Category Archives: Essay

Essay

Business Rules

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I have just finished reading The Knack: How Street-Smart Entrepreneurs Learn to Handle Whatever Comes Up by Norm Brodsky. I have read Norm Brodsky for years in Inc. Magazine and have loved his earthy, down to business common sense. The book is more of the same and it was a good read and a valuable reference for all you budding (and even experienced) entrepreneurs out there.

A sample lesson from the book and a real life example of how sometimes companies get messed up:

Norm’s Lesson

We tend to make bad rules not when we’re attacking problems but when we are avoiding them.  We fall into the trap of looking for shortcuts and easy answers.  So, one bad customer drives off without paying his bill, and we put restrictions on all of our good customers. Or one employee uses bad judgement in issuing credit, and we tie the hands of all of those who are perfectly sound.

Real Life Example

My nephew is a high school senior and a sports fanatic.  He loves basketball, football and especially baseball.  He has given up on his dreams of playing in the Majors but still loves the sports world so much, that he plans to major in Sports Management in college starting next year.  I helped him get an interview for an intern position with the local minor league baseball team in his town.  During the interview, he was told that the job was doing anything that needed to be done for the team, might be painting the outfield wall or taking tickets or cleaning the bathrooms.  My nephew was still pumped.  The interviewer said “You know that this is an unpaid internship”.  My nephew said that was ok, he wanted to see what life was like in the baseball industry.  At the end, the interviewer said “We are so happy to get someone like you in this position.  But there is this one thing.  In order for us to take you on for this unpaid internship position, you need to get a letter from your school that they will give you credit for taking this internship.”.  What could this be all about?  Well, several years ago, a college student took this position and then sued the team because he did not get credit for his internship.  So, to make sure that this didn’t happen again, the team requires that the college provides proof that they will issue school credit for the internship.  You couldn’t sign away your rights, you couldn’t promise, you couldn’t double-dog swear.

Now, my nephew hasn’t even started at the University yet. But he duly went through the process of trying to figure out who to talk to and find out whether he could get credit.  After the process, he determined that the answer was no.  He called the team and tried to figure out a way to make it work, but they were unwilling to change the rule that they had put in place.

I don’t run a minor league ball club and surely don’t understand all of the ins and outs of running a team, but I do know that the one thing that they need is what my marketing friend Michelle calls “butts in seats”.  The way to get those seats filled is to get people who are in your community and who like your product to tell their friends.  What do you think will happen when my nephew is asked about his opinion of the local team?

This was a no-brainer.  Here you had a kid who was willing to do scut work for no pay, was a recognized baseball aficionado in his circle, wants to continue on in this industry and you could make him a huge fan and recommender, but that kid from several years ago clouded the owner’s mind.

As an entrepreneur, you must keep on the lookout for these rules and squash them as soon as you find them.

Essay

Bumps in the Road

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I am a big fan of entrepreneurs.  You all know that already.  I love the energy, the risk taking and the determination to make the vision into a viable moneymaking enterprise. As an entrepreneur, you always have to be ready for the bumps in the road.  Sometimes the bumps are internal.  Sometimes external.  But they all hurt as you try to navigate around them.  The best of us find the ways to get to the end, wherever the end is, by working our determination.

For some reason, today found me awash in examples…

A friend owns a restaurant.  He has the opportunity to expand the restaurant.  Can you believe it?  In this economy, he is seriously looking at expanding a restaurant. Oh, but expansion will cause the size of his restaurant to move to the next class under the city’s ordinance.  No problem, what could that mean?  2 new bathrooms.  He got the estimate this week and the cost to develop 2 new bathrooms is $50,000! $50K seriously?  You could buy a 3 bedroom house in parts of this country for $50K.  How many meals does he have to serve to recoup $50K?  Is this an incentive to being an entrepreneur? No, but it is a part of the journey down the road with many bumps.

Another friend sold his company years ago.  He decided to start a Montessori preschool in his town as a non-profit venture.  Over the years the school has grown due to the progressive and excellent education provided.  He now serves 70 kids in his suburb and is outgrowing the rented space he has had for 7 years.  Great job in building a company that the community has found helpful, right? He found a former church building, bought it and made plans to refurbish and move in last year. Only one thing.  There were 17 families who lived near the church, who were worried about noise and traffic.  They went to the city and zoning board and protested.  They planted signs in their yards.  They waged a negative PR campaign. My friend spent a year and significant dollars in legal and planning fees, developed a remediation plan and went through the process with City Hall.  Finally, after a year and significant scrutiny, City Hall ruled that the school would get the necessary permits.  Now the neighbors have sued the city and my friend because they felt they didn’t have enough time to prepare their defense.  When these folk’s taxes increase because businesses are scared of the hassles of locating in their suburb, they would do well to remember this.  However, for my friend, he is continuing on the path that was allowed by the City Hall approval.  And I give him a lot of credit to continue the dream after being beat up by the bumps in his particular road.

As an entrepreneur, it is critical for us to remember that in order to survive, we need the determination to see things through, even if we haven’t planned for the side trips.  It is all part of the journey and the journey really is the reward.

Essay

Presentations

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I have been a business plan competition judge for a few years now. Not as glamorous as the Miss America contest and not as tasty as a BBQ Competition judge, but fun all the same.  I really enjoy feeling the energy that comes through from the entrepreneurs in their ideas.  As part of my role, I have the opportunity to read a lot of business plans and watch some presentations to panels. I have also had the ability to see how groups of judges make decisions, as we all have our own points of view that must be aligned before determining the placing of the contestants.

A few lessons from the judge’s table (in no particular order):

Make your projections reasonable, meaningful and achievable. So many of the plans show either Year 3 earnings of $100 million or $200 thousand. Investors don’t believe the former and don’t bother with the latter. In any case, make it easy for the judge to vote for you.  Make sure that your financial tables foot, are right justified, have thousands separators, are complete and are rotated to allow for easy readability on the screen without printing it out. Take the opportunity to explain all assumptions that you make while determining your financials. Don’t assume that every month will be the same. Is there seasonality?  Will month 1 really be the same as month12? Include every expense that you can think of and make sure that the expenses that are outlined in the text portion are considered in the financial plan.

Detail your marketing plans beyond “advertising and trade shows”. Our world is changing faster than ever.  Don’t bet only on the same old strategies that our parents might have used.Try to stay away from discounting and couponing in the initial years.  You might have to resort to that if the economy goes south, but it probably is not a good strategy right out of the box.

Beware of planning your long term growth strategy on existing tools. Will Twitter or Facebook look the same in 5 years?  Will it look the same in 1 year?

Sample, if you possibly can. Let the judges (or angels, private equity folks, friends and family et. al.) touch, smell, see and taste your product.  Do a demo, if it is software, even in there is nothing behind the demo.  Don’t lie and tell folks that there is, just show them what you can.  In the last competition, one company had clothing, but did not let the judges feel or interact with the interesting material.  Another concept was a restaurant, where the chef came out and cooked for the audience.  Hearing the garlic sizzle in the fry pan and then smell the just cooked foods, made a huge difference in their presentation.

Leave the arrogance at home. Try to answer the direct questions as clearly as possible without signs of impatience or omnipotence.  Take a deep breath before answering, gather your thoughts and give the best answer you can, which might be “I don’t know, but I will find out and get back to you.”.  The judges don’t know your business as well as you do, but also, remember that they may be looking at it from a new angle that can provide insights to you.

Make sure to have people proofread and edit your submission. You may be the best interior designer in the world, but if your financial page is wrong or your marketing plan is half-baked, it is better to know and correct before the big day.

Presentation skills count. Think about how the presentation should flow.  If you have 3 founders, it is difficult to follow when each of you does one slide at a time.  Don’t read from your slides.  Your slides should guide your talk, not take the place of it.  See what Seth Godin has to say about presentations.  If you can add a video to break up your presentation, do so.  Practice, practice, practice.  If you practice enough, you will not be nervous at the time of the big show. Know how long it takes to give the presentation.  Use cue cards to make sure that you convey the right ideas for each slide – bullet points, not complete sentences.  Important – do not read your presentation from the cue cards.

Even if you are not entering a business plan competition, these are all good rules to think about when making a critical presentation.  It could be for an internal project approval at a large company or for venture financing.  You are the best sales person for your idea.  A great presentation will get you further along towards getting that approval than anything else.

Essay

How we interact with email

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I remember when I was young, my mom used to write all of her friends letters on real paper and put them into the mail.  She would get handwritten responses that she could keep and treasure.  We could identify the letters from this friend by the foreign stamps and from that one by the color of ink she habitually used.

Many people have written about the lost art of writing letters.  I don’t want to argue the merits of that topic right here, although a handwritten thank you card can work wonders.  It is always interested me to read the letters between historical figures.  You can get a better picture of the people behind the public persona by reading the conversation between two people. If you have those paper documents, you can keep an archive.  This archive can then become the basis for understanding and illumination.

Today, what I want to discuss is how we can manage our communications today, especially email.

For a while there, it seemed that email was totally fungible.  I don’t have my emails from 1999 or 2000 or even 2004.  Yes, I know that they are probably out there somewhere on some archive in at old ISP (remember this for when you write something that you shouldn’t have), but certainly not in a place that can be accessed easily by my biographer in 50 years.

Google Mail has changed this for me in a big way.  It can be the same with other on-line, cloud based email services. The search capabilities and large storage capacity of these services allow you to search for old correspondence in a way that is much more helpful than reading those old piles of handwritten letters.  Don’t remember the site that had that neat financial tool?  Just search your archived mail.  How did we resolve that board question?  Review all of the relevant documents from one screen. Google gives you over 7 gigabytes of storage (and counting) in each mailbox, so that you can keep all of your emails in one place.

The challenge with this is that besides search, the tools available to help you mine the information in your Gmail archive are limited.  Sure, there are labels and filters.  Labels are great in the abstract, but as you get significant amount of mail, it becomes difficult to tag each email before archiving.  Filters can help with the labeling, but you have to know the circumstances for which you need a filter before you need a filter.  I’m sure that there are a lot of you organized types who put both to good use.  But me, I’m not so much on the organized side of things. So, what can one do?

We tend to think that the young among us are most technologically centered.  They can quickly adjust to different tools and utilize social networking to the max to achieve their goals.  However, it is interesting to note that several of the young entrepreneurs that I am mentoring have mentioned in recent meetings about the difficulties that they have responding in a timely fashion to the deluge of emails that they receive every day.

The reason that this came up was in relation to an article I read on Gigaom about Why Email Clients Need to Change?.  My email box does not look like Alistair’s, but I have the same types of problems with an email deluge. His ideas on adding features to our email clients that help us make better use of both our incoming mail and our archived mail make a lot of sense to me.

How do you manage your email?  Do you keep everything or are you a deleter? Would the tools mentioned in Alistair’s article be helpful to you?  Do you have any others that you want to add?

Essay

The Pendulum – Part 2

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In the first blog post on The Pendulum, I related several instances of where peaks and valleys affect macro issues.  Things like the stock market, the credit market and global technology shifts.  But it is instructive to note that these types of patterns happen on a micro level as well.

We are all aware of the passing of time.  Even our bodies follow these rhythms.  Ever notice how some people are morning people and others are night owls.  It is due to the levels of hormones in our bodies that rise and fall, much like the pendulum.  You can perform better if you understand your particular body rhythm and try to plan your most intensive work when your body is most ready to support it.   I know that it is not totally realistic to expect your boss to understand that you are a night person when you are required to show up at 7:30 am, but you can make the effort to make the best use of your most intensive work times.

On a little grander scale, even in the Bible, Joseph told of the story of the Pendulum.

And, behold, there came up out of the River seven cows, handsome and fat of flesh and they fed in the reed grass. And, behold, seven other cows came up after them out of the River, ugly and lean of flesh and stood by the other cows upon the bank of the River. And the ugly and lean cows ate up the seven handsome and fat cows. (Genesis 41:1-4)

Seven years of plenty and then seven years of famine.  Sounds like a familiar theme.  Joseph’s advice to Pharoh was to save while times are good, in order to cushion the blows when times are not so favorable. Good advice for us all.

I think overall the key is to understand that the pendulum swings are a normal part of living in our world.  How we can plan to weather the storms or enjoy the plenty, understanding that the status quo is not stable is key to our getting the best out of our lives.

This whole topic has brought to mind a saying that my daughter has introduced me to: However good or bad a situation is, it will change.

Be ready and take charge of your reaction to the change.

Essay

The Pendulum

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Peaks and valleys.  Reminds one of a bucolic Colorado vista, perhaps Pike’s Peak and the San Luis Valley.  But our lives are driven by patterns that look like peaks and valleys.  For example, this is a graph of the stock market for the last 25 years.

S&P 500 1984-2009
S&P 500 1984-2009

Notice the number of times that the chart has significant ups and downs.  This is a way that we as humans tend to operate in our domains.  We push the level of an activity until it goes beyond a breaking point (or some external event, like 9/11, causes a breaking point) and then instead of slowly returning to an equilibrium level, the system quickly regresses back to a point well beyond a median and we start the cycle all over again.  While it is painful to go through these cycles, our historical precedents do tell us that we will come out of the valley and start to rise again within a reasonable time.  Over time, these boom-bust-boom cycles have been getting shorter but steeper.

A current example of the boom-bust-boom cycles have to do with credit.  The credit markets have acted like a pendulum, swinging from high availability, low rates to low availability, high rates.  Some of these changes were due to changed economic policy by our government and the Federal Reserve. A large part of our current credit problem is related to the reticence of banks to take on additional risk, so they have tightened down the requirements for getting credit, to consumers as well as to businesses.  I wrote about the changes that Chase has made in their lending to small businesses here. Will this get sorted out?  Yes.  How soon?  Much bigger question.

But not all peaks and valleys correspond to economic events. It has always been instructive to me to watch the technology curves.

My technology journey started with the mainframe.  Everything you could want was on the mainframe.  It had to be since you interacted with the mainframe via punched cards (yes, I am that old). All by one manufacturer, all guaranteed to work the same way, the only way.  Kind of like Ford’s Model T, in any color as long as you wanted black.  But soon, we got PC’s and things got colorful fast.  Lots of different programs, different interfaces, different data storage, little interaction.  Businesses had a hard time utilizing these PC’s; actually IT (or Data Processing as it was called in those days) had the problems.  Everybody did things differently.  So, they decided to purchase integrated ERP solutions that allowed the entire company to work together cooperatively on planning and executing, counting and selling, paying bills and receiving cash.  These also included the support software to ensure it would all work together, the databases, the communications manager, the security systems and the scheduler. Back to the mainframe mentality – easier to manage, but limited in flexibility.

But of course, people wanted their own solutions.  So, along came Unix and other open systems.  Now it was possible to pick the best of breed solutions for each system need.  Flexibility to pick and choose, difficult to integrate and make sure that Program A fed Program B the right data in the right format.  It was costly for the software companies to support – they had to have every possible combination of systems to test with and provide their tech support staff with. I likened it to going to a race track and having to make the right choice to win for 10 races.  Difficult for anyone and not efficient for the IT staff.

Yesterday’s announcement that Oracle is going to buy Sun is bringing this whole technology cycle full circle.  Now one company can sell you the database, CRM Software, ERP Solution, security and hardware to be able to guarantee that all things will work together.  IBM and HP are also looking to provide a full course solution. What could happen to companies like Dell, Cisco and Fujitsu?  Where does Microsoft play in this arena?

All I can say is that given our history with peaks and valleys, you can expect that this phase of single company providing a full suite will have a reasonable lifespan and another model will come into play. It will be fun to watch this change over time.

Essay

Magic Numbers

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I get really jazzed up at this time of year.  Some of it is the magic of springtime, green grass, cycling again, robins chirping.  But mostly it is because baseball is back.  Baseball conjures up in me many things.  Partly it is the memory of “having a catch” with my dad (and continuing the custom with my kids).  Some is the love of the teams and the rivalries (Red Sox vs. Yankees and Cubs vs. Cardinals).

A lot of what we love is related to the ways that we can follow baseball.  Sure, a day at Fenway or Wrigley can be a memorable event. Following the box scores in the paper or watching SportsCenter can stoke the habit.  But in the end, baseball is a complicated game, full of arcane rules and strange rituals.  One way to make it easier to understand is to break it down into numbers.  Everyone knows about batting averages and ERA.  If you are really into baseball, you might know PECOTA, OPS and SLG. These stats help us to visualize, compare and project a team’s future.

In business, as well, we can use stats to help us understand where things are going.  I like to talk about these as Magic Numbers.  Everyone is familiar with the biggies — Net Profit Percent, Average Ticket for a restaurant, Return on Investment, Debt to Equity ratio, P/E Ratio.  But every business has (or should have) some specific measures that are important to its health.  These should be easy to calculate, presented on a regular basis (daily or weekly) and help the manager to forecast where the business is going.

For example, when I was running my consulting company, we had a few numbers that we tracked weekly.  They included Cash in Bank, Average A/R Days, Utilization %, Sales Pipeline and Backlog $.  Some of these were trailing stats; that is, they told us of what had already happened — Cash, Avg. A/R Days and Utilization fell into this category.  Pipeline and Backlog were leading indicators.  Pipeline told us how many deals we had in play for how much and when they were expected to close. We used an expected value (Expected % of Close * Dollar Value) as a tracking mechanism. Backlog told us how much work we had on our books that was signed by the client, but was not performed yet.  We needed to keep backlog increasing through sales at a reasonable rate.  The working off of the backlog would take care of itself; every week people were decreasing it.

Norm Brodsky, an entrepreneur and columnist at Inc. Magazine wrote about his use of Magic Numbers and how the practice allowed him to forecast a downturn in his business.

Sometimes Magic Numbers can be developed that will help you understand your market, while measuring things totally outside of your sphere of control. There are stories about people who count the number of cars in a mall parking lot to determine if their restaurant’s prognosis is up or down.

So, the question is do you employ magic numbers in your management process and if so, what types help you to forecast the health of your business?

Essay, Guest Post

Bad Economy

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From time to time, I will give the floor to a guest blogger.  Today is one of those times.  Meet Howard Bender.  Howard is my friend and also the owner of the only Jewish delicatessen west of Chicago, Schmaltz Delicatessen.  Today, he talks about the need to look for positives in the current economy.

In a world filled with miserable attitude, bad economic times and lots of self-fulfilling prophecy of failure, an attitude as a small business owner and entrepreneur to be a survivor as opposed to a victim is everything. I just want to point out one trashy note today that can snowball and lead to a bottom line of success for me. I have never in my lifetime seen such a buyer’s market. Our vendors are scared of losing us, we are scared they are mistreating us, our customers are looking for more value with the same quality, our bankers are scared and our families are nervous.

In our business, we have driven down on our expenses to re-evaluate each and every line that sends cash out the door. We began about 45 days ago, re-bidding out everything from food and supplies to garbage and toner. Today, I sat down with our bookkeeper and looked at 3 competitive bids on garbage removal. Each and every one was 30% less than our current vendor. Shocked, dismayed and thrilled all at the same time! But wait, our current vendor’s service is superb. Let’s call them too! After reaching our current vendor, putting it on the table in a honest and real manner, I am pleased to say we now pay 30% less for superb, consistent service.

Now, there was a time when I would have felt I had been screwed for many years and no matter what,  I will switch garbage vendors just for that. But having spent the last couple of decades in this business working for hotels, restaurants, bakeries, and even on the other side as a foodservice distributor, I am convinced I have not been getting screwed. In fact, up until just months ago, I was paying a very competitive price. We bid this service out a few times over the last few years and all vendors were around the same price that I was paying up until today.

The rules have changed. They have changed for me, they have changed for my vendors, and they have certainly changed for my customers. The concept of competitive pricing is swinging on the pendulum. Always competitive but only the price changes. So in the inflated economic times of a few years ago, the price was competitive… and high. Now our competitive price is on the other end of the pendulum and is very low. The trick is to get a contracted price at the end of the pendulum… I’m working on it. I’m also opening my eyes a little wider to asking every vendor for a break… everyone knows they will charge more when they can. When I was a sales manager for a foodservice distributor, I used to tell my sales staff that if your customers are not complaining or questioning your price, you are not charging enough. Today is a really, really good day to question.

Essay

The Business Plan

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Nothing sends shivers down the spine of the new entrepreneur more than the idea of writing that business plan.

Over the past several weeks, I have had the pleasure (?) of reviewing a number of business plans. Some were for a business plan competition, others were for companies that I have been advising and still others were presented as part of a class that I have been taking.

It is very instructive to me to see how people treat their business plans.

A very few build their plans so that they can be used as a real guide to build and grow their business, much as an architect uses a blueprint to guide the building of a house. However, often they forget that another reason to write a business plan is to sell your idea to an investor or a banker or a vendor.  You need to have that hook in there that explains the mystery of WIIFM (What’s in it for me?) for the reader.

Others use the business plan as a marketing piece. The more graphs, flowcharts and photographs the better. If you can find a way to throw a video in there, it must be golden. Market size, the entire population of the US? Develop a comprehensive  financial or operations plan? — they figure they’ll get those sorted out when they get the investor bucks.  Um, sorry, but investors want to understand how the business will make them money. That WIIFM concept comes back to haunt us.

In reality, the business plan is an exceedingly hard document to write.  It has to function in both modes, as a management tool and as a marketing piece.  If you look at writing the plan as something that you have to do to check the item off the entrepreneurial checklist, I can almost guarantee that the final product will not achieve what you want. If you do not have a few trusted people edit the document and provide feedback, it will not achieve what you want.  If you do not take the time to lay the document out clearly with a title page, table of contents, headers, footers, section headings, spell check, grammar check and possibly footnotes, it will not achieve what you want. If you don’t make sure that your financial statements tie together and are reasonable, it will not achieve what you want.

And the sad part is that an investor or banker probably sees hundreds of business plans a year.  They probably spend an average of 5-10 minutes scanning the document to see if they should invest the time necessary to evaluate the plan.  You may have the best widget or service on the planet, but if the plan doesn’t sell in the first 5 minutes, you may not get a chance to present to the target.

The business plan has to be able to clearly explain what the business is all about, why it is necessary, who will buy from it, how you will operate it, who will have what responsibilities, what the financials are projected to be and what kind of returns an investor can expect.

In the past several weeks, I haven’t read one plan that met all of these criteria.  But I remain hopeful that I will find the Holy Grail sometime soon.

Essay

Unemployment Ideas

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You just never know.  I happened to be at a family gathering recently and was seated next to a woman who I did not know.  She mentioned that she worked for her state’s Department of Labor and was an unemployment counselor.  We got to talking and I found out a bunch of neat things that I didn’t know about unemployment.

(Disclaimer: I am not an attorney or unemployment counselor, so you should check out what I say with your state’s Department of Labor or a real labor attorney.)

  • Depending on your situation, you may be able to shop your unemployment claim to a different state.  If you have worked for employers in different states or even, sometimes, if your corporation has its headquarters in a state, you may be able to file there.  Why is this important?  Unemployment is handled as a state matter.  Therefore, each state has its own limit on weekly benefits. A list of 2008 maximums by state can be found here. The differences can be staggering.  Florida was at $275, but if there is some chance that you can collect from Massachusetts, your weekly maximum could be $900.
  • You can file for non-contiguous time frames.  Say that your boss lays you off, but then offers to pay you half your salary for half time.  You are better off working one week on and one week off.  In this case, you can file for unemployment on your off weeks until you get a job.  Do not work half days because any day that you show up for work cannot be counted towards unemployment.
  • If you do get laid off, look for opportunities to go back to school. Unemployment compensation can sometimes extend throughout your academic program, even if it exceeds the normal time frames.  In addition, there are often state grants for retraining that can be applied for to pay for tuition.
  • There have been many changes to unemployment law and practice in the past year due to the economic conditions.  Make sure to do your homework or talk to an employment counselor at your  Department of Labor to see about the $25 Federal increase and the extension of unemployment benefits.

Certainly, no one wants to be on unemployment, but if you or someone you know has been affected by this economy, it pays to know the rules at the Department of Labor.