business finance Archives | Page 9 of 12

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.

Strategic Planning with Social Media: If You Are Looking In the Rear-view Mirror, You are Backing Up.

Businesses have to look forward, or die. Too many businesses(including my profession, CPAs) look at historical results and trends to predict the future. The problem with this strategic plan is the business owners do not see what is ahead. In many cases, the strategic planners use old techniques when strategizing for the future. For example, many business owners (and artists) say, “I’m moving into social networking.”

I ask them what they mean by that. They reply, “The strategy of doing what everyone else has been doing for the last five years.”

Big deal.

So, before designing your new company, before resurrecting your old company, before January 1, read this article RWW article which explains where some people think social networking is going in 2011. Then, pick a couple of points and do some future research on these points. If the predictions seem plausible, adjust your strategic plan to be an industry leader, not follower. Very rarely does a “copy cat” strategic plan carve new industries and new ways of doing business.

Let’s take one example from the article: “‘It’s not just about technology, it’s about a fundamental shift into a new age of leadership with new type of executives who behave and operate in new ways,’ said Marc Benioff, Salesforce.com chairman and CEO. ‘Expect to see a rise in companies who, by end of year, will be recognized for socially-informed innovation, customer focus and work environment, much like Zappos and Amazon were a few years back.'”

This comment from the article is not talking about just another strategic plan, no he speaker is talking about a new type of leadership. Step into the shoes of your customers, fans, clients, etc., and see how a new strategic plan involving social networking can bridge the communication gap between you and them. Your strategic plan must first focus on them, not on you, and definitely not in the rear-view mirror. We can learn from the past, but we shouldn’t repeat it in a strategic plan if the landscape is changing.

The New Tax Bill, Don’t Squander the Opportunity

By now, you must have heard that the new tax bill passed both houses and is sure to be signed by the President. But what opportunities does the new tax bill have for you? Well, from a tax standpoint it depends. The impact of the tax bill is different for individuals depending on their tax bracket. For example, if you have children and are not in the top tax bracket, you may still qualify under the new tax bill for your $1,000 child tax credit. Or, if invest a lot in stocks, the new tax bill will allow you to still get your qualified dividends taxed a favorable 15% tax rate. But the main impact of the new tax bill that will affect all taxpayers is the reduction in social security withholdings. I don’t recall Congress passing a tax bill like this in the 30 plus years I have been preparing tax returns.

However, since the tax bill is throwing social security gift to you, you have an opportunity for some cash flow or retirement planning. You can start 2011 by paying down the credit cards that have accumulated over this economic downturn with your extra cash. Likewise, you can increase your retirement contributions by your savings. The trick in cash flow is to live within your means, and if you are not careful, you may squander your tax bill savings. Opportunities like this do not come along often, so use it to your advantage by planning.

Discuss your situation with your tax professional before making any decisions.

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Are there Too Many People Between You and Your Fans(or Clients)?

I stumbled across this article, There’s No Long Tail on Hypebot.com. The article mostly bored me until I got to the last paragraph regarding business. It stated, “The way the [music] industry is structured today there are too many people and organizations between the artist and the fan, which has the result of increasing the numbers of marginal businesses where the income is spread too thinly.”

Though this may be true in many cases, in the internet business world of today, the concept of the middle man is going the way of the cassett tape. Back in the 1980’s a band needed a record company (consisting of an army of persons), a promoter, a personal manager, a business manager, a tour manager, a publicist, etc., just to have a chance of being heard by their fans. A frustrating thought, unless you compare the record business to my father’s day in the 1950’s. He (Bobby Norris) signed as a Rockabilly vocalist with Capitol Records, and couldn’t even get substantial airplay without paying the stations “payolla.” (Ironically, today, eight years after his death, his records are in a Capitol Records Rockabilly album, and are playing, and sold on the internet.)

The way of the middle man, as we know it will deminish in some business industries (like music), and surface in other business industries like mobile apps. In regards to your business and industry, what role will a middle man play? Social networking and search engine optomization(SEO) has played an important role, but will the SEO business industry be edged out as more people use their apps to find information (like Yelp!) instead of Google?

So, what should you do? First, in your industry, take a step back and see what your fanbase or customer is looking for? Are they looking for more fireworks on stage like KISS, or a band that can act as a bellweather, like the Beatles, in a changing culture? Are you just following the pack, or is there another way to get to your fan (or clients) that others have not addressed. Don’t follow the flow. Have the flow follow you. Second, find your blue ocean and make your competition irrelevant.

Is Your Viral Strategy Becoming Obsolete?

A little while ago, I wrote an blog that borrowed a quote from from Wayne Gretsky, who said he is successful because he skated to where the puck was going to be, not where was is at. Now, a recent study makes a claim that can affect every business that uses Search Engine Optimization methods. Currently, businesses use various methods to increase their visability on search engines. Some of these tactics include the expensive “pay-per-click.”

The article, Consumers under 35 Ditching Browsers for Apps, disusses a recent study that millennials choose mobile apps over search engines. However, before you fire your SEO consultant, read the article closely. The survey question was not asked properly to arrive at this conclusion.

Still, notwithstanding the article’s basic point, there is a bellwether here. In certain situations, the Mobile App may be the only viable tool for web search. When you are looking for a Starbucks in the car, would you use Yelp! or Google? Most mobile app users I know, at any age, use Yelp! To use Google is way too long and less refined for the area you are searching. This example can be replicated for many situations. The real question is, whether your tactics have been adjusted in light of it. How can your viral strategic plan be implemented as the consumer habits change? Strategic Planning is a circular process. Quantitative results will play a major role (Sales, profit, customer increases), but they must be looked at in context of your strategy, and the every changing landscape.

Business Plans. The greatest of the Great American Novel. (I’ve done both.)

Business Plans. The greatest of the Great American Novel. I should know, I’ve done both.

I came across this timely article A Music Business Plan from Music Think Tank. The author made an honest attempt in trying to simplify a slippery subject while plugging his business plan book. That is OK, I didn’t mind. But, the article really didn’t tell me too much. The example he displayed was what I call a Red Ocean business. In other words, using the Blue Ocean Strategy theory, his business plan did not render the competition irrelevant.

Irrelevant competition is the goal, not the business plan.

The lack of ingenuity in business plans concern me because the music industry has always been one of the most creative industries. Others are taking a risk and trying to achieve this. See a prior blog where this is happening.

So, instead of telling you how to write a business plan, I will provide some tips on strategies:

Don’t follow the pack. Yes, I know, record companies, literary agents, and Mother Superior want you to follow tried and true practices. You can learn from the past, but you don’t have to repeat it, if it is not working. The music industry is currently searching for a new business model, but until they find one, they’ll keep doing the same things they have always done.
Focus your business plan on what your audience wants, but is not getting. During the 1960’s, is the reason why the Beatles rocketed to fame(beside their great rhythms) is because they portrayed themselves as cultural leaders to a generation that was searching for an identity? Just look at the impact they had on my generation with Helter Skelter, Eleanor Rigby, Hey Jude, Come Together, Revolution, Lucy in the Sky with Diamonds, and many more. Some impacts were positive, others not.
Utilize every talent you have for your business plan. Can you draw? Can you write poetry? How about cook? I don’t know, just take stock of your core competencies and see how they can send your music and strategy in a new direction.

As a professional that writes business plans, I cannot tell you the answer. You have to discover that yourself. My job, is to lead you in this strategy as a sounding board, and then quantify it into something others will understand.

What 12 Year-old would Want “Penny Stock” for Christmas, and Why?

In December 2008, my 12-year old wanted penny stock for Christmas . I never had any luck in investing in penny stock, even with penny stock newsletters. So, my wife and I looked at stock that we may want to buy that wasn’t expensive, but had potential. In March of 2009, we came up with Ford. It was about $5 per share, and the only auto company not borrowing from the U S government. It had a mountain of debt, but we figured the fed’s weren’t going to let the auto industry die. So, in place of a gift, my son received 40 shares of Ford valued at $200. Two weeks ago(2010), he elected to sell his 40 shares (to us) at $17.20. His $200 investment increased to $688.

This is a good, though a little risky gift you can give to your aspiring child, as long as they know the risk of not getting ANY Christmas present. An article in the Wall Street Journal offers some options that you may consider. How to Give Children the Gift of Investing. The gift can be a learning tool for both you and the child, hopefully a profitable one.

In case you are wondering what our son is doing with the money, he is partially investing it in himself. Right now, he is a 14-year old freshman high school water polo player. For this year’s Christmas gift, he wants a personal weight trainer to get him buff before he plays varsity water polo in 2 years. However, the $40 per hour trainer would eat up his money pretty quickly. So, he requested another interesting Christmas gift in 2010. This time, to us and grandma. However, he sweatened the deal and mortgaged his next birthday gift, too. Instead of receiving a Christmas gift in 2010, and a birthday gift in May 2011, he wants grandma, and us, to pitch in 1/3 each, for his weight training. So, he pays 1/3 out of the Ford proceeds, grandma pays 1/3, and we pay 1/3 for the trainer. In return, he doesn’t get any large gift for either Christmas or his next birthday.

So in theory, he will leverage his 2008 Christmas gift Ford proceeds to pay for 40-50 weight training lessons.

Looking at his strategy, he wants to be the strongest kid of his age next year. Combine that with hard work and great grades, there may be a water polo position open for him at the college level in 3 years. Quite an upside for a $200 risk.

Now, he (nor I) know that many things can happen in 3 years, but there are some good lessons here:

Trade meaningless short-term benefits (like material possessions), for long-term goals that may reap benefit far greater.
Really think about what is important to you over the next five years. Is that expensive car really more important than investing in a little more education or training?
Take a little risk, and plan for contingencies, but make sure it is a calculated risk. Don’t blindly walk into anything.
Above all, don’t look back. Don’t dwell on things that don’t work out. Keep moving forward adjusting your strategy as needed.

By the way, at the time I am writing this article, the 40 shares of Ford stock he sold to me at $17.20 is now $15.94 per share.