The yellow bus lights glowed in the dark as my only beacon. I couldn’t see 20 feet in front of me on Highway 99 in the central California valley, but we had to get to Lake Huntington. The four cars packed with my companions followed my lead. At last, I saw the exit. Moving off the highway onto a dark farm road, my concern peaked. Where were the street signs behind the foggy shrouds? At last I stopped at an intersection and was able to see a sign, but only after I stood in the middle of a dark intersection looking almost straight up.
If you have been planning for the last three years, this story should sound like your attempt to plan strategically. Hugh Courtney’s Strategy under uncertainty lends us a flare in such dismal times. He offers a four-level framework for determining the level of uncertainty surrounding strategic decisions and for tailoring strategy to the uncertainty:
Level one: A clear enough future: Courtney states that managers can use the usual strategy tools in a clearer future as this. However, I see that medium and small businesses do not know what those tools are. The biggest private producers of jobs in this country, small business, usually work in a strategy void. Thus their decisions and plans are usually uninformed and a product of crises management even in the best of times.
Level two: Alternative futures: Outcomes are clear by hard to predict. Take the Ford Edsel, for example. The car seemed like a good strategy with a ready market, but it went the way of the do-do bird. This is where probability analysis can come in according to Courtney. For small businesses, look at the downside to each alternative. Is one downside greater? You may want to go the other way.
Level three: A range of futures:Taking Courtney’s cue, small businesses must limit their strategic options. Don’t take the shotgun approach and consider ten different strategies, for example, because you can. Your brain will explode, not a pretty site. Again, focus on the downside of your options.
Level four: True ambiguity: This option happens in an economic free-fall, or at least a controlled fall. More than ever, I recommend small business to take a Blue Ocean Strategy viewpoint and focus on the needs of your clients. Eliminate those attributes that your industry is providing clients that they can live with, e.g., meals on a commuter flight. You can take this approach for any other above levels, but at this level, it is usually a matter of survival. The wrong decision could land you in bankruptcy very quickly.
Last January, I again participated on the planning committee for the 2011 Entertainment Industry Conference for CPAs and attorneys. We agreed on most of the usual topics to be presented at the conference. Then, I suggested social networking. The idea was written on the board.
Fifteen minutes later, a respectible CPA turned to me and said, “Rick, I know social networking is a sexy topic, but I doubt it is what our attendees are looking for. They won’t come away with anything.” I nodded my head and thought to myself: Thank you. You just gave me an extra 12 months to blow my competition out of the water using social networking and SEO.
1. Americans spend most of their time online on social network and blogs–If you are reading this blog, you have contributed to the 23% statistic that more time is used reading blogs and social networks than checking emails. You may have also found me because of what I have been doing for over a year. Writing
2. Seventy percent of active online adult social networkers shop online–Sell where your buyers live, online. We are all going there. Have a bigger presence than your competition.
3. Fifty-three percent of active adult social networkers follow a brand(only 32 percent follow a celebrity)–Adults follow brands across social networks.
4. Sixty percent of social media users create reviews of products or services–When was the last time you reviewed a book on Amazon, or rated a restaurant on Opentable? You are contributing the movement. If your business is not on there, then you are behind the curve.
5. The number of mobile Internet users is up 47 percent from last year–I have actually trashed a rude restaurant that made us wait an hour beyond their seating estimate. We were outside with our 85 year old father-in-law on Father’s Day in the dark. My bad review went into Yelp before I reached my car in the parking lot.
If you are resisting the social network, SEO revolution, you are risking the well-being of your business. But, before you jump in, do some research and learn. There are consultants that can help you. Then, create a strategy and stick to its implimentation. Your online presence will not increase overnight, but the constant creation of content will get you noticed.
I couldn’t believe it. Well, actually I could, but I didn’t want to. Gregg Towsley of WSI Quality Solutions sat down with me me 18 months ago and showed me that my business’s social profile was dead. In other words, if you typed in industry key words, we didn’t even show up on ANY page.
I came across What Drives Small Business Social Media Engagement? by Dan Schawbel. He cited a study by Roost which offered advice to small business owners who want to create brand awareness, customer, acquisition, and customer services.
Using only Facebook and Twitter, the study suggested the following:
Publishing photos: The study suggested photos of employees, products, and functions. I remember when I first put up our web page, our most valuable search term was my assistant Maddy Curley. She was an actress that had (and has) some success on television and film. People googled her after seeing her on a TV episode and came up with her picture on our personnel page.
Ask Questions:Start a discussion by asking questions. You see this a lot on LinkedIn. I feel that providing information along with questions is a better strategy. What do you think?
Share Quotes:There are way too many twitter sites and blogs quoting wise people. I don’t like to. I find it is far more interesting to coin my own phrases that display my expertise. You don’t convince others of you knowledge and wisdom by using someone else’s brain. (You can quote that).
The main activity that got our firm on the front Google page ahead of CPA firms much larger than us is our content and consistency. To be successful, you must give to the business community. We provide advice and steps to individual businesses that can help them in managing their finances.
It’s always good to practice the basics, like a major league baseball player who may work on his swing by hitting a ball off a tee. So here I am going back to the IRS tax site to remind small business owners of the Tax Relief Act of 2010. There may be benefits that you may be missing.
Sect. 2011: Temporary exclusion of 100% of gain on certain small business stock
Expanding on the provisions of Internal Revenue Code Section 1202 and the American Recovery and Reinvestment Act, the Small Business Jobs Act provides an additional incentive for investment in qualified small businesses. Under this Act, investors in qualified small business stock can exclude up to 100% of the capital gain upon sale of the stock.
Under the SBJA, in order to claim the capital gain exclusion, the qualified small business stock must be:
Acquired after September 27, 2010, and before Jan 1, 2011, and
Held for at least five years before the stock is sold.
However, Section 760, Temporary Exclusion of 100% of Gain on Certain Small Business Stock, of the Tax Relief Act of 2010, extended the exclusion for qualified small business stock acquired before January 1, 2012.
Under current law, the earliest tax year for which this 100% capital gain exclusion can be claimed is 2015. Additional limitations, qualifications and requirements may apply. Capital Gains and Losses has information on reporting capital gains.
Sect. 2012: General business credits of eligible small businesses for 2010 carried back 5 years
The new law allows an eligible small business to carry back general business credits five years. Previously, the credits could only be carried back one year. The carryback is for credits determined in the first taxable year beginning after December 31, 2009.
An “eligible small business” in general is defined as follows:
A corporation whose stock is not publicly traded, a partnership, or a sole proprietorship, and
The taxpayer must have $50,000,000 or less in average annual gross receipts over the three preceding tax years.
This is a one year initiative applicable only to the tax year 2010 (For fiscal year filers, the effective tax year is the first tax year beginning after December 31, 2009). The five-year carryback period is available only for credits carried forward to the tax year 2010 and/or earned in the tax year 2010.
Sect. 2013: General business credits of eligible small businesses in 2010 not subject to alternative minimum tax
The new law allows general business credits to offset both regular income tax and alternative minimum tax of eligible small businesses as described in Section 2012 of the Small Business Jobs Act (see above). The provision is effective for any general business credits determined in the first taxable year beginning after December 31, 2009, and to any carryback of such credits.
This is a one year initiative applicable only to the tax year 2010 (For fiscal year filers, the effective tax year is the first tax year beginning after December 31, 2009).
Sect. 2014: Temporary reduction in S-Corporation built-in gain recognition period
Under the Small Business Jobs Act, if the fifth year of an S Corporation’s recognition period ends before their 2011 taxable year begins, then no entity-level tax is imposed on the net recognized built-in gain for the 2011 tax year. Sect. 2021: Increased expensing limitations for 2010 and 2011; certain real property treated as Code section 179 property.
An expense deduction is allowed for businesses which choose to treat the cost of certain qualified property, called section 179 property, as an expense rather than a capital expenditure. For qualifying property placed in service during the taxable years 2010 and 2011, the new law increases both the maximum amount of the deductible expense under IRC Section 179, as well as the statutory phase-out amount. The provision also expands the definition of IRC Section 179 property to include the following types of real property: qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.
Sect. 2022: Additional first-year depreciation for 50% of the basis of certain qualified property
Generally, businesses are allowed to recover the cost of capital expenditures over time through depreciation expense. IRC Section 168(k) allows for additional first-year depreciation, for 50% of the basis, of certain qualified property placed in service after December 31, 2009. The new law extends the additional first-year depreciation deduction to qualified property acquired and placed in service during 2010.
Section 401, Extension of Bonus Depreciation, of the Tax Relief Act of 2010, expands the additional first-year depreciation deduction (bonus depreciation) to equal 100 percent of the cost of qualified property placed in service after September 8, 2010, and before January 1, 2012. It also provides for a 50 percent first-year bonus depreciation deduction for qualified property placed in service after December 31, 2011 and before January 1, 2013.
Sect. 2031: Increase in amount allowed as deduction for start-up expenditures in 2010
For taxpayers starting an active trade or business, the new law increases the amount the taxpayer is allowed to elect as a deduction for start-up expenditures under section 195(b) for taxable years beginning after December 31, 2009. Section 2031 allows up to $10,000 as a deduction for start-up expenditures, but requires a dollar-for-dollar reduction of the $10,000 deduction if startup expenditures exceed $60,000. This expense should be claimed as an “Other Deduction” on business returns, such as the Form 1120, 1120S or 1065, or as an “Other Expense” on the Schedules C or F of the Form 1040. The remainder of any start-up expenditures, not deducted under section 195(b), can be amortized ratably over 180 months on Form 4562, Depreciation and Amortization.
Sect. 2042: Deduction for health insurance costs in computing self-employment taxes in 2010
Generally, small business owners may not deduct the cost of health insurance when calculating self-employment tax. Under the Small Business Jobs Act, and subject to specific statutory restrictions (i.e. deduction is not available if self-employed individual is eligible to participate in an employer-subsidized health plan maintained by the employer of the taxpayer or the employer of the taxpayer’s spouse), business owners can deduct the cost of health insurance for themselves and their family in the calculation of their 2010 self-employment tax.
Always consult your tax professional before making any of these decisions.
IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
My grandfather was Alfano the Great. In the 1920’s he walked between 2 eight story buildings with no net. In addition, he walked on his hands, rode a bicycle and did wheelies. All for a few bucks. Obviously, he never fell, or I wouldn’t be here.
The IRS, US Labor Department, and several state labor departments are about to cut the tight rope of some employers who classify employees as independent contractors.
Michael Cohen report, IRS to Team with Labor Dept. on Employee Classification, discusses the IRS and the Labor Dept. combine efforts with seven states to tackle the problem of employee tax classification. This could be a game-changer because one of the problems in employee tax classification has been defining what an “employee” is.
This move among all of these agencies (and I can only guess that the number of states signing on will grow), will allow a sharing of information about employee tax classifications. Now, this may seem harmless, but remember when you can operate a business in Los Angeles without a business license? Ten or fifteen years ago, one of the main ways L A City found you was to look at the business marques in buildings and cross-check them to the business license lists. Now, they get their information from Sacramento and individual tax return schedule C. All they do now is match the addresses to the individual tax return and send out penalty notices.
Employee tax classification databases may change the odds for those employers who are skirting the issue. The penalties could be stiff. Discuss your tax situation with your advisor before making any decisions.
IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
In the early 1970s, I watched a Stanford professor choose Jim Plunkett, (Stanford’s star quarterback) to demonstrate perception and the brain. The professor placed a pair of glasses on Jim that caused his vision to be distorted, shifting everything he sees to the right about 20 degrees. Jim missed his attended receiver throwing consistantly to the right by 20 degrees.
Drawing his share of laughter, Jim compensated and started aiming 20 degrees to the left, thus hitting his receiver about five times. The professor explained his point about perception and congratulated Jim on his adjustment. As Jim took off the glasses and proceeded to sit down, the professor asked him to throw one more pass with no impairment to show the crowd that the professor did not ruin the star quarterback’s talents. Jim laughed and passed the ball one last time. The ball soared past the receiver by 20 degrees to the left. His brain had not re-adjusted.
The Association for Strategic Planning-Los Angeles (ASP) had the honor of hearing Deepa Prahalad speak on September 13 at the beautiful Dole Corporation auditoium. Deepa spoke of her book, Predictable Magic, and its message to identify company goals. She stressed that if you have only broad goals, both your customers and employees will not understand what the company stands for. She suggested that you must become the interpretor of your message.
As in the case of Jim Plunkett, if you cannot see what you are aiming for, you will miss your target. The start of a good strategy is to have a clear vision of what you want to accomplish. Just to have a vision to be your industry leader is not good enough. Once a business establishes a viable vision, they can create a path with quantitative metrics to move towards that vision. Jim Plunkett’s vision changed, so he has to alter his tactics to get there.
Business today is always changing, so a vision you had five years ago will most likely be obsolete, or commonplace in your industry. The ASP preaches the steps of Think-Plan-Act, but if you are thinking about the wrong vision, your plans and actions will lead you towards a failing destination.
When I speak of “strategy” to business owners or entertainers, I usually get a blank look. Small and medium-sized businesses usually don’t have a specific business strategies. However, what they don’t realize is that they do have a strategy, formal or otherwise, and it was probably a bad one.
The Perils of Bad Strategy by Richard Rumelt discussed this concept of bad strategy. Rumelt defines a strategy as “a way through a difficulty, an approach to overcoming an obstacle, a reponse to a challenge.” The problem is identifying the challenge.
I have met business owners who refuse to face the problem. Why?
Their ego gets in the way. They want to see the business in their own light, and not reality.
They are afraid to look at the business problem. The owners literally bury their heads in the sand like an ostarich and ignore the problems.
The business owner is excellent at their trade, but not at management of a business.
Rumelt also states that business owners mistake goals for strategies. “We want to raise our sales revenue to $20 M in five years. So? That is not a strategy, that is a goal. I hear that type of talk all of the time from clients. They point to the “where,” but not “what,” and then the “how.” They don’t look at their core competancy (or Hedgehog concept as explained by Jim Collins in Good to Great.) And recently, I have not even been able to get that far because the company’s internal reporting system is inadequate.
The third hallmark of bad strategy discussed by Rumelt is “fluff.” I see this in the entertainment industry business propects. I remember one prospect that wanted to start a new record company. It was a typical scenario, a group of musicians and friends who are financed by a rich parent or two. This particular group set their entire strategy of one guy who was going to write for them and any band they sign. I alerted them the risk of establishing a company on the back of one unproven talent, especially in an industry who is still searching for a new business model. I didn’t get them as a client.
As a small business owner, you don’t have to hire someone to create a 100 page strategy complete with the history of your company. In fact, you can find someone to do it in about an hour. Then, as a small business owner, you should impliment it faithfully.
I can remember back in the late 1970s when only engineers and escentrics operated an apple computer. My neighbor brought me over and tried to explain how the large odd-shaped device worked. MS-DOS was not invented, and my attention span waned.
Business has embraced many aspects of Apple, along with the consumer, driving it beyond Microsoft’s highest endeavours.
But what happens without Steve Jobs at the helm, and how does this series of events relate to small and medium-sized businesses?
Kathleen Pender speaks of this issue in Maintaining success after exit of a charistmatic CEO. However, she really is not addressing the right questions. Does a company need a charasmatic leader? Or, what kind of personl should lead a company?
Jim Collins writes about these in his two books, Good to Great and Built to Last. In Built to Last he states that visionary companies do not require great charismatic visionary leaders. “In fact, [they] can be detrimental to a company’s long-term prospects. Some of the most significant CEOs in the history of visionary companies did not fit the model of the high-profile, charismatic leader.”
In Good to Great, Jim states what kind of leaders should lead a company. Level 5 leadership during pivotal transitional years “refers to a five-level hierarchy of executive capabilities, with Level 5 at the top. Level 5 leaders embody a paradoxical mix of personal humility and professional will. They are ambitious, to be sure, but ambitous first and foremost for the company, not themselves.”
Steve Jobs seemed to fit this definition. He seemed to push the company, not himself which will help foster the Apple tradition long after he departs from it.
Small and medium-sized business owners should take note of this distinction. I find that so many owners sell their personas, not the company. This is almost fatal in two respects:
When the owner wants to sell the business.
When the owner dies.
In both cases, the inherent value of the company is tied to the owner, not the balance sheet. If he goes, it goes.
So, how do you get out of this vicious circle. I recommend:
Read the E-Myth by Michael Gerber. The author descrives the owner’s chokehold on a business, and why a business of that type struggles to grow.
Train, train, train others to do specific tasks that you perform. If you are worried about losing your customers to you employees, create a system of divided labor where each person performs specific tasks, but you still hold the key to putting it all together.
Set out a timeline for an exit plan. When do you plan to sell the busiess? How big does your business have to be before you sell it? What annual metrics can you measure to make sure you are on your path?
Quantify you feelings. Don’t dream of a company that you cannot measure its success or milestones. You can be a visionary, but the it is not about you, it is about your business.
“There’s nothing worse than a sharp picture of a fuzzy concept.” —Ansel Adams
“There is nothing more wasteful than becoming highly efficient at doing the wrong thing.” –Peter Drucker
Mike Michalowicz’s article The 90-Day Method: A Strategy For Business Growth in Difficult Times offers some suggestions for business to strategize. He says that a business owner should ask what they have done in the last 90 days that has brought results, and then replicate those things that were successful. Even though these may sound like sage advice, they can be interpreted as tactics instead of strategy.
I found that Bill Birnbaum’s book, Strategic Thinking, A Four Piece Puzzle, distinguished between the two very well. Bill defines strategic thinking as a top-down big picture. When thinking strategically, you are not concerned about whether you ran a double-shift to produce your product. That would fall under Mike Michalowicz’s “things you did right,” but would be a tactic. Instead, Bill Birnbaum argues to think strategically, “you would consider the needs of your customer, the benefits you offer that customer, and the reason your customer buys your products or services.” In other words, you’d be concerned with doing the right things, rather than doing things right.
Another way Bill put it was that you use strategic thinking in deciding what to do, and tactical thinking in deciding how to do it.
Thinking tactically is very tempting because most managers and owners are in the trenches “putting out fires” and fixing problems.
But why is it important to think strategically? Strategic thinking is important because it results in a strategic vision that is shared among your management team which is based on the team’s deep understanding of the business.
Don’t get me wrong. Strategic planning is a highly structured process with well thought-out objectives and a number of strategies designed to accomplish these objectives.
So, what is the easiest way to think strategically? A commonly used tool is the SWOT matrix. Most managers know that it stands for strengths, weaknesses, opportunities, and threats. However, where business people miss their marks is that they don’t consider these four attributes in line with their key success factors. According to Bill, you must list these factors this way. For our organization to be successful, we must be especially good at the following three activities…
Taking these steps will help a lot in getting business owners to think strategically in order to see the horizon, and not technically in order to just avoid the pot hole in front of you.
There are brilliant people that study for years to provide brilliant advice based on solid, empirical evidence. Then, there are others that just talk well.
Financing, Outsourcing And 7 Other Tips from an Expertby Shira Levine, touts the advice of two business women, Amy Abrams, and Adelaide Lancaster who are releasing a book in September based on 100 interviews of entrepreneurs.
The article sets forth the following advice:
You’re never finished with your homework
Really ask yourself what you want out of your business
Focus on what is meaningful to you vs. what you are passionate about
Figure out your business goals
Determine what to outsource
Find access to capital
Specialization is key
Now, I have not read the book. And based on these seven points, I probably won’t buy it. The reason is because these points don’t present a case that is no more than common sense. Business people do not need motivational speakers or cheerleaders. Instead, they need experience, knowledgeable and trained people to give them real advice of what, how, and when to do things.
To prove my point, if you were to buy this book, may I suggest that you spend an extra $50 and buy the following:
Good to Great by Jim Collins
Blue Ocean Strategy by W. Chan Kim and Renee’ Maugorgne
Predictable Success by Les McKeown
If you do not have the time or budget to read those, at least buy a smaller guide, Achieving Strategic Alignment by Barry MacKechanie.
Most of these books are critically acclaimed with sound business advice based on years of research by highly educated and experienced strategists. In these books, you will find recurring themes.
Compare what they say to Abrams/Adelaide book if you choose to buy it. Small business owners cannot hire the seasoned professional, but can learn from them through their writings. Business acumen has a price, but the inability to develop it has a much bigger price.
The yellow bus lights glowed in the dark as my only beacon. I couldn’t see 20 feet in front of me on Highway 99 in the central California valley, but we had to get to Lake Huntington. The four cars packed with my companions followed my lead. At last, I saw the exit. Moving off the highway onto a dark farm road, my concern peaked. Where were the street signs behind the foggy shrouds? At last I stopped at an intersection and was able to see a sign, but only after I stood in the middle of a dark intersection looking almost straight up.
Last January, I again participated on the planning committee for the 2011 Entertainment Industry Conference for CPAs and attorneys. We agreed on most of the usual topics to be presented at the conference. Then, I suggested social networking. The idea was written on the board.
I couldn’t believe it. Well, actually I could, but I didn’t want to. 
It’s always good to practice the basics, like a major league baseball player who may work on his swing by hitting a ball off a tee. So here I am going back to the IRS tax site to remind small business owners of the Tax Relief Act of 2010. There may be benefits that you may be missing.
My grandfather was Alfano the Great. In the 1920’s he walked between 2 eight story buildings with no net. In addition, he walked on his hands, rode a bicycle and did wheelies. All for a few bucks. Obviously, he never fell, or I wouldn’t be here.
In the early 1970s, I watched a Stanford professor choose Jim Plunkett, (Stanford’s star quarterback) to demonstrate perception and the brain. The professor placed a pair of glasses on Jim that caused his vision to be distorted, shifting everything he sees to the right about 20 degrees. Jim missed his attended receiver throwing consistantly to the right by 20 degrees.
When I speak of “strategy” to business owners or entertainers, I usually get a blank look. Small and medium-sized businesses usually don’t have a specific business strategies. However, what they don’t realize is that they do have a strategy, formal or otherwise, and it was probably a bad one.
I can remember back in the late 1970s when only engineers and escentrics operated an apple computer. My neighbor brought me over and tried to explain how the large odd-shaped device worked. MS-DOS was not invented, and my attention span waned.
“There’s nothing worse than a sharp picture of a fuzzy concept.” —Ansel Adams