Thursday, October 30, 2008

Economic Development


I had a chance to attend some sessions for a Economic Develoment conference in Oklahoma City this week. Traditional Economic Development activities basically meant going and finding companies that want to move - usually manufacturing - to a new location. They then schmooze them and get them to your community.

This really had nothing to do with entrepreneurs. And it still does not have much for early stage ventures. Yet, there is a greater realization that the small business already in your community could be a driver of employment and economic development. That means you might actually have some cause - particularly if you are growing and anding jobs in the local community - to stop in to the local economic development office.

While there are still a few dinosaurs that might send you away, most economic developers are looking to show they have brought additional jobs into their community - and if you can help them show that - they can help you. For example, in Oklahoma, there are some site opportunities, help you with locating employees, community development funds. None of it is pure cash on the barrelhead, but it can be a little extra to help!

Again, this is an area you don't want to devote a large amount of time. If you have a good #2 or even a product manager, that might be something for them to investigate and get back with you.

With the economy tough all around, you might find some community doors more open than have been in the past. Plus if the local economic development people get to know you, other opportunities may arise in the future - maybe a company in a related field is looking for a specific partner? It can't hurt to be aware of those possibilities.

Tuesday, October 21, 2008

Are you a Must Have?


Is your product or service a 'must have'? A 'must have' is something your customers won't give up - even in a tough market.

Do you create outragous loyalty to your product - for example, a customer would pass a competing store to get to you? Or your service stays in the budget even when other things are cut?

On the low cost end, can you improve your experience so customers think - "I can't get through my day without my [X]!"

On the higher end, how safe is your product or service against the downturn? From a B2B market - when the boss comes down and tells the team to cut 10% of expenses...are you in that 'easy to cut' category? When I managed advertising for a large consumer goods company, it was easy to cut 10% from print advertising - an advertisement here, another in a different journal, cut a tradeshow - bingo, my 10%. But there were always some accounts, shows, journals I hated to cut. They were my 'must haves'.

Thursday, October 16, 2008

Credit and Cash Flow


In a recent article from the Daily Oklahoman, they discuss the effect of the credit crunch on local builders. They remark that credit has dried up for construction subcontractors, 'with lenders no longer making loans based on accounts receivables.'

If you are running a business or thinking of opening a business that depends on getting a loan to do work, then using the sale of that work to pay off the loan, this tight credit market is going to be very difficult to work within.

Now is the time to reevaluate your recievables: are there any good customers whose bills are starting to age much longer than usual? You might need to call them to find out what is going on. Hopefully they are just being careful, but if they are struggling, it is better to know now, than have an uncollectable later.

Sometimes as small businesses we think 'I can't be tough on my outstanding bills because I am small' - but that is deadly. Larger businesses would not expect to give you extra time to pay your bill - you must act big, even if you are not.

Remember cash flow - if you are giving net 30, but then not sending a bill notice until 35-40 days, then not getting paid until 60 days - you are giving 60 days of free money to your customers. In a down economy, those extra 30-45 days waiting for payment could cripple your ability to meet payroll, purchase equipment or inventory or ride out the tough market.

It is no help to you or your business if you are generous with terms, yet cash flow negative.

It is also time to reconnect - or if necessary, get started connecting - with your local banker. You need to have a good relationship with your banker before you need to come in on a Friday afternoon needing a bridge loan. Bankers are just like the rest of us: they feel more comfortable dealing with someone they know.

Monday, October 13, 2008

Strategy and Tactics


"When in doubt, challenge the strategy, not the tactics". Seth Godin

"When a manager says to me that the strategy is fine, they just need better execution - I take a good look at the strategy."*

I list both of the above quotations to tackle a difficult issue: how do you as a business owner evalute the cause of a problem.

For example, if your products are always released late, is that because of

  1. Having the wrong people (knuckleheads can't get things done on time)
  2. Unrealistic deadlines

Once you are no longer involved in every detail of the business, it is essential that you can evaluate success (and failure). It is easier to blame the employees (tactics) than it is to blame your strategy, but consider this: if it is the wrong people, then changing them should result in success. If you fire them, and bring in others, how will you know if they will do it correct? How then was it that you have the wrong people in the first place? You hired them!  Maybe they are who you can afford. But if that is true - why expect them to achieve the goal?

As a manager - and as a business owner - it is your responsibility to remove obstacles to success, not create them. If you constantly find yourself berating your employees for failing to succeed at whatever strategy you've set, take a moment to be sure the failure is not you.

* I have lost the reference for this quotation - if you know, send me a comment.

Friday, October 10, 2008

On Hiring the Right Employees


When I graduated from college, I took a job as a restaurant manager for Red Lobster. I was a terrible manager, and did not last very long (I could not distinguish breaded fish and shrimp!)

One thing that struck me in my youthful enthusiasm was that it was very difficult to get employees to buy into whatever plan or action I wanted to take. If we were to work especially on cleaning the kitchen area, the next morning I would get a call that something had not been done - I remember feeling betrayed - "how could John not have cleaned that area?" I mean, if we all work together, we get home faster, work is easier, etc.

As I said - I was naive.

You have a vision of how things are to get done - and in what manner. You certainly are driven (why else open a business). And one of the first shocks of being a business owner is that employees might not have the same enthusiasm as you in doing things.

That is why hiring the right people is critical. As a restaurant manager, I had no idea how to hire a good waiter or kitchen cook - and at minimum wage. I had no idea what motivated someone to take that job.

Too often we look at salary or wages as the only determinant in hiring good people. But of ten kids who come to look for a summer job, one or two are likely to be much more diligent and hard working - for the same wage as the other eight. Of ten admins you might hire, one or two will do more and be more productive..

If not salary, then what? One idea is whether they buy into your own enthusiasm. Not that they gush about how excited they are to work for you - but do they carry their own independent enthusiasm for what you are excited about? Do they carry a spark? Are they inquisitive? Do they try to understand how something works - and maybe how to make it better?

I was a terrible manager for Red Lobster because I had no enthusiasm for it, no interest in seafood or seafood restaurants. Employees could tell I was lost, and reacted accordingly. If you can transfer some of your enthusiasm to new employees it will help your business to grow.

If you cannot, or you cannot recognize the difference between telling you what you want to hear, and real interest, you are going to have a hard time staffing.

Any ideas on how to differentiate the two?

Wednesday, October 8, 2008

Is your product or service a 'must have'?


Is your product or service one that is a ‘must have’: something your customers won’t give up – even in this difficult economic crisis?

If it is not - what can you do to make it more important? And how quickly can your product ingratiate itself into people's lives?

I remember distinctly when all the youth in our church youth group started showing up with Ipods. One Sunday, none of them had one; it seemed the next Sunday, they all had one. Of course, it did not happen that quickly - but it sure seemed like it.

I had a prospective client come by who wanted to open a business here in Stillwater. Within an hour of this business were at least three others performing the same service, and another 5-10 with overlapping services. Guess how many of those competitor's she had visited, used, or otherwise investigated?

If you don't know what the market is like - how are you going to make your product a must have for the possible customers? To refer back to my post on Jason Fried's comments from the business of software conference, Jason said "Target non-consumption – people who want to buy a solution to a problem, but don’t because of cost or usefulness". Well - how are you going to target them if you don't know why they won't use existing solutions?

If you cannot give a good reason why your product is a 'must have' then you are leaving value out in the ether - value that someone else will take advantage of.

Tuesday, October 7, 2008

Taking Advantage of Slow Sales Periods


Sonic, a chain of drive in restaurants popular in the south, is running a half price special on drinks from 2pm-4pm. At our local Sonic drive in, every bay is full during those two hours – it is a madhouse. They sell a bunch of drinks – which even at half price they make money on. And they take a slow time of the day, and turn it into a profitable time. Starbucks has tried the same thing: buy a coffee in the morning and receive a coupon for a $2 frozen drink during the afternoon.

Are there soft times during the day in your industry or segment – or certain days of the week that are slow? What can you do to increase traffic during those times?

For example, a children’s clothing store could run a “Grandma special” from 10-11 am: show a picture of your grandchild and get 10% off. What grandmother could resist?

Marketing does not have to be expensive – it just has to be focused on your target: what can you do to better reach them (and make them go out of their way to get to you!)

Friday, October 3, 2008

Business Plans and The Business of Software

I recently had the opportunity to attend the Business of Software conference. I heartily recommend future versions of this conference if you have a small software application – particularly web based – that your company is selling.

Jason Fried of 37 Signals  was the most provocative speaker. He spoke on how to get your small software company up and running without going to venture capital – in essence preaching a ‘small, profitable and sustainable’ model for business.

  • Momentum is key
  • Use very short projects, this keeps up enthusiasm
  • Planning is overrated: no projections, specifications, roadmaps (Planning gives the ‘illusion of agreement’ – that people all understand the specification in the same correct way – when they don’t). Or as Steve Johnson from Pragmatic Marketing says: “Friends build products, enemies build documents”
  • Get rid of abstractions
  • Optimize for now – decisions are temporary
  • Danger of Red flag words: need, can’t, easy, everyone, nobody. These words represent abstractions of underlying beliefs – get to what is really behind them.
  • To create requires uninterrupted time = productivity. Make that happen
  • Focus on what does not change – what is a problem today and 10 years from today?
  • Under doing
  • Target non-consumption – people who want to buy a solution to a problem, but don’t because of cost or usefulness
  • Find simple solutions to basic problems
  • Follow the example of Chefs: out teach, out share, out contribute
  • What do you share?
  • Imagine if your software was a physical product. What would it look like?
  • Give up on hard problems – there is an abundance of easy problems out there
  • Compress your days into doing only what matters – that increases productivity and gets you out of the office (not about working all the time)
  • Build it while you use it

I’m still digesting all of his points – kind of like listening to Tom Peters. But since we at the incubator place a great deal of emphasis on planning your business, I wonder about the application of point 3 not to software development, but to business planning. Am I sending new entrepreneurs down the wrong path when I ask for a business plan? Do they just need to go on and do it?

Certainly the standard VC oriented business plan is not going to be of much use for most entrepreneurs: they don’t need to be messing with EBITA outcomes on spreadsheets, or locating influential board members. But you still must answer fundamental questions such as: “is there a market?” “What problem does it solve?” “Do I have enough money to keep going?”

Jason makes the same point really when saying “focus on what does not change” and “build it while you use it”. The easiest market to understand is you – as long as you are representative of other members of the same group. In fact Jason was adamant to not work on a product in a sector you don’t already know – you don’t really understand it, and if you aren’t an accountant (or interested in accounting), writing accounting software is going to be a real grind.

I think there is a realization that people have been stressing too much over the BUSINESS PLAN (ominous music playing). Tim Berry of Business Plan Pro software has recently come out with a book entitled “The Plan-as-you-go Business Plan” – a seeming paean to not writing a traditional business plan, by someone whose software helps you write a business plan.

In response to Jason, I might say when I ask someone to develop a business plan I am trying to judge the fortitude or tenacity of a new entrepreneur sitting across from my desk. It gives me some means to tell if a person has thought at all about this business idea he has – and how he reacts to the request. If he says “who can I pay to write my business plan?” that tells me something about the person. If he says “I am too busy to write a business plan – I just need someone to give me money!” then again, that tells me something about the person. (Maybe Jason would say I am just abstracting away from the real issue.)

In my role as an incubator manager, I have to figure out, with very little information, whether someone would be a good candidate for admission, or at the minimum, how I can help them. I need something more than them coming in and talking breathlessly about their new idea. And requesting a business plan is a nice way to let someone know they need to think through a bit more their idea. Perhaps to make it more obvious, I should ask a prospective entrepreneur to answer a set of questions: “tell me about the product?”, “Who will buy it? Why?” “What is wrong with competing products?”

If they can answer the questions clearly, then I can learn how I can help them be more successful with their business.

As Dwight Eisenhower said, “Plans are nothing, planning is everything.”