page overview of your business, your market, your request for financing and your estimated explanation of when and how you will buy back the equity interest. This should also include answers to why this business makes sense from a competitive standpoint and what the target market will be. x Essential qualities of the company that must be outlined when seeking to attract venture capitalists, include: o   ability to evaluate and react to risk well; o   leadership demonstrated in the past; o   at least ten times return in five to ten years; o   a thorough familiarity with the market and the capacity for sustained intense effort. 63 x

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Network with lawyers and accountants who provide a significant amount of venture activity as intermediaries with venture capitalists. Or, try a venture-capital club meeting where entrepreneurs can pitch their ideas to a room full of venture capitalists and private investors. Research carefully before applying. Find out how much the venture capitalists’ minimum investment is, what sort of companies they like to back, how much they’ve invested in the past year and who some of their big winners are. Be confident, assured and, most of all, prepared—for either success or rejection.

Budgets and Bookkeeping Once you’ve been in business for more than a year, and preferably two years, you will create a financial history that will offer the basis for possible commercial financing. A lender will evaluate your financial stability when considering a loan to your business. Therefore, take the time to nurture your business by watching what you spend in the early years. Organizing Your Finances – Five Steps toward Financial Security 1. Consider obtaining the advice of a financial planner to help organize your financial goals, or take a management accounting course at a local university. 2. Draw up a budget that is realistic, and stick to it. Make sure you incorporate sporadic expenses, such as: legal fees, hardware and software, club dues and miscellaneous advertising costs. 3. Keep organized records of payments and expenses. Keeping good books saves you time and money. Your checkbook is a handy database of expenditures. Avoid spending cash. 4. If you have extra money, consider saving a portion and using the additional earnings for more marketing, especially in the early stages of business. 5. Have your account review your earnings on a quarterly basis to help you organize your financial plan. 64

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Your books should enable you to do more than just keep records. They should tell you what percentage of profit you’re making; whether you’re charging enough or spending too much; whether you’re directing your energies in certain business areas wisely; prepared for a temporary (or longterm) downturn in business; collecting all the monies owed you; and many other details that can keep you on top of your cash flow. Each business has its own requirements concerning keeping of books, with much depending upon the form of the business and the specific industry requirements. There are a number of excellent software packages that can help you.

Cash Flow Management When all is said and done, cash flow is the life blood of every business. It is cash flow that determines a business’s health and its ability to sustain over the long run. Your first priority is to get as much cash as possible coming into the business, and as little going out, as quickly as you can. Refuse business and deals that don’t produce enough profit. Many business owners have discovered that they work just as hard for a $5000 customer as they do for a $50,000 customer. Your first responsibility is to sustain yourself and your business so that you can continue to be available to offer your services or products. If you can’t pay the bills, you won’t be around to do business. Entrepreneurs need to establish very clearly their expectations concerning payment. No matter how desirable a specific job, if you don’t get paid, you’ve hurt yourself and your business. Those who negotiate and sign contracts for major projects have less trouble than those who don’t. It’s also important that you be very selective about whom you will work with. It’s a waste of your time and energy to work with customers who don’t honor their commitments. Tom Barnicle, CPA, a partner in the firm of John Hauter and Associates recommends, “Establish terms of payment up front to prevent questions being asked later. Also, don’t be afraid to ask for money that is owed to you. You did the work; you deserve to get paid. Not asking for payment is a sign that you don’t think you were worth it.” 65

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When times get tough, and you have to stretch beyond your means for a while, you must always keep the doors of communication open. Tell your creditors and suppliers that you are running a very tight ship. Let them know what you’re doing to correct the situation. They’ll respect you for your openness. It’s only when they find you becoming inaccessible that they begin to question your sincerity and anticipate the probability that you’ll leave them hanging. Be willing to do any work you can yourself until it becomes counterproductive. At that point, it’s better to do what you do best and “hire out the rest.” When you reach the point where you think you’re ready to expand, look at the temporaries, consultants or independent contractors (see your accountant before you hire one) before hiring employees. When paying your bills, keep the following order of priority in mind: x x x x x x

Payroll Taxes (payroll, state, federal, social security, unemployment, etc.) Bank loans Rent and utilities Suppliers All other expenses

Payroll taxes should be of particular concern to entrepreneurs. Penalties for noncompliance are severe. Even if you are incorporated, you can be personally liable and hit with a 100 percent penalty for nonpayment. Finally, with regard to cash flow management, a quick examination of last year’s budget can help you determine your annual cost of doing business and help you plan for next year growth. Identify the fixed costs you have some control over and which ones are outside of your control. Are your numbers realistic? Are there any ways that can be trimmed? Evaluate the kind of reasonable profits you can expect in the next year. Set a goal but make it realistic. Profit projections should be achievable, making you stretch and grow without being oppressive. You 66

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may set goals for each product or service line or each individual in your organization to determine how each contributes to the profitability of the whole. If you’re offering a product or service line that is eating up your profit margins, you should consider doing away with it. Look at your budget as a flexible tool. It’s not an end in itself and should not be cumbersome or overly time-consuming. Because it’s based on future expectations and is meant to serve as a map, you can deviate from your budget as long as you remember your goal to stay within your projections. There are no universal numbers or formulas that fit all businesses. Check your company ratios against average ratios for businesses similar to your own. These can be obtained through your trade associations, trade magazines or the annual reports of similar companies. The numbers may be different, but using the ratios, you should be able to create a good analysis of important financial ratios for your business. Accountants, financial consultants and bank loan officers can also help you determine the key ratios for your business. Some basic formulas you will want to be familiar with because they allow you to determine the health of your company include the following: Current Ratio: The measure of your company’s solvency is one of your most critical assessments. This is the ratio revealed on your company’s balance sheet. All assets, including cash, inventory, and accounts receivable, are divided by all current liabilities (property taxes, payroll, and loan payments). You will want to keep your ratios in line with the industry if you hope to obtain a loan. Gross Profit Ratio: This ratio is determined by subtracting the cost of goods sold (including raw materials, direct labor and overhead) from the gross sales. The answer is your gross profit. Now divide the gross profit by the gross sales. How does this percentage compare with the ratios of similar companies in your field or industry? If your gross profit ratio is not on target, you need to look at what’s going on. Your first inclination may be to increase prices. But it’s also possible that you are losing money on excessive administrative costs, or other expenses. 67

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Return on Investment (ROI): This calculation, figured by taking net profit (gross sales minus all costs including taxes) as a percentage of invested capital, will tell you whether your company yields an acceptable return and warrants further investment. When the ROI is less than the percentage your money could be earning in a money market account or other passive investment, you will want to consider whether cutting costs or diversification of products is called for, or whether you should simply sell out and invest in more lucrative venture. Inventory-Turnover Ratio: This ratio will be important if your company maintains an inventory. Your goal is to keep your inventory costs low and your turnover high, running your company with a little inventory as possible without limiting sales opportunities. When analyzing your company to determine bottom line, cash flow and profits, the numbers to use are not the dollars, but rather the important relationships between various components of your business. Only you can determine what those key components are and what the ratios for maintenance of your company’s health should be, but consider that most companies’ main expense is people. Revenues divided by number of employees will tell you that you need to do something soon if your financial ratios drop. Client or job numbers should generate a known stream of revenues and expenses. If productivity figures decline or costs get out of line with the ratio model, look at expenses as a percentage of revenues. Consider setting net revenue as the denominator, and check the ratios with cost categories to determine the percentage of net revenue. If you now have more staff and services, more customers, or take on more projects, the dollars should be there (if you’re pricing your product or service high enough). You should also know how much income each customer brings in and how much in the way of costs that income justifies—all through examination of ratios.

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Legal Planning When considering growing a great business and power network, one of the must-have’s is sound legal planning and counsel. Whether it’s the risk of litigation with employees, customers, or suppliers, or simply understanding and adhering to the legal structures and reporting requirements mandated by the government, legal planning is essential to the success of your business. One of the first things you need to consider in the early stages of your business planning efforts is not just the legal structure of the company, but how and when you’ll record revenues, expenses, and capital outlays. Obtaining the proper legal counsel to help you answer these questions is critical to ensuring that you don’t misstep early on in this area of growing your business. There are essentially three ways in which you can obtain the proper legal counsel to support your business operations: 1. Interview, select, and enter into a retainer contract with a local law firm who specializes in supporting your kind of business. 2. Use a known attorney whom you trust to represent you and the company in the various filings and legal proceedings necessary to start and run the company. 3. Use a local law firm to support specific legal activities on a specific project-by-project basis. Which option you choose depends greatly on the nature of the business you are growing. Some of the factors to consider are: x Will you be conducting business in or just taking orders from 69

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multiple states in the United States? The tax treatment on the revenues (and expenses) incurred differ depending on your business model. x Will you be sourcing product from overseas? Will you have a need to set up a taxable entity outside the USA? x Are you a subsidiary or joint venture? What kinds of legal liability or protection are you inheriting from the parent company? x How many employees and which ones are exempt vs. non-exempt? x How frequently will you be outsourcing certain business functions? (i.e., technology, back office financials). x How many strategic or tactical alliance partners are you planning on having? x Will you be selling direct or indirect into the marketplace? What are the legal issues associated with product or service delivery not conducted primarily by your employees? x Will you need to register trademarks or apply for provisional or permanent patents as a part of the business to protect your brand and intellectual property rights? x If you are a partnership, how are earnings to be distributed vs. reinvested into the business? These and many other questions may influence your decision to go it alone with a personal legal representative or to retain a law firm that may provide you with more breadth, depth, and experience in dealing with the legal issues around growing your business. Suffice it to say that in the beginning, there is minimal legal support required for a startup operation. Knowledge of incorporation law and the proper fees and filing procedures is all that is needed to get your business registered and operational. However, depending on the product or service you’re providing, your needs may quickly escalate, requiring far more support than a single generalist practitioner can provide. Many of these legal activities can and should be completed prior to taking your first order or hiring your first employee, so that the company can be as protected as much as possible from business disruption litigation, labor law conflicts, etc. 70

Chapter 8 Marketing

Marketing Strategies Marketing on a Shoestring Public Relations Advertising Closing the Sale Customer Service This is where you show that there is a need for your product or service. Without a large enough need, no amount of management talent or financial backing can create a successful business. Marketing is the lifeblood of a business. Because of this, we’ve set aside a complete chapter to discuss it. No combination of marketing activities works all the time. Marketing requires a constant juggling of supply, resources and demand. Because your marketing mix will constantly change, you’ll need to adjust your efforts accordingly. Your marketing plan is simply an expanded plan of action detailing how you’ll make your marketing strategy work, based on the priorities you’ve set for reaching your goals. The marketing process is built on a firm foundation composed of the four Ps: Product, Place (distribution), Price and Promotion. Without all four elements nailed down and appropriately balanced, you don’t have a marketing strategy—no matter how ambitious your promotional plans.

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Product: What are you really selling? Place: (distribution) How will you get that product to your customer? x Price: What is the correct price that is acceptable to your customer and profitable to you? Price your product or service too high and you eliminate customers who can’t afford you. Price your product too low and you lose customers who think you don’t offer something of quality because quality perception is often tied to price. Therefore, take the time to thoroughly research your market to find out what is being charged for the product or service you plan to sell. x Promotion: How will you promote your product or service? This category includes personal sales, advertising and public relations tools—promotional activities that stimulate interest, create desire and result in sales. Answer the customer’s primary question, “What’s in it for me?” by focusing on the unique benefits of the product/service and the customer’s needs rather than features of the product or service. x x

In its broadest definition, marketing is the function of your business that includes all activities necessary to get your product/service first into the mind of your customer and then into their hands. It requires market research, product development, pricing, packaging, advertising, transportation, sales and distribution and promotional activities including the use of public relations tools. Because marketing can be a major business expense, marketing plans for the small business should, for the most part, incorporate more public relations efforts than any other form of marketing. Therefore, a large portion of our marketing chapter will address this effective strategy. Because there are so many different kinds of businesses, however, it is important that you take a look at a wide variety of strategies, using those that will be most effective for your particular business. Marketing anticipates needs and directs the flow of goods and services from producers to consumers. As an entrepreneur, your mission is to target your product or service to the market that needs it. If your price is competitive (what the market will bear) and your product or service is valuable to your customer (because it has quality), you will achieve sales and repeat sales. 72

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One of the primary problems that many business owners have is a lack of understanding of the difference between marketing and sales.  Marketing is getting people to know you exist. Sales is having people buy something from you. Further, networking is a process that weaves the two profitably together. It’s amazing how often, in the flurry of activities that surround us day to day when running our businesses, that even seasoned veterans of business mistakenly mix the two concepts and waste precious capital, not obtaining their objectives and not understanding the third and perhaps most important strategy of networking in this ongoing Age of the Network. It’s imperative that you establish a web presence for your business, starting with your website and migrating into social media, which is discussed more in Chapter 9. Every business needs a website—it’s the best way for many people to find you these days. You have several options when it comes to setting up a website. If you’re not comfortable striking out on your own, then by all means hire a website designer to help you. But if you have some degree of technical literacy and want to save money, there are plenty of companies online that offer easy to set up templates and instructions. The following steps can make this process easier: 1. Register your domain – this is your website address, which should align closely with your business name. 2. Find a reputable host for your site. Look at some online review sites, such as PC World or Cnet for recommendations. 3. Many hosts offer templates, or you can use Wordpress, which is a free service with many different designs. You can download the Wordpress software and then upload to your selected host’s server. 4. SEO – Search Engine Optimization, the process of getting your site into the annals of the search engines. You may want to outsource at least this portion of the site; otherwise, there is a great deal of information available to help you do it yourself. All of your marketing pieces should reflect your website, and your website should tie in to your social media strategies—each works in concert with the other, offering you maximum exposure at a low cost. 73

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If you don’t have a systematic method for getting your message and your product to your customer and creating sufficient reason and urgency for that customer to buy, you have nothing. You might have the most perfectly structured business and the most needed product or service in your marketplace. You might even know who would buy your product. But, you still need a marketing strategy to tell your potential customer why he or she must buy now and the means to deliver.

Marketing Strategies It’s important to create a mix of marketing strategies early in the development of your company. Your business plan broadly addressed the concept of marketing; it’s now time to develop a detailed approach to marketing yourself and your business. Your marketing plan will detail the strategies you need to use to promote your business in your specific market. It will also outline how you will apportion your advertising, direct sales (activities where you contact your market directly), and publicity campaigns (activities that utilize media exposure to reach your market). It will delineate the methods and tools you’ll use and in what general proportions you’ll address each of these areas in relation to time and monies spent. The plan will also address how you will maintain a balance of the four Ps we talked about earlier. A very simple marketing plan might be based on the following outline: x x x x

What marketing mix is offered to whom and for how long? What company resources/costs are required to do the job? What results are expected? What controls are needed to point out potential problems?

Another critical component of your marketing strategy is image and relationship management. If the goal of marketing is to get customers to know you, and the goal of sales is to get customers to buy from you, then the relationships you form between your growing brand and both existing and potential customers is a critical bridge to build for your business. 74

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Defining, building and maintaining the exact image which you wish to share with the marketplace is crucial to positioning yourself against your competitors and against substitutes, and alongside your customers to address both their articulated and unarticulated needs.

Marketing on a Shoestring We know of very few smaller companies that have been able to start and grow their business without spending at least ten percent of their projected first-year revenues on marketing. Unless you’re lucky and start with an existing client base, you need to spend time and money to build one. A little creativity can go a long way toward developing a successful small business marketing campaign. By mixing different strategies together, you can generate excitement. Where should you begin? First, take the time to find out how companies similar to yours are marketing themselves. Successful marketing starts with committed dollars, but you need not overspend if you choose your strategies wisely. Move slowly. You’ll be inundated by salespeople urging you to advertise with them. Knowing what works in your market and what the costs are can save you hundreds, perhaps thousands of dollars. The first thing to do before you open your doors is to develop your yearly marketing plan. This plan lays out your monthly marketing mix. Keep to it as much as possible, making sure one strategy works into the next, and you’ll find that you will build customer awareness and readiness to buy much more quickly.

Public Relations Public relations begins with a clear definition of who you are, what niche you’ve chosen and a selection of tools that conveys your message clearly. Everyone from the individual to the Fortune 100 corporation needs and uses public relations, and entrepreneurial businesses have a definite advantage. Because they are usually closer to their markets, entrepreneurs can react quickly to strengthen good relationships and correct misunderstandings before they get out of control. 75

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The key to success with public relations lies in your ability to project a clear and purposeful message about who you are and what you have to offer. Remember…Perception is Reality. Create an identity that cannot be mistaken by the public and develop an ongoing plan of action designed to reinforce your position in the market. Many businesses tend to continually create new corporate identities, shifting emphasis to suit temporary needs. That inconsistency can confuse customers, resulting in a dramatic drop in credibility and sales. Here are some pointers for keeping yourself—and your customers—focused: Establish a consistent business identity: Website, press releases, business activities, color choices, type styles, paper and other materials identified with your business must be in sync with your chosen identity. To be effective, they must convey one clear, unmistakable message. x Develop an aura of expertise and credibility: Any time you can obtain third-party endorsements, recommendations and referrals from satisfied customers your credibility is strengthened. When those endorsements appear in print, the public’s perception of you is heightened. x Be involved in your industry: Activities such as writing for trade magazines and other media, public speaking, workshops, seminars and radio/TV appearances position you as an authority. Demonstrate your expertise by serving on committees for organizations and associations where you are already a member. x Be professional and courteous when dealing with the media: The media can help you maintain a high profile as long as you contribute something that will be newsworthy to their readers, viewers or listeners. Make it easy for the media to work with you by being dependable, agreeable and, most of all, resourceful. x Publicize yourself to customers: In addition to using the media, consider publishing your own newsletter with news and views that would help clients. Send out mailings updating your qualifications at least four times a year. Write about new developments in your industry and how-to tips. x

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A successful public relations campaign is continuous and consistent. Although not easily measured, an effective campaign can give your business long term credibility. Often you must work on public relations efforts for six months to a year before experiencing results. Too often, small business owners try new marketing and public relations strategies every other month and quit too soon before reaping the benefits.

Press Releases A successful campaign begins with a good press release, a one or two-page announcement that tells the media: Who, What, Where, Why, When, How, and most importantly in today’s over-exposed marketplaces, So What. It focuses on one major idea that the media’s audience would find interesting, informative or newsworthy (or all of the above). A release is one of the most powerful small business tools available—and one that is must often misused. Here are some tips for creating successful press releases: Use the release to announce news in your business or industry, to establish your expertise and credibility. x Address your releases to a specific editor. If you don’t have a name, call and find out. x Target the specific media most likely to be interested in your information. Don’t get caught up thinking “more is better.” You’ll have much better results if you target a few interested media outlets. x Make sure your release offers newsworthy information (this is not the place to sell yourself ). Follow industry trends: What types of businesses and issues are currently receiving extensive press coverage? x Include a cover letter introducing your release and offering to be an information source for your areas of expertise. x Keep your sentences short and easy to understand. You want your audience to read and quickly understand what you are saying. x Standard format for releases is double-spaced with an inch to an inch and a half margin on all sides. This format is for the convenience of the editor. It makes the release easier to read and allows ample room for editor’s notes and corrections. x Write “News Release” in the upper left-hand corner and “For x

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Immediate Release” or “For Release on (a specific date)” in the upper right-hand corner. x Include a contact name and phone numbers during and after business hours. Writers have deadlines and frequently need to verify facts in a hurry. x Signify the end of the release with “-30-“ or “###.” Just as with any market strategy, repetition is key to your success. Be innovative. Look for great press ideas. If you’re stumped for ideas, call the business editor of your local publications. (Don’t forget to first ask when they would have a moment to talk). Editors are always facing some deadline, but, for the most part, they’re interested in receiving wellresearched, interesting news. Ask them what they would like to receive and then deliver it. Below are a few ideas for generating news: Stage a contest Promote someone Make a donation Do a good deed Conduct a survey Announce results of a survey Announce a new plan Organize a committee Make a progress report Take a stand on an issue Make a final report Hold a meeting/workshop Announce the visit of Turn a speech/leaflet into out-of-town VIP. a byline article Make a speech Provide “how-to” info.

Press Kits While press releases are generally adequate for the entrepreneur’s needs, there may be occasions to compile a press kit. A press kit is most effective when you offer a complex product or service or multiple lines. The kit provides your media contacts with background materials for current and future pieces about you and your company. Use this kit as a first contact with a media source and at press conferences. Kits usually include the following: 78

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Photos – use a variety. Head shots and action shots. Technical information (where appropriate). Background and historical facts about you and your company. Biographical data sheets about you and your key personnel. Human interest pieces – if directly related to the subject of your press kit. x Brochures – if applicable. x A copy of the press release. x Copies of published articles (the media like to see that you are newsworthy). x Highlights of applicable speeches. x Direct quotes/testimonials/endorsements. x A list of anticipated questions/answers relating to the subject. x x x x x

Business Articles While press releases describe your business and its news, business articles allow you to position yourself as an expert. Call the editors at your local newspapers or your trade magazines and ask if they could use articles about your area of expertise. You will be credited with a byline. Formats are typically the same as press releases, although business articles can be longer than two pages, depending upon the editor’s requirements. This marketing form can be very successful, especially for service-based companies. Even if you can’t write well, take advantage of the wealth of available writing talent through organizations for writers (e.g., Chicago Women in Publishing or Independent Writers of Chicago). A hired writer can either be a co-author or a ghost writer (someone who writes the article but is not acknowledged). The latter arrangement is often used by successful business specialists. One successful entrepreneur we know hired a ghost writer to help him write a series of articles about desktop publishing. He then offered the articles to a magazine free of charge, and promised additional information if they called him. The entrepreneur received many calls after the articles were published and gained clients as a result of his efforts. This is a good example of smart marketing. Although the entrepreneur had to spend some time and money up-front, it was nominal. 79

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Flyers Flyers are inexpensive promotional pieces generally used as hand-out or throw-away items. They may be given personally to prospective customers, placed on car windshields, inserted in mass distributed pieces such as newspapers, bulletins and newsletters, attached to doorways, etc. They usually contain a brief message: What you offer and where you can be found. In general, flyers feature a bold eye-catching headline, graphics or pictures, a message and directions on how to reach you. They frequently include a discount coupon to encourage follow up. Generally the simplest, least expensive method for flooding a specific area with information, flyers are best used when announcing sales or special offers, or promoting inexpensive products/services.

Brochures Brochures are usually 8 ½” x 11” or 11” x 17”, three fold or four-fold pieces. Two-colored, three-colored or four-colored, brochures are much more expensive than flyers. Typically handed personally to prospects or mailed to a targeted group, brochures can also be left at a distribution point, such as a store counter, to draw attention and to be picked up. A brochure, while using fewer words than you would need in a personal contact, allows you to tell your story in great detail. It may focus on your business, any of your products or services, or on individuals within the organization. It may also be strictly an information piece. Particularly valuable to service companies, brochures serve as a tangible piece of the business that creates credibility and brings about a sale. Typically you’ll want to include enough information in your brochure to tell the whole story, but not enough to confuse the reader. Keep it simple and direct, and focus on customer benefits. Promotional pieces often include some or all of the following information: x x

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x x x x x x x x x x

Telephone and fax numbers Contact person (if other than yourself ) Photos/drawings of product or representation of service Description of your product or service Price list (indicate if wholesale or retail) Terms of payment Return policy Shipping terms Minimum order policy (dollar or unit amount) Warranties and/or guarantees

A brochure allows you to tell your story completely and create further interest on the part of the reader. It should clearly demonstrate your expertise, attention to detail and understanding of your customer’s needs. Be sure to design your brochure in such a way that it does not need to be changed frequently. Newsletters This marketing tool generally serves two purposes: first, to target a specific readership or market; and second, to establish you as the expert that your readers will turn to when they require your services or product. Newsletters are good for delivering hard news relevant to your business, products or services. Talk to your customers to find out the kind of information they might be looking for. Read through several of your industry’s trade journals to stay current on industry trends and to get ideas for your own articles. Newsletters can be electronic or printed. You can create a template to email your customers directly from your email client, or you may subscribe to an e-news service, such as Constant Contact or Mailchimp. Create your newsletter with a blend of hard news relative to your industry/ product and soft news, which is information on your company’s goals and objectives and information on programs and projects. Establish what you hope to accomplish through the publication and who your readers will be. 81

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Then write for them. If you really understand your customers, it’s relatively easy to find materials of interest to them. When you fill your newsletter with news your readers want to read, you’ll be building your credibility and establishing yourself as an expert. To create winning newsletters, be sure that you have a clear-cut written statement of objectives and editorial policy before beginning. These publications should be used any time you wish to establish a regular method of communication with a targeted readership. But remember: this is not a one-time project. The effectiveness of this method of promotion relies heavily on consistency. Consider mailing at least quarterly. And, most importantly, don’t attempt this unless you’ve studied the process and techniques extensively or have expert assistance. A poorly designed newsletter can do more harm than good. If you’re serious about taking the do-it yourself approach, don’t let anyone discourage you, but be prepared for major investments of money and time. Begin by getting proper training.

Speaking Engagements Opportunities for speaking engagements include workshops, seminars, association meetings and radio and TV talk shows. Speaking before area groups can increase a company’s revenues 20 percent or more. Search for speaking opportunities everywhere. Welcome invitations. Be creative. Keep a file on area clubs that schedule speakers and contact them early. September and October are excellent times to contact incoming officers to arrange a program during their tenure. Take the time to write a one-page biography. Get a professional photographer to take your picture, and then have a printer typeset and design a professional presentation piece. Include two or three titles of speeches you could give. In the meantime, create outlines for these speeches and include this sheet as part of your press kit. Speaking engagements are particularly effective because they allow you to maintain high visibility, recognition and credibility within the group. Such 82

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opportunities allow you to demonstrate your expertise and expand your exposure in well-defined market segments. The invitation to be a guest speaker says to your audience that you have the organization’s endorsement.

Conventions Trade shows are one of the best marketing strategies for entrepreneurs because they offer one-stop opportunities to sell. For the price of a booth design (if necessary) and the booth rental fee, you’re exposed to a targeted audience—prospects who are attending the show for the express purpose of buying the types of products or services that you sell. All shows are not created equal. It’s up to you to do some research to determine which trade shows would be best for you

Advertising Advertising is a method of reaching potential customers that requires payment for placement of your message in print, online, radio or television media. This marketing strategy focuses on the product or service you offer and openly solicits action on the part of the reader/listener/viewer. Since advertising represents a major portion of your marketing budget, it’s critical that you keep your message brief and to the point. The less visible you are, the more you need advertising to keep your name in front of the public. Establish a routine—smaller advertisements placed frequently are more effective than one big splash. Be sure your ad contains a clear message: who you are, what you’re offering, how you can be reached, as well as a request for action. One form of advertising frequently taken for granted is the (yes, still here and thriving!) Yellow Pages. This can be an extremely effective tool if your ads are carefully thought out and well-constructed. Yellow Pages ads can be terribly expensive, but they have the advantage of targeting warm customers. Callers responding to Yellow Pages ads typically are in the market for your product or service. Keep in mind that your Yellow Pages ad will be surrounded by your competition’s ads. Make sure that 83

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your ad conveys a sense of urgency and uniqueness. If your market research indicates that Yellow Pages advertising is good for your type of business, consider a relatively large ad (at least 1” x 1”) placed, if possible, in the upper right-hand corner of the book. You might also consider signing up with an online service that offers qualified leads to businesses. For example, a customer searches online for a service or product, and finds as a top search choice a website that sends their information to three to five participating, qualified providers. The website then provides the information to the providers who then email or call the customer with their offer. The customer is not bombarded with sales calls and can select the best company out of the small sample.

Direct Mail and Telemarketing Direct mail and telemarketing can be used whenever you want to reach a particular individual or class of individuals. These are extremely effective tools for entrepreneurs. Shawn Greene of Savage and Greene has been in sales and sales training for nearly 20 years and is a professional speaker. She’s the author of I’d Rather Have a Root Canal Than Do Cold Calling, and the Serious Fun sales repair kit. Her thoughts on marketing, and specifically telemarketing, are particularly helpful in understanding the potential to use this technique to increase your level of success: Direct mail techniques may include: Fact Sheets Promotional giveaways Discount Coupons

Letters Contest Brochures

Mailing lists are the backbone of your promotional efforts. Buy them, rent them, maintain your own. They’re priceless and virtually irreplaceable. But don’t expect more than a two percent response. That’s the national average. Target your market by age, sex, ethnic background, education, occupation, family status and income. Analyze the lifestyle, personal behavior and 84

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values, community involvement, ambition, skepticism, self-concept, buying style and itch cycle (that cycle that typifies their buying habits) of your chosen market. And be aware of current trends and fads. Use direct mail to introduce yourself and your products, solicit mail-order/ phone orders, announce new products/services, notify customers of price changes, welcome new customers, thank current customers and highlight special events. Target your audience with broker lists. Direct mail specialists say that the list is the most important part of a direct mail campaign. Either compile your own list or contact a list broker, a professional who compiles, updates and sells lists. A good list broker will be able to compile almost any kind of list imaginable. A list targeted to a specific segment of the market decreases costs and increases the possibility of reaching potential customers who should be most receptive to your product. If you’re planning to do any direct mail marketing, it is worthwhile to at least talk to a list broker. Ask the post office about their business mailer services (CD-ROM and Operation Mail). You must be familiar with mailing regulations, particularly when using bulk rate mailing. First class mailings can typically get better response; however, bulk rate mailings can be effective for continuous mailings. Your post office is a valuable resource when you decide to use direct mail as a means of marketing. Take the time to confer with your postmaster concerning your plans; he or she may be able to suggest cost efficient alternatives you hadn’t considered. The post office offers publications and brochures explaining guidelines and other time and money-saving techniques.

Closing the Sale The goal of all your business efforts is to close the sale. Sales ability is critical to your continued growth—the most important skill you can have. Larger companies usually employ many people to promote their products. In a smaller business, you may do this yourself, hire a full-time salesperson or work with an independent contractor, offering paid commissions based on sales volume. 85

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If you’re not comfortable with sales, or find that you need to sharpen your skills, we highly recommend taking sales training courses. Ask around for referrals to trainers specializing in small business sales. Although selling techniques are rather universal, it’s important to learn from others who have been involved in selling the services of a company similar to your own. Even if you had a great track record with a previous employer, you’ll find entrepreneurial sales to be different. As an entrepreneur, you represent yourself—not an established business. Thus, it’s important that your sales tools (brochures, slides, etc.) support who you are and what you can do for the customer. You don’t necessarily need lots of customers, just the right ones. If you’ve taken the time to identify your market, its need and its willingness to pay to satisfy that need, you should be able to pull in a minimal number of clients with a maximum payoff. Whether you are in high-volume (product-oriented) or low volume (service-oriented) sales, it’s a numbers game. Use the 80-20 rule: 80 percent of your business will come from 20 percent of your clients. Sell to those larger, potential clients in your targeted niche markets. If you’ve taken the time to locate that market and you are prepared, your sales success ratio could be one client for every five to ten sales calls (or even better). A significant importance of marketing is the impact that it has not just on closing the sale but on closing the right sale. Determining your scorecard for measuring the effectiveness of the marketing dollars that you spend is as important as selecting the media type (advertising, speaking engagements, brochures, etc.). Are you looking for image or traffic (i.e., do you want to be known, or do you want to book new orders)? There are tremendous insights which can be gained through the use of service bureaus or other businesses providing predictive modeling and customer insights based on market research, vast quantities of data, and 86

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the proper preparation and use of these insights to help grow your business successfully.

Customer Service Much has been written about customer service. The bottom line is that keeping customers is crucial to your long-term success. Following are some basic tips for keeping your customers happy and loyal: Have a plan: It will help you follow through and achieve tangible and quantifiable results. Use a questionnaire to follow up after a sale: The questionnaire should address the level of satisfaction the customer had after using your product or service. The benefits of the questionnaire are two-fold. First, questionnaires that offer favorable comments can serve as references leading to better sales results. Second, those that offer criticism can provide feedback to improve sales techniques that can also lead to more sales. Take the time to call your customers regularly: This technique can be extremely effective, yet many small business owners make the mistake of not considering current customers for new sales opportunities. Experts have shown that it’s much easier to secure new sales through existing customers than new ones. One entrepreneur we know contacts her current customers at least once a week and her past customers at least once a month. Customers who are truly satisfied with what you’ve done for them will use you again and again, and often refer you to others. If you’ve pleased a customer, ask them to give you referrals and testimonials that you can use in your promotions. Referrals are critical to your growth and are one of the very best marketing tools. Once you’ve provided the first customer with service beyond expectations (under promise and over-deliver), it will be easier to get new customers.

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Chapter 9 How to Network and Use Sources The Networlding Support Exchange Networking Channels As we mentioned in Chapter Two, networking is critical to the success of any business, offering you the contacts and market information you need to keep your pulse on the market. A frequently misunderstood skill, networking demands give and take, and unless the process is mutually beneficial, it helps no one.

The Networlding Support Exchange In the book, Networlding: Building Relationships and Opportunities for Success, Jocelyn and Melissa talk about something they designed called “The Networlding Support Exchange.” It’s a helpful tool to assist people in understanding the many types of support you can ask for when you network as well as the support you can offer. There are seven levels of support in the Networlding Exchange. They are as follows: Emotional Support: This is support you give to others to begin the crucial process of building trust. Experts who teach the skills associated with developing emotional intelligence recognize this key exchange in building rapport as foundational to relationship success. We have so often heard, “People buy from people they know and trust.” Growing a powerful relationship through an initial conversation that integrates statements of 89

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support such as “You are a good listener.”“You have good insight(s) into my challenges.” “You offer me a way to see things differently.”“You are well versed in your field.”“You share great ideas.” Set a trust foundation that will only grow over time. Information Support: Everyone appreciates knowing about things that are important in their line of business. For example, Melissa once received information from a colleague that there was a columnist from the Wall Street Journal who had just written an article on networking. Melissa went online immediately after she received an email regarding the column. She found the article and wrote the columnist after reading the article. Recognizing that there was room for more commentary around great networking and less than a day later, the columnist emailed her asking to do an article on her and her company, Networlding. Three weeks later, Melissa ended up with a great article in the Wall Street Journal. In this level of request or support you’re asking people to keep their radar out for things that would be of benefit to you and, in turn, you ask them what they would like you to look for to benefit them. Having five to ten people a month looking out on your behalf can make all the difference in your ongoing success. Knowledge Support: This level of support is all about getting insight from other peoples’ experiences. Mastering this level of The Exchange would look like having a team of people who provided you with ideas for new products or services or help with drafting proposals or contracts or sharing their insights as to how to achieve your goals and objectives faster based on their experiences. That’s why we pay so much for expert advice; it’s so much more beneficial to get the tips and strategies of others who have experienced what you are just going through to help you leverage every opportunity. Promotional Support: What’s the number one way people get new business…through word-of-mouth. And, what’s the number one way people get new jobs…through networking, which is also word-of-mouth. It’s the process of people having conversations in the network—their many circles of support that reach wide and deep—at least for those who know how to network well! So, it becomes very evident for those who study the 90

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science of networking that one can consciously and strategically leverage the power of word-of-mouth marketing through strategic conversations with key people in your network. In The Exchange, your networking partners agree to promote you and know how you want to be promoted and vice versa. Some wonder if this is manipulative. We have been coaching thousands through this process and rather than, manipulative it is decidedly strategic. Here, you have conversations that help others understand who you are and what value you bring to opportunities you want to create. Examples of question you could ask include: What are your top three strengths that you would like others to know about? x What would you like people to say about you? x What have past clients or business partners said is unique about you? x Which of your last, few, successful projects were the most exciting? x Which two people would you like to have know more about you? x What three or four organizations would you like to know more about you and your work? x

And examples of support you can offer include: I’ll mention your name to others I meet this next week and let them know more about the things you’re doing. x I will share your strengths with a couple of colleagues who might benefit from them. x I’m going to tell all my friends about your business. x I’m going to make sure I tell as many people as I can regularly about you. x I’m going to write about you in my next newsletter, column, etc. x I will tell my board about you and your organization. x

Promotional support is like having your own private sales force and PR firm working for you 24/7. It’s one of the most powerful pieces of advice we can give to have a conscious promotional support exchange with even one network partner within the next couple of weeks. 91

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Wisdom Support: Everyone of us has some wisdom that we uniquely own and dole out when the occasion warrants. Here, we recommend questions of others—especially mentor types—that revolve around their top strategies or tips for getting ahead in your particular industry. The wisdom you will receive when you ask will carry you to success that much faster. Transformational Opportunities: For the thousands who have gone through Networlding we constantly hear, “If you keep working The Networlding Support Exchange Model, you will get to this step very quickly over and over again.” Here, you will find the journey’s end is not just one, but many, evolving transformational opportunities that ripple from your connections and conversations. We’ve seen entrepreneurs get funding for their dreams or that new key account that they never thought they could get as they were up against a much larger competitor. The more you use this model the more transformational opportunities emerge. Community Support: If you’re a leader or want to be—and who wouldn’t want to be? We know you want to understand the benefits of this level of support. Here, not just your business but your whole community can be supported by your exchanges. A good example is all the community networking events Networlding has put on—from an event bringing businesses together in an effort to revitalize our struggling economy; to an event supporting reading and literacy; to events that bring people together to support mentoring for our youth and upcoming leaders of tomorrow. Networlding has experienced this level of support and has given it to communities throughout the country and throughout the world. Anyone with children or family or friends will understand the powerful ripple effect of contributing their time, treasure and talents to the growth of their communities. Fulfillment: So what happens when you keep working all levels of this model? There is an ongoing fulfillment both intrinsically and extrinsically that you receive. We’ve met the many people who have used this model through emails, letters, and face-to-face at events we host. We’ve seen, first-hand, the benefits they receive by practicing a powerful, strategic and values-based networking exchange that helps themselves and their partners truly “realize their visions through their relationships.” 92

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Networking Channels Social Media Blogging, Facebook, Twitter, LinkedIn—can these social media outlets really help your business? Indeed, they may be a key to reaching your target audience if utilized correctly. Recent research by The Pew Research Center shows more than fifty percent of adults maintain a presence on two or more social networking sites, including 73% on Facebook and 14% on LinkedIn. So, how do you leverage social media for your business? Facebook: Set up a page for your business that is separate from your personal page. Use status updates to notify subscribers of upcoming events or new products and services that your business offers. You should also post about newsworthy items that are relevant to your business or industry— don’t make it all about you, but about what can benefit your customers. Twitter: An opportunity for you to join in a conversation about interesting facets of your industry. It’s especially important here to make sure that you’re responding to other people and posting updates that don’t just promote your business. Think of Twitter as a lunch meeting dialogue between you and your customers as well as business associates. You would never go through an entire lunch just promoting your business—you’d ask the other person about their own business, or something personal, or talk about something newsworthy that interests you both. LinkedIn: Your online Rolodex. This service allows you to connect with other business professionals and perhaps get your foot in the door at a company with whom you want to do business—you know somebody who knows somebody who knows somebody. The site features contact information, employment information and status updates. Blogging: Many businesses maintain a blog, which allows them to talk in greater detail than Facebook or Twitter about subjects that interest their customers. Here you can promote a new product, recommend another company for some type of service and discuss interesting items in the news. 93

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Then your readers comment on what you’ve posted, and you comment back to them, creating a conversation. Depending on your type of business, there may be other avenues of social media for you to consider. The most important aspect of social media for you to remember, and what is consistently emphasized, is to consider it a conversation and a way to build trust in your followers—not just a promotional tool. For more in-depth coverage of social media, please see Melissa’s book Fifty Ways to Better Social Media.

Networking Through Associations One of the best ways to meet people in business is through associations. In these organizations, industry professionals meet, share information and develop new business opportunities. Regular meetings present the opportunity to learn while establishing contacts. For a comprehensive listing of associations, check the Encyclopedia of Associations at your local library. There are literally thousands of organizations around the country most of you can join, especially those of you living in larger cities. And we believe there will be no end to the start up of more organizations, even online organizations that will connect people to other people and opportunities all over the world. Many associations publish newsletters and magazines that will help you stay abreast of the current state of your industry. There are many national associations than can be of benefit to your business. Those lacking local chapters can still provide you with opportunities to network with professionals in other parts of the United States. Contacting other business owners long distance can be an invaluable networking tool. These professionals are often invaluable sources of information about successful marketing strategies and sales techniques. Another benefit is that these long-distance telephone conversations tend to be short and concise. The individual on the other end of the line is usually flattered that you took the time to call long distance and therefore answers your questions as quickly and precisely as possible. You should also utilize email to keep in touch with these long-distance contacts. 94

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We recommend regularly keeping in touch with your long distance business network. These professionals can become great sources for new information, as well as new business in the future. Long-distance networking can be extremely advantageous for business owners who have a national or international market potential. Joining Associations So, how do you know which organizations are right for you? Below, we list five criteria you can use to query prospective organizations to discover which organizations will offer you the best value for your time and dollars: Qualifications: 1. Does the organization have some type of mentoring initiative? In other words, what systems have been put in place by the organization to help those new members who would like the support of a mentor to help them learn more about the organization and get introduced to members with whom they can share the many benefits of strategic networking? 2. Does the organization have a diverse base of members? One of the most important learning objectives around building a successful power network is to practice what is termed, “divergent networking.” This means that you network with different people from different industries, different cultures, different companies, etc. The more you grow a divergent network the more you will grow connections and opportunities. Good examples are all the women’s organizations out there who allow men to join. We find the best male mentors among those who support these organizations. One such organization is the Women’s Executive Network (WEN) run by a wonderful woman named Joan Toth. When Melissa spoke at one of their meetings she met a partner from Accenture, Mike Gorsche, who has been a great supporter of Networlding as well as a supporter of WEN, an organization Accenture sponsors. 3. Does the organization offer scholarships? We like to see organizations that give back to the community—especially when they give back to the upcoming leaders within their communities. There is nothing 95

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more rewarding than the participation of future leaders at events that have included their wisdom and presence. 4. Does the organization have a dynamic, active, and forward-thinking board? Many organizations are so politically skewed they don’t have the best interests of their members at the forefront of their actions. It’s good to find out who is on the board and what kind of agenda they have for the year. 5. Does the organization allow structured networking during their meetings? We define structured networking as a time for special connections to be made around a structured process that gets everyone involved—not a haphazard networking initiative that does not allow all members to be connected. For the past ten years, Networlding has developed hundreds of interactive, structured networking events that literally level the playing field to include all participants in dynamic, exciting and valuable exchanges. Only you determine your philosophy and networking requirements, and then set your priorities. Your business commitments will not allow you enough time to get involved with too many groups, so pick the values and networks that provide the greatest benefit to your business. Avoid spreading yourself too thin—start by joining one or two organizations. If you take your membership seriously and get actively involved, you’ll benefit from participation in a professional or community organization. This is where others can see you in action. Ideally, participation in a combination of professional and general business organizations is beneficial. The best networks are those that make things happen by bringing regional and national issues to the community level. Such organizations actively promote their members and are therefore selective about whom they accept as members. Thoroughly check out the programs and benefits offered by each organization you consider joining. Many organizations offer you an opportunity to get acquainted at business after-hours meetings. There is usually no cost to attend these events, and you may even get some business. 96

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You’ll also want to attend several of each group’s organizational meetings. Look for an affiliation that will increase your potential sources of business and provide you with opportunities to enhance and challenge your current expertise. Meanwhile, collect lists from membership rosters, chambers of commerce and alumni directories. Start contacting these people to introduce yourself. Participate in at least one membership group, fundraiser, benefit or charity event quarterly. Get involved in planning and organizing major meetings/ celebrations. Always do this with complete dedication and attention to detail.

General Association Networking Tips Join and participate regularly in community organizations and professional, technical or trade associations. x Read and listen. Newsletters, professional and trade journals and magazines spur creative ideas and keep you aware of what’s happening. x Attend workshops, seminars and courses in your field, or explore new and related fields. Begin by contacting the continuing education department at your local college or university and professional, technical or trade associations. x Use the telephone and email. Call or email to say “hello,” to get an opinion, or just to share some news. x Schedule breakfast, lunch or dinner dates with peers. x Invite others to visit your office, and arrange to visit theirs. x Meet with a peer group on a regular basis. x Affiliate or form other joint business relationships. Drawing on the contacts you make, set up joint projects with people in your field. x

Networlding at Events: Strategies to Guide You It doesn’t take a rocket scientist to help us realize the benefits of good networking. But it isn’t a skill that is second nature to all of us. When we note that statistically more than half of the world is shy, we need to be sensitive that not everyone, even if they know how, can network well. One 97

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of the things we recommend the most to network better is to get someone to help you. We’ve added into our coaching the practice of taking our clients to events. You can also make a point of finding yourself a partner to join you. Actually, one of the better strategies for networking at events is to go with someone else and each one of you covers one side of the room. When you meet someone you really want to impress, bring that person to your partner on the other side of the room and introduce him or her. Your partner should be ready to endorse you to the person you’re introducing, helping you gain even more credibility as to who you are and the value you can offer to others buying your products or services. Another top strategy we’ve recommended and that works very well is to, in advance, call the head of membership for the organization whose event you plan to attend. Ask if you can get in contact with one of the top networkers in the organization to introduce yourself ahead of time and find out from them more about the organizations—in other words—members learning the “inside scoop” from other members. This can make all the difference in getting introduced to the inner circle within an organization. The adage, “You only have one chance to make a first impression,” could not be any more real than when it comes to organizations. We also know that we are around seven times more effective face-to-face than we are over the phone. After all, there are so many more senses connecting you to someone through the face-to-face experience. Therefore, getting introduced through someone with strong influence can be invaluable. And, if for some reason you forget to call in advance, go early to the event and ask the folks at the registration table to help you. Most often they will and, if they don’t, then you know this is perhaps not the organization for you. Most importantly, remember, as one of my colleagues, Miles Kierson says, “Organizations are really just networks of conversations.” Remember, you are on your way to better connections and success faster when you create better conscious conversations with the right people at the right time and in the right place!

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Building your Team of Experts Internal & External Resources Alliances & Partnering Flatworlding

Internal & External Resources Long before you’re ready to hire employees, you need to decide which skills and behaviors you need in house vs. which skills and behaviors you can acquire through contractor, alliance partner, or service providers. You should prepare yourself well in upfront planning of your internal organization and your external network in order to ensure that you will make well educated choices when the time comes. Before you hire your first employee, carefully evaluate the kind of individuals you need to bring into your organization. While working with other professionals and businesses, observe the kinds of skills and work tactics that mesh best with your own. Develop your ability to communicate your needs and motivate others to follow through. You may need salespeople (products and services usually don’t sell themselves). Consider using outside reps who work on straight commission. This arrangement—typically an independent contractor relationship, allows flexibility on both sides. Your salespeople set their own hours and goals and you pay them only when a sale is made.

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You may also need product development, sourcing, administrative, call center, customer support, supply chain, information technology or other functions. As we mentioned earlier, no matter what the size of your business, you can take advantage of a flatworld and leverage mature service offerings which can provide you back office and other services that are needed to run your business profitably. The global communications infrastructure and ubiquitous computing, along with two decades of improvement in offerings and service levels, make a virtual back office, and even a virtual front office, a profitably reality for many of today’s small businesses. You might use on-site independent contractors in some areas of your business. Many computer programmers, for example, work as independent contractors. All small businesses have special projects for which independent contractors are appropriate. A word of caution is in order here. In the past, a number of small businesses falsely classified employees as independent contractors in order to avoid unemployment insurance, payroll taxes and social security payments. As a result, the IRS has targeted abuse of the independent contractor status for audit. Penalties for noncompliance are severe—100 percent in the case of payroll taxes, and the owner’s personal assets are liable. Carefully review federal, state and IRS regulations to be sure that any temporary help arrangement you set up conforms to be the legal definition of the independent contractor. This is a confusing area of the law. If there is any question in your mind, we advise you to consult your attorney. Another method for securing workers to fill gaps in your workload is to tap into the temporary job market. Temporary workers fill a very definite need. They work on a per job basis for a day, a month or a year, and they are not on your payroll. You hire temporary workers from a service, which is responsible for tax liabilities. You benefit in another way—you have help when and where you need it without paying an individual for down time when business is slack.

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Don’t be put off by the idea of temporary workers. Today’s temp agencies offer workers with many different levels of skill and expertise—everything from bookkeepers to computer consultants and executives. Some agencies specialize in administrative help, while others can provide you with technical, financial or managerial personnel. Temp services offer skilled, prescreened workers, and they frequently offer the option of permanent placement. Be sure to check with the agency’s policies concerning permanent placement of temporary personnel in the event that you decide you would like to offer a temporary worker a permanent job. These aren’t the only resources you can tap into when seeking qualified talent. There are many reputable employment websites that allow employers to post advertisement and/or view resumes of jobseekers. You can also advertise in newspapers, and try your own trade and association websites, newsletters, and magazines. Solicit referrals from business acquaintances, organizations and friends. Approach universities and technical/vocational schools—most of them offer job assistance programs. Temporary services cannot fill job orders for home-based offices. If this is a problem, think about hiring individuals outside the standard temp job market. Most US cities today are filled with professionals willing to work on an on-call basis to earn extra money. Whether you’re hiring permanent or temporary employees, one of the most important things you can do is seriously consider the type of person you need, and their relevant background for your company. In addition to skills and behaviors that you interview for, it’s important to understand the extent to which employees can make or break the company. You should look for attitudes in your permanent employees which suggest that building a career with your company is what they’re interested in. You should look for attitudes in your temporary staff that show they are 101

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engaged and interested in the business as a whole, and not merely going through their job tasks or activities. Temporary employees who wish to be considered for permanent employment can be a great asset to the business. Finally, the subject of background checks needs to be seriously addressed. Distasteful as it is for the entrepreneur, it may be prudent to solicit assistance from services which can quickly and inexpensively provide you with background checks on your employees.

Permanent Employees You may want to start planning for permanent employees with an ongoing search. Collect the resumes of those who impress you and categorize them according to the role they could one day fill in the development of your business. Conduct information gathering interviews. Exploratory interviews serve the purposes of qualifying the interest of the individuals in possible future alliances. Explain your interest and intent, and ask these professionals to keep you apprised of their progress. Those who continue to update you and show promise stand out as the best candidates for your company when the need arises. As you develop a reputation as a solid business owner, you’ll also be able to network with business leaders in your community, even if they are outside your own industry. If you’re looking for someone to fill a top spot in electronics, don’t pass up the chance to discuss your credentials and employment needs with the recruiting executive of an advertising firm. He or she just might have the hidden connection that could lead to the talent you need. Network with recruiters from many industries, both related to your own business and others. It’s the only way to learn about available talent. Employees are your company’s lifeblood and most valuable resource. You’ll generally get back as much, or more, from them as you’re willing to invest. Consider investing in their continued education and upgrading of skills, and capitalize on every opportunity to foster their abilities. Employees who are given a sense of pride and co-responsibility will contribute much to the 102

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growth of your business. You might want to consider cross training your employees so that they are well-versed in all facets of your business and capable of performing multiple tasks within your organization. Common wisdom today is to seek out those people who know to function without organizational charts—people who are able and willing to make decisions and take responsibility for the outcome. While you’re looking for workshops, seminars and other educational opportunities for yourself, you might also keep an eye on what is available for employees. Also consider subscribing to newsletters and magazines that are focused on updating employee skills.

Employee Manual Before hiring anyone permanently, you should have an employee manual in place that complies with all IRS and OSHA requirements. The handbook, which is not intended as an employee contract, should be updated regularly. When setting up your employee handbook you might want to include many of the following topics to avoid misunderstanding and conflicts later: Introduction of the company and company policies Company history and financial status Working hours and sign-in procedures Rest periods/coffee breaks Rules for absences Pay periods Safety and accident-prevention programs Policies on phone usage Vacations and holidays Compliance with the American Disabilities Act and similar regulations/laws x Policy on jury duty and military leave x Employee’s rights to unemployment compensation x Medical, hospital and surgical benefits x Pensions, profit sharing and bonuses x Group insurance x x x x x x x x x x

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x x x x

Training Programs Parking rules Service awards Credit Unions

When to Hire a Manager There is no best time to hire an outside manager. However, you need to recognize that there comes a time when hands-on attention to the details of growing and operating a startup business reaches a point of negative return on your invested time. Sometimes entrepreneurs find that the investment of more time and energy fails to produce a comparable return. Simply put, your growing business may require more expertise than you have. It is then that you must decide whether to bring in new managerial help or to curtail continued growth. When you bring in an outside manager, you must give up control. Managers are an important part of business growth. It’s best to bring in new managers when the business is on course and holding steady with increasing profits, usually after the startup period is completed. Bringing in that outside manager frees you up to conquer new worlds. Before the search begins, you must consider compensation. A good resource is the Executive Compensation Booklet from Price Waterhouse. This booklet on executive compensation packages includes information on stock, deferred performance bonuses, and stock appreciation rights.

Employee Benefits Health insurance is the most critical benefit question facing small business today, and clearly there are no easy answers. Although few small businesses can afford costly benefit packages, there are other ways to compete against larger companies for employees. Take advantage of your flexibility. Listen to the needs of your employees. Sometimes all it takes is a small concession like flexible working hours to 104

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make an employee happy; and the small business is better able to respond to that type of need. You should talk to your accountant about creative compensation packages that will help keep valued employees. High-tech companies have used stock options quite successfully in gaining the commitment of key employees. Look into profit-sharing or retirement savings plans that are financially within your reach. Perhaps the best advice we can give you is to take time to shop for coverage using all the resources available. For example, many chambers of commerce and trade and professional associations offer special group plans. A good resource is the National Association for the Self-Employed. Once you’ve found a good medical plan, consider picking up a part of the premium and having your employees pay the balance. Author Linda Stern gives this advice, “Forget about buying an expensive, top-quality health insurance policy. It simply doesn’t exist. At best, you’ll find a reliable, solid policy that fits your needs at a cost you can afford.” The first thing you want to look for is whether the insurance company you’re considering has a proven record of safety and reliability. You probably don’t have the time to evaluate the performance of more than 2,500 insurance companies on your own, so you’ll need to rely on an impartial third-party resource such as A.M. Best Company, Standard & Poor’s Corporation of Moody’s Investors Services. Best has been recognized as a leading firm in analyzing the financial strength of insurance companies since 1899. Ratings are based on what Best thinks of a company’s relative strength and operating performance. Standard & Poor’s has been rating companies since 1923, and rating the Claims-Paying Ability of insurance companies since 1971. Moody’s Investors Services originated a system of rating securities in 1909. This system was first applied to insurance company policy holder obligations in 1986. Moody’s considers all phases of the life insurance industry when assigning ratings. 105

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Another good source of information is other business owners who already have policies. Ask them what they like and don’t like about their current policies. Make a prioritized list of the services you value the most, and compare these services with the features offered in available policies.

Alliances and Partnering

Smart partnering and alliances are essential to getting an adequate return on your invested time. Building successful alliances and finding the best partners in today’s dynamic marketplace is more important than ever in this post-boom economic environment that we find ourselves in today. Too many companies either ignore potential alliance partners, through either ignorance or arrogance, and find themselves suffering alone in today’s market; or have gone on alliance and partnering binges, resulting in poorly planned and positioned networks of business partners who have added to the bureaucracy of conducting business or even added to their costs of doing business. There are three basic questions that need to be asked prior to considering any alliance or partnership arrangement: 1. Will this alliance help me reach more customers or better service the ones I have (i.e., partnering for indirect sales or customer service; or call center support)? 2. Will this alliance improve my internal operations, making them more efficient or effective (i.e., partnering for financial management, or legal assistance, or IT)? 3. Will this alliance improve my ability to source product, obtain raw materials or talented personnel (i.e., partnering for supply chain providers, purchasing consortiums or recruiting firms)? Building and maintaining successful alliances is not difficult if you have a clear vision of the “as is” state of your business. Alliances that may serve your purposes in the beginning years could very well hinder your growth in later years, so you need to be careful about the terms and conditions of such relationships. 106

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With that said, the majority of alliances break down not over time requirements and needs changes as they end up stifling growth or being unproductive, but because the members of the alliance think too shortterm and don’t invest the time and energy in making the relationship winwin, driving profits for both. Think very carefully about the alliance partner you’re considering. Everyone is in business to achieve their corporate goals. Research the corporate goals and objectives of your potential alliance partners. Understand their market strengths and weaknesses. Be sure to match that up with your own company’s strengths and weaknesses and set the framework for the relationship. Some of the most successful alliances come between companies that have similar styles in the marketplace, complementary services, and a healthy respect for the strengths, weaknesses, and operating models of their partners.

Flatworlding Flatworlding has been a major part of business models for the last twenty years or more and will continue to dominate the labor, talent, and business process landscape for decades to come. Originally known as outsourcing, it has enormous benefits if deployed in your business model appropriately, but can also be enormously distracting and inhibitive if done poorly. You should not consider flatworlding talent or outsourcing certain business functions or processes as a mechanism for reducing costs. Flatworlding can potentially reduce your costs; especially if you are a smaller enterprise requiring more sophisticated services which would be expensive to acquire and maintain in-house. However, the business case is far more valuable when addressed to a specific, non-competitive business focus. For example, rarely would a software vendor outsource or use a 3rd party for technical support of their products because world class technology knowledge (IP) inside the company is essential to protecting the brand and company growth. 107

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However, for businesses such as small retailers or service operations that are not selling technology but merely trying to more efficiently use it to grow their business, outsourcing of non-competitive IT functions may be a viable alternative to hiring and maintaining an IT staff in-house. Additionally, many large and small companies have considered flatworlding payroll and/or backoffice financial functions. Oftentimes the initial reasoning is based on cost savings; however, the long term benefits stem mainly from freeing up valuable internal resources and capital that can then focus on more strategic customer or market-facing programs which can help the company grow. For example, your best financial analysts in the company no longer need to spend all year preparing quarterly reports and annual financial statements. Instead, they can get closer to the sales and production portions of the business and provide valuable financial analytics and insights on cost and revenue elasticity; market dynamics; and overall business acceleration. In each area of your business model, whether it’s marketing, sales, IT, finance, HR, legal, logistics, etc., you need to consider what gives you a competitive advantage and what gives you competitive parity. Based on the relative importance of each function to your overall business goals, you can then decide whether flatworlding the service or process, or outsourcing the function, is a viable alternative for the business, and most importantly— for how long? The most successful businesses are agnostic when it comes to many noncritical portions of their business operations. They don’t care who does the work as long as it gets done with the proper level of quality and timeliness. On the other hand, this agnosticism is offset by the fanaticism of their desire to excel in those areas of the business that require world class performance and unique customer or service delivery capabilities. Understanding your business model well enough to know when to “hold on loosely but don’t let go” and opt for a flatworlding arrangement…and when to hold on tightly and optimize your best and brightest people onsite is a key to a successful flatworlding strategy. 108

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Managing and Growing Your Business in Stages Business Functions & Processes The Matrix Organization

Business Functions & Processes Whether you’ve established your business as a sole proprietorship, a partnership, a corporation, or a hybrid model—your management skills and ability to determine how to handle or delegate key functions (sales, marketing, production, etc.,) will be critical to the success of your business. As an entrepreneur, your focus has been on conceiving, gathering resources, organizing, and running your business. During the developmental phase of your business, you must take steps to create internal functions in a manner which best ensures that your operations flow more smoothly. You’ll then have more time to do the things that really grow your company—like direct investor or customer contact, or direct research and development (if that is your expertise), etc. If you’re a sole proprietor with full responsibility for all aspects of your business, you don’t need to worry about formally creating certain functions (i.e., human resources, sales and marketing), but you do need to be skilled at managing time and energy levels and to balance the varied needs of your business, from production to sales to collections. You will want to organize your company for the greatest efficiency and to tap into every possible tool that your budget will allow. 109

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Successful business owner-managers are incredibly well-organized. They’ve developed keen conceptual skills that enable them to acquire, analyze and interpret information from various sources and then to make complex decisions. These entrepreneurs see the big picture and plan ahead rather than reacting to outside influences. Leaders who can inspire others with their vision, they learn to handle administrative tasks and budgeting. If they don’t, they don’t survive. To succeed, owner managers develop the functional skills required to complete the tasks that keep their business operating—or they find outside experts to help them. Deciding which business functions are critical and which business processes are essential is one of the most difficult things for an entrepreneur. Most entrepreneurs simply aren’t initially wired in a way which fosters that kind of thinking; but the best ones learn quickly. What is the difference between Jack of All Trades, Functional Expertise and a Process-Aligned organization? In the entrepreneurial stage of a business, there are many functions being performed by few people. As the company grows, however, (either in terms of sales or risks), the structure of the company needs to change to be more functionally aligned. Whether this is due to the owner-entrepreneur not having the time (or perhaps the skill) to properly perform these functions him/herself, or because of wise foresight to continue to service customers optimally, eventually marketing departments, sales departments, IT departments, finance departments, and others are created and staffed. In a traditional growth model, the final stage is the process aligned business. As the walls or silos between functions get thicker over time, communications barriers increase. Sales personnel don’t communicate properly with product development or marketing. New promotions or advertising events are launched without proper understanding of the impact on field personnel, existing customer perceptions, or the supply chain. What was once an effective way to organize resources around key functions has now become a field of inefficiencies and barriers, choking off the company’s ability to 110

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quickly and profitably service new and existing customers. So processes like customer service centers of excellence are given life, leverage, and capabilities to cut through the thick walls of functional silos, and continue to keep the company focused on the customers and the marketplace. Finally, a word about time management, which is a subject written about extensively, and is probably as important to the growing business as delivering profitable sales. Successful entrepreneurs have control over their time—it is the one skill that propels them forward at a consistent rate of growth. It’s all about self-management over time management. Good selfmanagement can save entrepreneurs as much as one hour a day. For service-based companies that are essentially selling their time, that extra hour (12% of the day) can really make a difference—not only in sales, but in the personal development of the business owner. One key metric which is critical to the success of the entrepreneur is ROIT, return on invested time. Having an extra hour a day to think, plan, and execute the business is a 1200 basis point increase in productivity, a 12% increase in productive time which your company, associates, customers, suppliers, and partners will all benefit from. Effective self-management is based in discipline. Entrepreneurs have a tendency to get trapped into taking on too much. They often overbook their appointments, their administrative tasks and even their networking opportunities. A better way to handle the many tasks required to build a business would be to first prioritize them as follows: An “A” priority task: something that directly relates to achieving one of your goals. For example, you want to begin growing new business opportunities by giving talks at various clubs. The first step, then, might be to contact an organization such as Toastmasters to develop your speaking skills. A “B” priority task: something that indirectly relates to achieving one of your goals. These tasks don’t carry as much of an immediate need to 111

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complete. The important element here is to make sure that these tasks are done after any “A” priority tasks. For example, reading a book on giving special presentations might be a “B” priority task. An important thing to remember about time management or selfmanagement is that priorities can change often, even daily. You must be flexible, allowing change when new opportunities arise. Many business owners feel as though they are always busy, working long hours but not necessarily accomplishing what they wanted to do. Poulos refers to this experience as the “barrenness of business taking over.” Being “gold-minded” together with “time-minded” is the key to getting out of this time trap. There are many scheduling and organizing tools on the market, some of them quite expensive. There is no way to recommend one over another because every business and every person has particular needs and styles. Be sure that the system you choose is easy to maintain and does what you want it to do. The fine art of delegation is an extremely important skill for you to learn regardless of whether you manage a business with several employees or just manage yourself. No one can function effectively alone; those who attempt to do so fall prey to burnout. Although delegation can be a difficult process for anyone accustomed to keeping tight controls over their business operations, it can greatly improve efficiency. The best way to strengthen a small business is to delegate to outside experts. Consider asking a banker, an accountant, a management consultant, an attorney or another local business owner to serve on an informal board of directors. A monthly meeting of such a board can yield good advice and become an ongoing source of business development. The group can also be used as a sounding board for future business decisions. You’ll find that you can delegate and still keep control if you follow some very simple guidelines:

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Let go of responsibilities for tasks that don’t address your top priority. x Know exactly what your goals are, and then make sure they are measurable and specific. Prioritize expectations. x If you have an overload of work, find someone—perhaps even a competitor—and subcontract small projects to them. Find someone who can deliver and doesn’t cut corners. Consider training, ability and availability. x Establish reasonable checkpoints for communication ahead of time so that fellow professionals don’t feel you’re questioning their competence. x Consider delegating the entire project—based on the project’s complexity and your subcontractor’s expertise. x When a project goes sour, consider allowing the subcontractor to take responsibility and correct any problems he or she has caused. Patience in this area can lead to profitable long-term business relationships. x Have an agreement specifying the performance standards, budget, deadline controls and procedures for final review (when and how a formal review will be handled). Be free with your feedback—positive and negative. This enables subcontractors to know if they are on track. x

Managing Your Matrix Organization We’re believers in the adage “Success is a journey, not a destination,” one in which we’ve spent many years living. Beyond the process-aligned organization is another model which has evolved from the marketplace (where all great ideas take root—as opposed to the conference room which usually produces more mold in the bottom of old coffee cups). After weathering a few years of business ownership, you’ve grown from fighting alligators and focusing on survival, entrepreneurial to the hilt, into experiencing new growing pains and gains. Your administrative and accounting infrastructure and all your functions and key processes are in place. Your business identity is gaining recognition. You, and everyone you work with, know what your product is, who your target market is, what 113

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price ranges you function in and how you get your message and product out to that targeted market. You have a pool of satisfied customers and a track record of dependability and profitability. If you find that your business is lacking in any of these areas, look back at prior chapters to determine exactly what you need to do to bring your company up to speed. You are now ready to evaluate where you are and what your next stage of development will include. Not all businesses want to become megacorps with hundreds or thousands of employees. In fact, current wisdom stresses a preference toward staying small for optimum market flexibility, even if that means you create a holding-company structure to keep your interdependent value propositions lean and focused, and leverage service providers to keep you efficient and nimble. At the three year point you may begin to feel the need to change and do something different. Often a major overhaul in image, marketing procedures, location or even business status “Whether to continue on or to try a new venture” is decided upon. This is also where you run the highest risk of burn out. Many entrepreneurs instinctively know when they’ve come to a fork in the road and that major decisions need to be made to continue growing. These professionals come to the realization that they can no longer reach their maximum potential by working harder or faster. At the same time, successful entrepreneurs know that any change needs to be a logical outgrowth of what has gone before; and be rooted in their core competencies, strengths, and customer value proposition. Now, it’s time to work smarter, using the knowledge and skills accumulated through the startup period and drawing on a history of successes with customers. In this context we introduce The Matrix Organization. The Matrix Organization optimizes the entrepreneurial spirit, the efficiencies of functional alignment, and the effectiveness of key core processes which cross those functional areas to keep the company delivering quality products and services to the marketplace. It is based on the deep knowledge 114

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that no single person can do everything, that no executive, no matter how wired for success or knowledgeable about the business, can continue to be the central pivot in an organization. In the flatworld of today and the crowded marketplaces of tomorrow, those days are over. The pivot … is your people. Being able to build networks and “think to link” in terms of building and maintaining value-based and profitable relationships inside and outside your company are now not just critical success factors for the best CEOs in the country, they are critical behaviors for everyone from the C-level to the mailroom clerk. Linking, communicating and leveraging both corporate and individual circles of relationships is the foundation of the emerging business people who are dramatically improving their careers and the profitable growth of their companies. The Matrix Organization is a business model which takes advantage of a key attribute within the business organization, an attribute that functionally aligned and process aligned businesses have not historically leveraged appropriately: Profitable Individuality (PI). Profitable Individuality is required in companies with functional silos, where good ideas in marketing rarely make it to field personnel; where the customer service group doesn’t include net landed cost analytics showing improved ways of delivering products and services; where there is a culture of business as usual that stifles creativity; and where there are not enough transparent exchanges between talented individuals across the organization to make a material financial and sustainable impact. The Matrix Organization is a response to the “arthritis of the joints” between functions and processes. It is designed to free the individual knowledge worker inside a company to participate in activities, in addition to performing their job, that create value for the enterprise. Companies which are deploying this business model have the following corporate culture components in common:

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x x x x x x

Learn continuously. Endorse experimentation. Break old patterns. Identify commonalities…not differences. Build new networks. Optimize assets (people, brand, infrastructure, reach).

The Matrix Organization is an enabler of a future where all entrepreneurs manage and grow their companies through initial stages, past functions, past processes, into an environment where every individual in the company is participating not only in the areas where their skills generate the most value for customers and shareholders, but where their aspirations and their behaviors generate that value as well. This model requires an ego-free environment (not easy to attain), a common cause and belief in the quality of the product or service the company is delivering to customers, and an open, fertile culture of “The Genius of the And” designed to assist every associate, every customer, every supplier to be the best they can be…to the benefit of the entire ecosystem.

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Social Glocal

Do you remember the entrepreneurial survival skills we described earlier? By now they should be your credo. Be ethical, even in hard times. Know your customers’ needs and satisfy them. Take the time to do something extra for your customers. Focus your energies on the bottom line. Pay attention to accounts receivable. Control your inventory. Reduce expenses Minimize paperwork. If you’re an entrepreneur, you are a survivor. You constantly demonstrate to yourself and to others that you are in for the long haul. You exhibit rare commitment to do whatever it takes to get the job done. You face struggles with your eyes wide open and have learned to turn problems into challenges and opportunities. You thrive on risk, challenge and accomplishment. You use your eco-system (both personal and professional) to meet customer expectations and to better understand expectations that you are not meeting. With knowledge and expertise, you are now capable of taking more calculated risks. You can try new tactics based on probable outcomes. When you do so, you should have a firm idea of where you are and where you want to go. You developed a business plan when first starting your business. 117

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However, what you’ve noticed on a personal level—using social media to stay in touch with ex-colleagues, school-mates, and friends, but perhaps not fully taken advantage of for expanded business growth—is the incredible network effect provided by the convergence of Content, Communications, and Capabilities over the past few years; in other words, the emergence of Social Glocal. As we stated earlier, your eco-system is a very under-tapped asset. Expanding your eco-system in a viral, profitable way is now a necessary component of any successful business launch and expansion, whether you’re in Dallas or Delhi. We’re not talking about having a Facebook or e-Msg account to collaborate with customers, associates, or suppliers. We’re talking about using Facebook, Google, Twitter, YouTube, etc., as social media mechanisms to communicate with current and prospective customers. Many Fortune 500 companies spend hundreds of millions of marketing dollars in managing domains, keyword search rankings, link priorities, etc., in the increasingly critical virtual flatworld we live in today. As an entrepreneur you’ll not need to make the same investment to gain equivalent results from a world which has grown increasingly Social Global-Local in nature. For example, if you’re a custom egg-basket manufacturer, placing your eggbaskets into a Second Life household or virtual retailing scenario extends your icon, brand, and identity reach to tens of millions of individuals you couldn’t possibly touch through traditional physical mediums. Another example is the arbitrage which happens when the hundreds of millions of searches which occur daily from consumers who type in a keyword to Google. This in effect triggers a real-time auction involving all of the companies and all of the products and services linked to that keyword, literally millions of marketplace matches per second, and has proven enormous potential as a channel to capture both articulated and unarticulated demand patterns and profitably connect you with customers you never knew you could have. Another example in the changing dynamics of ecosystems and marketplaces is not just for you as a business runner to post what you’re selling but for consumers to post what they want to buy, what they’re willing to pay, when 118

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they want delivery, how they want it packaged, and have that open bazaar where you compete to meet their demands. We’re talking about social commerce and the emergence of consumer-driven economics. Just think about the Persian traders from 5000 years ago replicated into the modern age and you’ll understand the new dynamic and the new opportunity. In contrast to traditional use from the last decade (companies posting specifications and accepting bids for product development, sourcing, transportation, call center services, maintenance agreements, etc) the emerging power of the consumer is taking a direct path to control and is a primary driver of business innovation. Whether you’re a small, medium, or large enterprise; whether you geographically operate in a mature, emerging, or growth market; whether you have patented assets or are offering a commodity service—social media, social commerce, and the global-local effect of the continued maturity of the Internet as a vehicle to adopt best practices, reach new customers, design new products, or collaborate more effectively with valuechain partners has already proven key to maturity and expansion. It’s time to get on board in a big way if you have not done so to date. This is an area of importance whether you are a home business or a fledgling newco and may be one of the key areas of your business model in which you leverage external consulting or advisory services to create your digital footprint. As anyone who has ever viewed a viral YouTube posting knows, the world is “Flat as a Pancake” to quote an old HeadEast album from the ‘70s…and that presents huge opportunities for growing your successful business. Finally, if you haven’t been using your business plan regularly to create monthly or even yearly action plans, it’s now time to look at it again, to make it a living document. Updating this plan will keep you on target and propel you to the next plateau of business growth. It will also demonstrate to potential lenders (private equity, venture capital, etc.), if you choose to take this route, that you are indeed on top of a viable business. Short-term goals should consist of plans for the next year. Long-term goals will include no more than three-year and five-year projections. Anything 119

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beyond that is irrational to assume in today’s flattened and chaotic economics. Remember, however, one of your greatest strengths as a small business person is that you can move quickly to meet unforeseen changes in the economic environment and the market. Your plans must be adaptable for changing conditions in the marketplace. Moving beyond survival, you need to provide strong organizational leadership and vision for yourself and your business. Somewhere between the inception of your business and the point where it will reach peak development, you need to make some serious decisions. Do you want to diversify and expand your business, offering new products, services, hiring more employees, entering new markets? Maybe, maybe not, depending on the goals you set. At every plateau in the growth of your business, there are trade-offs. For every change you make in your operations and structure, there will be ramifications that you need to be prepared for. For example, if you decide that you’ve been working alone long enough and now want to take on employees, you don’t just hire a new person to work with you. Will an employee produce enough to justify the payroll cost? You need to restructure your accounting processes, rethink your IRS requirements and realign your workload—perhaps delegating more and taking on new managerial roles. Many business owners avoid planning. They think planning limits their flexibility, is impossible in an uncertain business climate, or takes too much time away from day-to-day business. Their definition of an “agile” company culture results in behaviors which are often unstructured and immeasurable and ultimately unprofitable. Garage Growth may be necessary to launch an innovative enterprise, but quickly needs to yield to prudent decisionmaking, passionate pursuit of your vision, and operational excellence guided by the people, process, and technology optimization necessary for all business models and all enterprises, big or small. Marion Foote, a specialist in strategic financial management for small businesses, offers several reasons for creating a plan for your business. 120

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Flexibility: Planning expands your options. If you don’t know where you’re going, you often end up somewhere you didn’t intend to go. When you know where you want to go, you can decide how to get there. Then, if you run into a roadblock, you can find a new route to your destination. x Change: Planning reduces uncertainty and helps you share ideas with your associates. To operate in a changing environment, you need everyone’s talents and ideas to find the best route through the changes affecting your business. x Time: Studies show that small-sized to medium-sized businesses currently spend four to ten days per year on the planning process— less than five percent of annual working time. This is a small price to pay for one of your most valuable assets—a map for success. x Direction: As you develop plans for the business, you share your goals and objectives with the people who can help you reach them. A shared understanding of where you’re going helps everyone work toward the same goal. x

The entrepreneurial journey can at times be a lonely one. The resources contained in this book have been compiled to provide you with help along the way. We have walked the path you’re walking. We know how it feels to strive, fall down, pick ourselves up and start all over again. In fact, we believe that the purpose of the fall is so that we learn how to better pick ourselves up. Although not recommended, through our experiences we’ve noted that many of the most successful entrepreneurs and business owners are those who’ve declared bankruptcy, closed the doors on a failed business, or lost a key enterprise at least once. They made early mistakes, recovered, and ultimately meshed the great idea with the great business model, great people and a great network which led to their ultimate success. We also know the incredible thrill that accompanies such success. We understand the addiction of the entrepreneurial challenge and we wouldn’t live our lives any other way. Someday, perhaps we’ll have the opportunity to do business together. 121

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In the meantime, here’s to you. We won’t say Good Luck—because luck seldom has anything to do with building and growing a successful business and power network. It’s perseverance, passion, and execution. Fair sailing to all! David Stover Melissa Giovagnoli www.networlding.com and networldingblog.com or call us at 312-560-0982 for a free consultation. We are all about helping you build better business faster through lowest-cost-highest-quality implementation of social media initiatives.

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