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BackYard Blog a Deux: Ok, So Your Backyard isn’t so Exciting…Try This

Pardon my French, but French isn’t my second language…English is. I’m still looking for the first.

At the time I was getting blog comments on my article, In Starting a New Business, You Shouldn’t Leave Your Backyard, I came across a section in Jim Collin’s book, Good to Great, that added another dimension. The chapter was the Three Circles of the Hedgehog Concept. Now, as a form of background, Jim advocated that you want to be a hedgehog, not a fox in business. Foxes are cunning and complicated; Hedgehogs are simple and effective…they just roll up in a ball of spikes every time, and it works.

A good example of this occurred twenty years ago with client, Michael Feinstein. Michael, in the early 90’s or late 80’s was a piano bar guy playing and singing Gertschwin. Using this passion, he was able to parlay this simple act into an internationally recognized performance. (He is still doing it today.) I will apply Jim’s philosophy to Micheal, but let me discuss Jim’s book, first.

Jim’s book illustrated a three intersecting circles diagram on how to be a great company, not just a good one. The first two circles were similar to what I mentioned in the last blog where I quoted the Susan Reid article. 1) Do what you are deeply passionate about, and 2) Do something that drives your economic engine. Now, where Jim differs in the message of the blog was the third circle. 3) Do something that you can be the best in the world at.

Now, that’s a tall requirement.

The first thing many would say is, “Yes, your core competency.” But Jim wouldn’t agree. He says, “Clearly, a Hedgehog Concept is not the same as a core competence. You can have a core competence at something but not necessarily have the potential to be the best in the world at it.”

Now, let’s get back to Michael. When he started he played his passion, Gershwin. His dad introduced him the musical genre when he was much younger. Second, his style and voice allowed him to make an economic living. But the third circle is what differentiated him from the others. He sought to design his performance, not to be the best pianist in the world, not to be the best singer or entertainer in the world, but to be the best Gershwin entertainer in the world. He found his blue ocean, and fulfilled the third circle requirement.

That tripartite strategy is the strategy to success, fulfillment, and greatness. The question is, do you have the business ambition to take the calculated risk?

In Starting a New Business, You Shouldn’t Leave Your Backyard

Several years ago, I was trying to convince a client who specialized in small business credit to join with us in using the EXIMBANK to finance movies. His response was, “Well, that seems a little out of my backyard. I have to stay within reach of what I know.” I always kept that in mind when one of my brother-in-laws offered up with “a great small business opportunity.” First, it was their digital psychiatric counselling to prisoners; then they dreamed of a shrimp farm in the middle of the desert; and a few weeks ago, it was converting abandoned cars in Kauai to scrap metal and selling it in Honolulu. Needless to say, I am not moving abandoned cars, or shovelling shrimp from a flooded sandpit.

Susan Reid, in her article, Stay within 2 degrees in starting a new business, touched on this concept(no, not shrimping). She broke it down a good list to follow in order to identify a good business fit for you:

Step 1: Identify the things you love to do: This is a rule that I told my sons. The first son is going into graduate school for poetry, the second son is starting at U C Irvine as a jazz pianist, the third, well, he’s chasing girls in high school. I told them that there is money to be made almost anywhere your heart it. You just have to find your blue ocean and go for it in a strategic manner.

Step 2: Identify businesses that match your current interests: I don’t necessarily agree with this point. I don’t advocate following in the path of other small businesses, but to learn from them. American ingenuity did not thrive by doing the same thing someone else did, but better. Instead, look at the small businesses and focus on the customer’s wants and needs that are not being met in other businesses. You may create a new industry.

Step 3: Talk to other small business owners: Just like above, learn but don’t emulate.

If you want more of an approach, go to my Blue Ocean article. In small business, go with your passion, stay in your backyard as far as your core competency, learn from others, and implement a strategy.

Small Business: A Plumber Should Never Be Caught With His Pants Down

I remember when my stepfather struggled to pay his small business plumbing company material bill. In most cases, cash was short in his business. But the one thing I remembered was my mother protecting their credit rating. She did it as a matter of principle, but in the end, it helped his small business get out of some tough spots.

A pretty good article Good Credit Rating can Pay off for Small Firms in Many Ways by Cyndia Zwahlen popped up in the L A Times, recently. She preached the benefits of a small business of keeping their good credit rating. Oh sure, a good credit rating works wonders for getting a loan, but there was more according to her.

Better payment terms for vendors: If you are a new small business, or engaging a new vendor, your bad credit rating can place you in an undesirable catagory. I remember when I transferred between schools when I was 10. I was a good student, but the new school didn’t know it. So, they place me in the “lower” math class. I had to fight for good grades and recognition to get to the advanced class. The same goes for your credit history. You might be the most timely customer the vendor has seen, but your credit history tells another story. Don’t be caught in the “lower” credit rating. A good credit score can add to your bottom line with better terms.
Safety credit line: The article emphasizes the strategy of getting a credit line when you don’t need it. If your credit is good, the rate and points could be lower. Thus, when an economic downturn hits, you have a safety net to bridge your small business.
Buying another small business: The article does not mention this, but if your business is growing and you are trying to acquire a new business on installments, a bad business credit score can work against you in the negotiations. The higher the risk you are, the more uneasy the seller will be willing to come down to your price.

Small businesses must be good stewards of their money and credit. The good will they can produce can help in acquiring new clients, or servicing the clients they currently own.

Finding a Coconut in the Jungle of Small Business Financing

One thing I keep telling my clients is that even in this economic jungle we are in, there are pockets food caches hidden for those who are more creative. Take receivables financing, for example. In the old days, one way a business financed their cash flow was to factor their receivables. In other words, run them through an account that was collateral for a bridge loan. The end result, the company received (somewhat) immediate cash for a large chunk of its receivable. In other words, they used a reduced amount of future cash to finance current business.

Sounds familiar? Look at our US Government; they’re experts at it.

A recent new technique in a CFO Magazine article, Fast Cash for Small Business by Alix Stuart has gained popularity. It is called The Receivables Exchange. A small business can transfer only a portion of their receivables to this exchange which auctions them off. The company receives 91%-96% of the receivable’s value in less than a week. This method of financing is much more streamlined than factoring.

So, is that good for your company?

That depends.

First, your financial people will have to run the numbers to make sure you are not mortgaging yourself into bankruptcy, especially if you only have a 6% net profit ratio.

Second, what is your strategy? Where is your company going? Plan out beyond the loan and see where you want to go and if this financial tactic gets you there, or pulls you off target.

Third, are you just getting a bridge loan to meet payroll? Why? You may be borrowing to cover up poor financial planning. The receivable financing may only be a band-aid for a hemorrhage, and we all know how bad a hemorrhage can be in a jungle.

Small Business: The Cinderella to their Global Step-Sister Corporations

Kenny Johnson, a friend of mine, sent me an interesting Cobert Report interview. On the show, Steven Cobert drilled Jeffrey Leonard, the author of Do Small Business A Favor which appeared in the Washington Monthly. Steven Cobert and Mr. Leonard jostled for the upper hand on whether President Obama should give a helping hand to small businesses in collecting receivables from big corporations. Mr. Leonard presented evidence that the big corporations were “borrowing” from small businesses by floating their receivables.

There are some tactics that small business can use in minimizing this risk, but before getting to that, I wanted to make a political observation. Mr. Leonard’s position to help small business does not fall on deft ears, however, I doubt that he will receive anything more than sympathy. In an era where a substantial part of the electorate are clamoring for a smaller government, the idea of President Obama maneuvering the US government into business affairs, is Utopian. The political atmosphere, fuelled by the Tea Party movement and the Koch bothers’ millions, has created a subjective anti-government movement among the electorate. In other words, the polls show that government intervention into the lives of individuals is only welcome if they promote that individuals interests. Otherwise, the consensus will be that government is bad, and overreaching. So, it is with Mr. Leonard’s position. Small business trade groups will continue to fight government regulation unless it benefits their specific interests.

However, putting the politics aside, what can we learn from this delemia and how can we fix the problem. Here are some of my questions and recommendations:

Is a disproportionate share of your business locked into one major client? For example, is 20% or more of your income coming from one customer?
Is your business strategy dependent on one customer employee representative?
Are you drawing on your business credit line to stay in business because your major customer is not paying you within 30-45 days?
Are you afraid to call your major customer for payment for fear of losing them?
Are you dependent on one of your sales people for the majority of your business?

If you, as a small business owner, answer ‘yes’ to any of these, you need to alter your business strategy. When starting a business, it is hard to not be dependent on a couple of big clients, unless you are a volume-type business. The time to alter your strategy is now, and not when your big clients fires you. So, what do you do?

May I suggest Good to Great by Jim Collins. The book compares companies that took a leap to greatness. Some of these points can be translated even to the smaller company, like building a team first, then deciding where to go.
Another good book, more applicable to small business, is The E-Myth Revisited. This book demonstrates that a small business cannot grow when owners run the small business by themselves.
These books can create a good foundation, but the small business success is not just the strategy, but the implementation. Once you set a course on how to grow your business beyond a major customer, you must work the strategy for a long time. You cannot take your eye off the horizon for one week.
There are many blog articles on our site on tips to creating and implimenting a good small business strategy. One thing you cannot depend on, is the US government helping you.

Don’t Embrace the Dark Side of the Force, Luke

Now, I’m not saying that you will have your hand cut off, or that some big, ugly, helmeted guy with asthma will claim to be your father, but bad things can bite you in the end if you choose to cheat. Take J C Penny, for example, The New York Times article The Dirty Little Secrets of Search byDavid Segal talks about J C Penny’s unusual rise to the top of the search engines using “Black hat” optimization. Among those tactics were thousands of links by hundreds of global sites.

This is a good example of character. Occasionally, I have to lightly lecture a client on character and the value of doing things right. Some people like to reduce their taxes by the following means:

Defer income by putting checks in their drawer for a month, or so in December.
Run personal expenses through a business.
Write off expenses that should clearly be capitalized, or charged to another company.
Pay their employees “under the table.”

I am a strong advocate of counselling clients on how to save taxes. But that doesn’t mean tax fraud. Clients don’t realize that when they cheat on taxes they rob themselves of the very information that can tell them how their business is thriving or failing. A business owner cannot make that determination without the proper data. In addition, when a business owner tries to qualify for a bank loan, they may not. So, in reality, a business owner who tries to cheat his way through taxes may injure him/herself far more in other areas.

Likewise, in the J C Penny situation (regardless of their denial of any interest) of cheating on search engines, they will become branded in the internet. Many people who read that article, or this one, may skip over their site after understanding that they haven’t practice ethically.

Now, don’t get me wrong. There is nothing wrong with “white hat” social networking consultants social bookmarking your site. This can be done by employees, consultants, fans, vendors, and family. But, when you take the social bookmarking and linking to an extreme, it destroys the purpose of what the Google algorithms were designed to do, show popularity.

The conclusion is that character counts not only in personal lives, but business lives. To violate this rule is like mixing yeast in bread. It starts off real pretty, but when left unattended, it grows ugly.

As Homer Simpson says,”Doe!” 6 Mistakes to Avoid in a Recovering Economy after Noah’s Ark

I came across this an article by Katie Morell regarding 6 Mistakes to Avoid During a Recovery. The article offered some good advice, but it reminded me of playing golf as a teenager at Valencia Golf Course, California. The course was famous for its lakes. Almost every difficult hole had a large lake in it, the most troubling was a large par 3 that was surrounded by sand traps and then by a lake. I imagined that it would have been the site that Noah saw after stepping off the ark with his 1 iron–lots of water, little green. In the same way, this article focuses on the “Thou Shall Not…” and not “Thou Should…”

Marking up merchandise: The article cautions about over-charging or even charging retail during these times. I look at that as a fall back position. The most important concept is whether clients understand the value you are bringing to the table. Usually I am successful at that, but sometimes I have not conveyed that to a client. I fault myself for that.
Hiring like crazy: Jim Collins, in his book Good to Great , states that great companies build their team first, and then decided where to go with them. This may sound like a contradiction to the Morell article, but there is a reconciliation. Morell isn’t saying not to hire people, but do it wisely. I know of too many businesses (restaurants in particular) that have built an unnecessary entourage of people because they will expect to need them in six months. The problem, is that they end up laying people off in three months expending the capital in the short run that they needed. This is usually an ego problem. Always start with a skeleton crew. The stress you will feel being understaffed pales by comparison to being overstaffed and stressing about who to lay-off next. Outsourcing can bridge the gap.
Jumping into advertising: This is an easy one. Look at our article in social networking. There has been no better time in history to getting the word out, at an insanely cheap cost.
Flying solo: Alliances are always a good tactic. But, a problem that may arise is relying too much on one client or alliance. Start with one, but immediately look for others.
Cutting out customer service: Invest in your most valuable asset, the people themselves.
Staying heads down: Joining professional groups is a good thing, but make sure they benefit you, your employees, or your company. Trade groups may be good in keeping up with your industry trends, but do nothing in meeting potential alliances or customers.

So, keep a positive attitude, be creative, and spend wisely.

Time: Using Every Grain of Sand to Its Fullest

I guess I accomplish quite a bit every week in several areas of my life. People keep asking me how I can get so much done, and all I ever reply is, “I hate television.” However, I did find an interesting article that business persons, and non-business persons can use to become more productive. It is entitled, A Simple Way to Manage Your Time by Dr. Susan Reid. She came up with a nice 5 step Time Management System that you can incorporate into your routine:

‘At the very top of the page put tomorrow’s date. Then, draw four columns. Label the first column, “I Must Do”; The second, “I Next Do”; the third, “I Could Do”; and the fourth, “Not Mine to Do”. ‘ I already make a list the night before and prioritize it. Then , during the day, I cross out what I have done and prove to myself that I actually accomplished something.
“Give this column your all and don’t allow any distraction or unrelated interest to supersede this list. Check or cross off items as they are completed.” Her step two is ingrained into my procedures, as stated above. As a business man, it is easy to get distracted. There are so many things I can be doing other than what my core competencies are. I just have to remain disciplined.
‘Once you complete the “I Must Do” column, move steadily on to the “I Next Do” column. But first, ask yourself, “What on this list can be moved to another day?”‘ I would suppliment this sentence with, “Don’t put off to tomorrow, something that can be done today.” I always try to live by the “one touch paper rule.” In other words, if you touch a piece of paper, you have to complete that project. This is a difficult rule to abide by since there are so many times when projects get interrupted.
Look over the list and decide what, if anything, you want to complete today. Want is the operative word.
“At the end of the day, take out a new piece of paper or open up a blank document page and fill-in the next day’s columns with your new to do list.” I usually do this, but it is important that you are honest with yourself. If you cheat on this, you will only pay for your lack of discipline later.

If discipline is not your strong point, you might want to look at The Secret to Doing Things More, Fasterby Mike Michalowicz. He claims the biggest drain of productivity is the Internet and e-mails. He recommends you turn them off while you engage a project.

Your result will be more money and more time to do other things like grow your business.

The IRS Helping Small Business People?

People usually deal with the IRS as they would their proctologist, they avoid both so not to take it in the end. What many don’t know is that the IRS actually has a good website that helps small business among other taxpayers. Unlike IRS telephone advice, you can depend on the information you learn from their website. They are designed to make the tax code simpler(well, not really, but I live in a fantasy world.)

Health Insurance Deduction Reduces Self Employment Tax — If you are self-employed and have a qualified health insurance plan, now not only can you deduct the premiums from income tax, but also self-employment tax.
Small Business Health Care Tax Credit — Small qualified small businesses can claim a health care insurance credit from 2010-2013.
General Business Credit for Employers — The new law allows this credit to be offset against both regular and alternative taxes.
Small Businesses Can Benefit from Higher Expensing / Depreciation Limits –Consider accelerating your depreciation deduction of your asset purchases.

As you approach your tax filing deadline, keep these in mind when you visit your CPA. The IRS, though, is not the place to go to get tax advice. They are good at helping you with tax problems, but not tax law. Studies have shown that your answers vary depending on who you speak with at the IRS.

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Empower Your List(Or How to keep the mud out of your face when you’re spinning your wheels)

Have you ever asked, “What did I accomplished today?”

I came across an article, How to do more in less time. The article had some good advice for small business owners on how to be productive. These tips could be valuable, but the starting point, like in all projects is to have an attainable goal. I have found that a small business owner can accomplish a lot if he/she just make a list the night before of what they want to accomplish. Now, in some small businesses, that may not be too easy if the business is ver volital. For example, if you provide a service, your client’s schedules can alter your own schedule. That is ok, you are the business owner, remember? Put it on the list. Are you going to do some social networking pushing your small business? Put it on the list? Are you cutting payroll? Put it on the list. Then, reorganize your list by priority.

The secret is to create a list of attainable goals and cross them out as you do them. At the end of the day, you will feel more like a small business owner, and not a small business slave, because you will have taken charge of your own time.

Don’t waste time on a business social network, but enter it on the list. Choose something concise that you would like to do on your social network(like write an article). In doing this, you have a deliverable that will benefit your small business down the line.

In my small business (CPA firm), I have been writing these articles for about nine months. I list this chore twice a week, no excuses, no inefficiencies. I just get it done. I don’t have an ROI because that is irrelevant. I provide information and build relationships. That is all part of being in a small business. If I did not list it, then the relationships would never be built or nourished. Small businesses, even e-businesses are built on relationships, and we all know that if you don’t have time for your relationships(even the important ones), you will not have any relationships.

Lastly, as a small business owner, you must know that your list must progress to higher levels. For example, later this month, we will be launching our monthly blog videos under our new banner THE LA CPA. It will be similar to these articles, but will have a visual and audio component. The result will be to more information, better information, in less time for our readers.

So, as a small business owner, or any kind of business person, create your list, execute your list, and then evolve your list. You will find more control of your time and life.