Budgeting Archives | Page 7 of 8

The Road to Bankruptcy Court is Paved with Good Ideas…Don’t Be on That Bus

How many times have you heard, “Hey, I got a great business idea?” American ingenuity is the pulse of our economy, but so many great business ideas are anything but great. I have spent a lot of time not only strategizing with new business owners, but executing their business vision.

But, like in building a house, the planning stage is the most important. This business concept came across in a good, though complex article Managing Innovation Complexity by Braden Kelly. Kelly uses a six part framework in analyzing a business innovation concept. Actually, I have discussed some of these concepts in prior articles. Here are the concepts using my house-building scenario:

Changes for Customers: You have to listen to the marketplace. Like in building a house, if you build a futuristic house for a person who likes Tudor style designs, you missed your mark. The Blue Ocean Strategy addresses some ideas on this business outlook.
Changes for Employees: The usual term for these changes are the business environment. If you want to build your Tudor house, you need craftsmen, not all concrete contractors. The training and mindset of your employees have to buy into the vision, or get new employees.
Changes for Suppliers: Your supply chain is essential. In a business sense, a supply chain is the chain of events from your vendor to your customer. This business treadmill has to run seamless. You can’t build a house waiting for materials once a month.
Changes in Distribution: The caboose of the supply chain is the distribution point. Do you have a long tail? Are you restricting your growth to a brick and motar concept, or can you leverage e-commerce? In our house building, how are you going to sell it to someone?
Changes in marketing: This is where so many fall short. The Internet has immense capacity for small businesses. Use Internet marketing to list your built home.
Changes in Operations: Here is the glue that holds the whole operations together. Building a business, or a house, requires hard, coordinated work. But, if the other business elements are not present, the foundation collapses.

Bring an idea to fruition requires a consistent effort and vision. But, the business idea is not stagnant. The business idea is an ever changing picture altering tactics along the way.

What’s in a Business Name? I Bet You Remember ACME from the Roadrunner Cartoons?

Business names can play a role in your strategy. I bet you remember the Wile E. Coyote’s supplier, ACME. The name said EVERYTHING, because they sold everything. What a great strategy that would have been for a product placement. What would have been the result if the cartoon’s producer’s created a mail order ACME with a Home Depot strategy back in 1960?

So, brand names and strategy should be inseparable.

I came across the article Capitalizing on a Business Name which expressed some valuable tips. The article displayed five different branding strategies: Familial, logical, thematic, localized, and random. I will not reiterate the strategies, or definitions of each; You can read that for yourself. Instead, I suggest you expand to other areas than branding.

First: When thinking of your name, go to your tag-line. “Nike” the strategy doesn’t say very much until it is joined with “Just do it.”

Second: Focus on your audience on what they want. If you are just another novelty store, a lousy name and tagline would be Odds and Ends, Just another novelty store. The name and tag-line reduces you to a commodity. From a business strategy point of view, a commodity is a service, or product, that is distinguished from other similar services or goods by price only. In other words, the only thing you can do with a commodity is lower your price. You don’t want your business strategy to be there. It is no wonder that commodity comes from the same root as commode(should I say more.)

Third: After distinguishing yourself in name, tag-line, and product (or service), use the available web resources to get these out. Your strategy should be consistent, deliberate, and within your budget.

Fourth: Establish a growth strategy. For many, that is a death trap. So many entrepreneurs know how to produce their product or service, but not how to grow the company and manage the production. A lack of strategy, here, will cripple all of the work you did in steps one through three.

Fifth: Create benchmarks and metrics that track your strategy. Each step I mentioned above should be able to be measured in some way. Otherwise, your business name strategy, tag line strategy, production strategy, and growth strategy will be ideas that don’t speak to you.

Strategy: Local Connections? Then Why Do We Need The Web?

Just as Dorothy said, “There is no place like home.” But Dorothy didn’t have a facebook account. So, is that still true? Do we have to nurture local relationships in order to conduct our personal and business strategies, or can we just “talk” on the social networks?

I came across this local arts article that argued that every part of the world, and in our cities, have their own art personality. The article pointed out that with cover bands and reality TV, we can pretty much watch and hear the same thing regardless of which part of the country we are in.

The article makes a point, but only on the surface. For example, I co-founded a local non-profit in Manhattan Beach, CA, that promotes local arts, music, dance, and literature back in 2009. The strategy is showing promise as we exhibit local artists and their wares. But, the interesting thing is the local connections have been made both on the web, and the old fashioned way. Patch.com has promoted our events, in addition to the local newspaper, The Beach Reporter. Our organization is using the web as a new way to connect with the locals, yet it is nourished through personal contact. The resulting strategy has been a technology handshake. Businesses, especially businesses located in the cities, need this combination strategy if you plan to pursue something other that e-commerce.

For example, if you do not use the web, you will lose the ability to capture clients in the the long tail (see my previous article). I landed a Los Angeles client because her mother in Canada found me through Google. Our relationship has developed to where I am her business confidant in a new business venture. Likewise, if you just take in clients off the web and do not meet anyone, you will not nurture relationships and strategic alliances in your own neighborhood. I am in daily contact with business strategic alliances that I know from different areas of my life. When people know you, they have a better chance of trusting you.

With all of this said, though, you must strategize. Where are you now, where do you want to be, and how are you going to get there? Then do it. Strategy that is just academic, does nothing but kill time. You must put shoe leather on it, but use both conventional and web-based connections in order to have two shoes.

The strategy has to be a two-pronged approach in the current age.

Healthcare Reform: If It Walks Like a Duck and Quacks Like a Duck…We’ll Call it a Toad

I just returned from a great informative panel on healthcare reform presented the by the LA chapter of the Association of Strategic Planning. I was surprised to learn that many large and smaller companies are trying to use the independent contractor designation to reduce healthcare benefits for employees. I wrote about a similar topic in the National Healthcare Reform Magazine back in August. My article warned employers about the misclassification of an employee, and how it could sabotage their tax credit.

What I didn’t think of, were companies intentionally trying to circumvent the tax laws in order to save healthcare insurance. This can be very risky. The IRS is no stranger to businesses trying to reclassify employees as independent contractors in order to save payroll taxes. The rules are complex and employee definitions differ from state to state. However, I tell clients that if you tell your “contractor” how to do his/her job, you run the risk of the person being classified as an employee(thunbnail definition.)

Now, I can imagine these companies trying to align themselves with the Fedex case where the U S District Court ruled the drivers as independent contractors instead of employees. But now the risks involved in this aggressive stance is not only healthcare insurance penalties, but payroll taxes, and workers’ compensation issues(not to mention labor law issues.)

Be very careful when classifying those who work for you. A tax professional may be your best friend in keeping you out of “fowl” play.

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Business Plans: Some Tips to Financing Your Own Business (or How to Waterski)

When I was nine years old, I learned to water ski. My uncle and aunt (Jim and Eva Smith) owned a boat. My cousins were already skiing on two skis, so in Lake Isabella, California, my time had come. My uncle did some “dry runs” on the sand (in order for me to experience the “feel”) by pulling me up, by hand, with a ski rope. Then came time for the boat. Nothing could have prepared me for a high horse power outboard motor. My first half dozen attempts were “face-plants.” The next half dozen were “butt-plants.” I was getting discouraged and embarrassed. But my uncle didn’t flinch. He said he had all day and would stick with me until I got up. And finally, around the fifteenth attempt, I made it. Oh, not for long, for at least 50 yards. What a feeling. After that, I moved into the groove over the years, and eventually graduated to one ski, carving my temporary signature outside the boat’s wake like the others.

The AMEX forum article How to Raise Capital For Your Business reminded me of this experience. Our firm is frequently approached by entrepreneurs to prepare a business plan for their investors. The article breaks out the type of investors for a business plan and at what stage they may enter into your future.

Friends, families, and fools: The initial idea stage, the label says the rest.
Vendor financing: Acquire the product, sell it, then pay for it. You’ll need to create a strategic relationship with vendors who believe in you, and sell on consignment. This is done in the art world
Bootstrap: Well, if you have the money to risk, but it is always better to risk other’s money.
Venture capitalists: For others to invest, you have to show, in your business plan, that you have risked your own resources. Also, you will impress them if you manage some level of success on such meager self-financing. Never present a business plan that pays yourself back before the investors.
Partner: If there is another business who could be a stakeholder, they may want to risk a little with you.

In order to develop a credible business plan, you must be conservative and have some foundation for your numbers. One such idea is to use another business (or business plan) that is similar, and mirror its sales and profit. Usually, that is hard to come by, so you would have to make some assumptions in your business plan notes. Tell investors what your break-even point is, show them your first year’s monthly cash flow, and most of all, show them when and how much they will get paid.

In my water skiing overature, I had all the components of a new business plan:

I invested my own time and humility.
I was determined to succeed.
My uncle believed in me and invested his time and boat in my dream.
I didn’t have unreasonable expectations.
My uncle understood his investment in me, and the time needed to reach success.

Business plans are just a start, not a finished product. But, if you have all the business plan components, your credibility and investor comfort level rise.

Business Security Leaks: Here’s Another Hole in the Dam to Plug

We only have ten fingers, so how can we keep plugging potential security leaks in business and personal information? See the Phone security article that speaks about the police’s right to search your phone. That doesn’t bother me, as a CPA, unless it is illegal to write business articles. What bothers me is first, we had the lost laptop scare, then the forgotten thumb-drive, now the lost phone. All of which can compromise proprietary and personal information.

But let me tell you how carelessness can make you lose your lunch. 25 years ago, I was assigned as the business manager to a top entertainment executive. He was a volitle man and told me why he left one of the big CPA firms for us. His story started with an IRS audit in which a CPA of the big accounting firm representing him. The night of the audit, the client received a phone call from a stranger saying that the stranger had found some tax files in a phone booth. As you might have guessed, the big firm CPA stopped to make a phone call (before cell phones) after meeting with the IRS, and left his client’s tax files in the phone booth.

“Slip of mind” stories are somewhat common in the business world, but the gravity of the situation depends on the quantity and access to the information.

Now here is a 21st century FICTIONAL story on how something like this could have serious consequences. Let’s say a person uses their Ipad to conduct business that deals with personal financial information. The Ipad, the apps, all are used in this person’s business. That day, he leaves the Ipadat a restaurant. The Ipad is never to be seen again. All of the information will be at risk of being compromised.

And what about the text messages? The police, and anyone else, can read your undeleted text messages that may contain financial information.

One thing that I do with my clients is use multiple platforms. For example, if I open up an online bank account, I e-mail them the link to the bank. I do not include the email or user number. Next, I text message the user and password without any indication what they are for. I ask them to erase everything they receive from me as an extra precaution.

Another strategy our CPA firm practices is to process information in a paperless environment. This way, there is no loss of paper. Your paperless files must be secure, though. In regards to your business, you may consider going the “paperless route.” It could save you a lot of problems.

So security breaches can be made by your CPA, attorney, doctor, bookkeeper, financial advisor. Be aware of that when you look to engage one of these professionals.

When Standard Business Principles are Not a Clear Strategy

The standard business principles that your grandpa taught you 30 years ago, may not all apply to in today’s Internet environment. Take the Indie Connect Magazine article 10 Business Principles. Some of these principles may be stale in today’s business strategy. Here are some examples:

The Law of Supply and Demand The article explained that if there nobody wants your product or service, you can’t sell it to them. This may be fine for the corner fruit stand, but not when you have a world at your fingertips…In the old school of business, you were restricted to a geographic location by your resources. Today, at the time I am writing this blog, there has been over 2 1/2 billion google searches (See World Metersat the time you are reading this.) This means that if you develop a proper Internet strategy, you can attract a substantial market somewherein the world. Demand can be misleading in the Internet, because of the sheer numbers of individuals that are available to find you. You can almost sell anything to anyone, even if the demand seems absent.
You Spend Money to Make Money I can’t think of another principle that has been shattered by the Internet. 30 years ago, a local business person may have placed $1,000s of dollars of Yellow Pages ads in different cities to get the attention of hundreds of people. Today, if you spend mor time than money in establishing your product on the Internet, you can be successful. The one who wisely spends money in these slim economic ties, will be the one who will go the length.
Every industry has its own set of ‘best practices’ Yes, but these best practices may be a crutch that forces you to swim in a red ocean instead of a blue ocean where competition becomes irrelevant. You become a commodity. (See Blue Ocean Strategy article). To be successful, you have to examine what your customer is looking for from the industry, not what your industry is delivering to the customer. Sometimes, they can be very different.

Read the other priciples listed in the article, but look at them through the eyes of one in the 21st century.

The Band “Kiss” FaceBook and Twitter Strategy Case Study…Old School

Chances are, if you are reading this article, it is because you found the link on a social network like Facebook and Twitter. However, the strategy dicussed in the following article will probably be obsolete within a year…bummer. Music Think Tank published a cool article How to use Facebook and Twitter on your Official Website using “Kiss” as their case study in using such social networks.

However, there is a major point that I disagree in the author’s strategy. He set up Kiss’s Facebook with the idea to bring everyone back to Kiss’s web page. That is old school. Today, if you want to impress people with your skills and knowledge, you link everything to your BLOG. And that blog should be a page on your web site.

Why? You link people to your blog to demonstrate your knowledge in a specific area. Web pages are stagnant and not very interesting. Blogs are dynamic and informative. Secondly, just as I am trying to demonstrate in this blog, the blog topic should give the user free information.

Now, maybe a band, or an artist may not have anything to write in a blog, and their official web site is good enough. But not for the rest of us. You are an expert in something. Share it with others and build relationships.

Are You Brave Enough to Cannibalize Your Business in Order to Save it?

I love it when companies shape a strategy in order to save themselves. Usually, when companies make drastic changes they usually just downsize(e.g., lay off the receptionist and the file clerk.) This was a common story in 2010. But not for The Atlantic. Gigaom recaps the resurrection of the Atlantic after it had not showed a profit for over a decade. In 2010, The Atlantic implemented a revolutionary strategy that resulted in a $2 million profit. I will not repeat the article but outline some ideas that you can take to your business.

Be an industry leader, not a follower. (see my previous blog on Looking in the Rear View Mirror).
Make a cash flow budget over the next year, but don’t use that as a strategy. It should only aid your tactics to stay in business until you execute your new strategy. If you are a business in the black, make one anyway. It may help you run more efficiently.
Investigate the concept of shifting some of your operations from a brick and mortar business to a viral business. For example, if you own a restaurant, at first glance, you may not see any opportunity to avoid the brick and motor business because you need a place for your customers to sit. However, have you thought of packaging meals for web orders? This strategy may only account for 15% of your business, but it could have a 20% higher net profit return. There are many options.
Review your target customer. Are you meeting their real needs, or you just trying to sell them what is most profitable for you? Do you need to target a new clientele? A good example of this is the Five Crowns Restaurant in Corona del Mar. The restaurant was established in 1965 and has catered to an older clientele. About 2 years ago, they allocated a portion of their restaurant with a seperate entrance called The Side Door. This pub-style, fun-loving division has been popular with the younger crowd.
Adjust your operations to your strategy, not your strategy to your operations.

In these difficult times, there are still opportunities for those who dare to take the initiative.

Finance Your Business with your Future Income? Ask the US Government, they Do It All of the Time

So, you have a business plan and you are looking for financing? But the banks want nothing to do with you. Hey, what about your nice steady income of royalties? Ya, that’s the ticket! So, you jump to the Wall Street Journal and read the article on how others are doing it. Yes, you can do it! You can sacrifice your royalty income as collateral for the loan.

So, you meet with a company that specializes in this and they offer $7 million @ 14% interest, plus a stock option and 2% of your incremental revenue. Why not? The US Government are using future income to finance current debt.

As a preparer of strategic plans and business plans, I initially see a potential problem in this story. And that is the decision-maker is emotionally involved in starting the company, but is considering sacrificing secure income for a speculative one. Considering the success rate of new businesses, the downside is not a pretty picture.

Compare this to venture capital, where the business owner is giving away a large chunk of the business. In this second option, the risk is spread among a number of companies or individuals, the reward is smaller, but in a worst case, the business owner can still rely on the royalty income if the whole venture crashes.

Business owners always have to look at the downside of any decision to measure the risk. In addition they should have someone who is not emotionally involved that can give them a straight answer.

So, what should you do? Well, one thing to consider is, to do both. Take in some venture capital, sacrifice a little royalty income, and give away a smaller amount of equity. This way, your upside is not as large, but your downside is protected. Every deal is different, but don’t forget to measure your personal risk when deciding which avenue to take.