Take Jim, a software developer who wrote a small program that he was selling for a modest fee via his website and through direct sales. A company contacted him after using his application to find out if they could license the distribution rights to his software, or purchase it outright.

Since this is not a normal course of business, at least to date, Jim had to get a crash course in negotiating this kind of deal.

• Will the deal be exclusive, and therefore limit his own abilities to distribute the application, or find other distributors?
• What kind of support packages would the client want?
• How is the deal to be structured – flat fee, annual rates, usage based?

The smartest thing to do in such a case is to put the onus on the buyer to come up with the initial terms. That is, politely respond to the buyer that you are interested, at least in concept, and ask them to provide a more detailed offer. Imply that there may be more available than the publicly available version – part of the up-sell that could create some room for leverage later on. Ask them to include a section for support and maintenance.

If the buyer has gone through this process ever before, then they will know how they would like to structure the deal, and the kind of terms they can expect to end up with. By asking them to provide an opening offer, you create room for an immediate acceptance if the offer is overly fair (unlikely, but possible), some haggling over the details if the general ideas are acceptable, the issue being with the number, or a flat refusal if the offer is so poor as to be offensive.

If the buyer has not gone through this process ever before, they will have no idea how to present a fair offer. However, they will now have to evaluate the costs of leaving you out of the loop, something they likely have already done before contacting you in the first place. This gives them their limit on how much they would spend on such a product or service, and they will work backward from there.

In either case, pushing the buyer to start the negotiations can only benefit you – if they ask you what your terms are, then you will still have to come up with a fee structure and pricing model, but it is more likely that the answer to your query will be exactly what you need – a starting point for the offer.

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Competition can be a scary thing, but it can also be useful, if handled correctly. Few industries or markets are only large enough for a single player, which means that there is little reason for anyone to be afraid of their competitors. Instead, if companies welcome their competition, they will soon discover that they can benefit one another.

For example, two web development companies might initially think that they are in direct competition. However, the reality is that both companies get much of their business via referrals, for which there is no competition. Having a partnership with another company means that each company can quietly outsource their extra work when they’re busy, maintaining a positive outward appearance to their clients.

This can benefit both sides, since idle workers are expensive, so accepting the work, even at a reduced rate, benefits both businesses. Likewise, the ability to get additional workers when needed on an ad hoc basic minimizes the expense of keeping a large staff.

There are other ways as well in which companies can not compete, for example, targeting slightly different markets, or offering variations on the same service. In either case, there can even be the ability to share clients, allowing each company to focus on what makes them different from their competitors, instead of getting hung up on what makes them all the same.

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Which group do you fall into, and why?

Calculating Salary

As noted in last week’s questions, assessing salary can be a challenging endeavor, especially if there are limited statistics available for the industry and region. However, there are some basic rules of thumb that can assist in running the calculation.

The first is to determine how much the position is worth to you, the employer. If by hiring someone to perform a particular role, you can generate $100,000 in revenue, then that position is worth some fraction of that. Once you factor in your own overhead, be it rent, taxes, collections, legal, and other aspects of your business which do not directly bring in revenue, this number usually works out to about a factor of 3.

Second, you need to look at the options your candidates have, and what types of positions they might otherwise be interested in. If you’re hiring a computer programmer, for example, but want him to work as a business analyst in addition to programming, you need to consider the salary he might be able to get as just a computer programmer. That number would then be used to determine the minimum salary level – since you require additional skills over comparable jobs.

Last, you need to look at what you can afford. If you cannot afford to pay a fair salary, then either you need to reduce the list of qualifications, or reduce the seniority such that the position becomes affordable. It will not help your business to offer a position at $75,000 per year when in reality you can only afford to pay $60,000. While you may scrimp to make the position work, you will end up doing your business more harm than good when you discover that you hired over your needs.

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This week, I had to contact a company which deals in large quantities of email to process a refund. The experience showed me what a good email policy is.

One evening, I realized that a purchase I had made had never been delivered, and so I emailed the vendor requesting a refund. Minutes later, I got an automated response telling me that my email had been recieved, and would be taken care of within 2 business days.

The following afternoon, I got a personal email asking for more details so that they could process the refund, to which I sent the requested information. I was notified that the refund would be processed within 5 days, and would get an email once the processing was done.

An hour later, that email came as well.

What this company did right is that they followed up at every step of the way:

1. They acknowledged that my email arrived, and let me know when I could expect a personalized response;
2. They met the timelines they set with a generous margin;
3. They constantly assured me that they would deal with this issue promptly and that they were concerned with my ultimate satisfaction.

If you receive more email than you can deal with immediately, following the example above may help reassure those emailing you that you will respond, and will do so in a friendly and professional manner.

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I left university having had enough of sitting in the classroom. My degree took 5 years to complete, having added and removed subjects several times. I was ready to move out into the real world, despite the messages constantly being sent during the school years that the workload was preparing me for life.

I have never worked as hard as I did in school.

Being in a real job, whether for someone else, or for myself, made me realize that I have a fair bit of spare time, times when I don’t have other responsibilities. I then did something I would not have considered prior to starting the job – I started learning again.

Some learning was formal, presented in a classroom, with assignments, tests, and marks. Most, however, was the informal learning that I know to be one of the keys to success. Every discussion I had, every event I participated in, every situation that arose, all were opportunities to learn.

Constantly absorbing what happens around you in a work environment can be tougher than my fourth year algorithms course (ranked one of the most difficult courses offered by the university). Reflecting on the situations and making their lessons part of your being increase your value, just as getting a few more letters after your name can do the same.

To succeed, you need to keep learning. Any opportunity you have to sharpen your mind, increase your knowledge and understanding of your business and its environment, can only help you succeed.

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Find a mentor who has been in a similar business situation before (though not necessarily in the same industry), with whom you have good personal chemistry, and with whom you can communicate effectively.

The reason for this is simple – no matter how much advice you read, no matter how many textbooks you study, you will encounter countless situations in which the generic advice doesn’t hold true. Your training won’t help you, nor can you go out and search for an answer. The only resource that can help you is another person.

A mentor for a business owner understands the realities of the business. They understand the issues you’ve faced in the past, and how you handled them. They understand the local culture, and the personalities of the people involved.

And they understand your business.

Mentors can be free, if you have a friend or family member who is willing to step up to the job. If not, there are many small business consultants, who are essentially mentors. While their fees may seem extravagant to the point where they make lawyers look cheap, the value they bring to your business far exceeds their cost.

A good mentor will help you avoid costly mistakes, learn from your own history, and push you to succeed. A good mentor wants you to eventually part ways with them – because that means that you’ve succeeded, which means they’ve done their job well.

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What if such data is not available? How would you go about determining how much a position is worth to your business?

The Customer is Always Right

Last week, I asked about an issue which divides many people – is the customer always right?

One answer which I came across put the real issue on the table:

The customer is always right until they put down my staff on a personal level. After that, I’m not interested in having that person as a customer.

A good business owner would heed this advice. Your staff need to know that you will stick up for them, and defend them (politely, of course) in disputes with the customer. There may be give and take, and certainly mistakes can be made by anyone, but the general attitude should be that just because the person raising the issue is a customer, it doesn’t give them the right to put down the staff.

The other way to phrase this is as follows:

As long as someone is my customer, they’re always right. But not everyone who pays me for a product or service is my customer. If someone behaves in a way that is not called for, that is completely unprofessional and shows a lack of tolerance, I don’t want that person as as customer. Once that happens, I’m free to consider that person to be in the wrong.

What those actions are that push someone over the edge will vary from person to person, and even situation to situation. But the prudent business owner would realize that there are some people who you don’t need as customers, and don’t improve your business by having them around. If your staff know that you will defend them in front of the customers, they will often step up and do their best to keep the number of incidents in which such a decision needs to be made down to a minimum.

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Tasty Cheese manufactures healthy snacks from cottage cheese and chocolate, something Anna found to have mass appeal (though Arlene Dickinson didn’t seem to care for the snack). Her past efforts had made her business profitable, but she was looking to expand. She asked for $150,000 for a 20% stake in the business, which, considering the business made no money annually if it paid her a salary, was a fairly aggressive valuation.

Naturally, the dragons were reluctant to give her the valuation she asked for, and one by one they bowed out of the deal.

Except for Jim Treliving, owner of Boston Pizza.

Jim stepped up with an offer, though at a lower valuation than Anna had been looking for. Knowing that she was limited in negotiation room in terms of price, she turned the tables on Jim, asking for an additional feature in the deal. She asked that the product be sold in all Boston Pizza locations, something which would provide immense value to her brand.

While Jim did not promise the result, he did commit himself to looking seriously at that option, and the deal closed.

What this teaches about negotiation is that even when someone appears to be holding all the cards, there are still options. There are factors that can be negotiated that may not affect the price, but will impact the value of the deal to each of the participants. A good salesperson knows how to find those aspects of a deal and play with them to their advantage.

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Company Claims Guaranteed Search Engine Placement Service

Only, of course, this company is not Google, but rather, an SEO company based out of South Africa. Knowing the value of such a statement, they’ve offered to guarantee results, with your money back if they fail. While many SEO companies will talk about this, few offer guarantees, since they don’t control the outcome.

In business, what most SEO companies promise makes sense – they promise effort, based on their experience, to help you reach your goals. However, in most cases, clients do not care about effort – they want results. Except the companies who promise them have, so far, proven to be inept.

Nitch is different. While they may not tell you what they’re doing, they do guarantee that their efforts will not be in vain. They will stake their entire efforts against a hit or miss – if you aren’t on the first page of Google, you get your money back.

Yes, they are promising something out of their control. Google could change the rules, change their algorithms. But even so, there are techniques that will work in the long run, and companies which are in tune with their industry can stay in line with the changing field.

But if you’re going to make a promise, make sure you follow the Nitch example – put your money where your mouth is, especially if delivering on that promise is not within your control.

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Enchantment by Guy Kawasaki

I was fortunate to receive a copy of Enchantment courtesy of Guy Kawasaki. I had not read his previous books, but make use of his site Alltop (where I am featured under the listing Small Business), and was interested in reading more from the man known as the Chief Evangelist for Apple.

Having read this book, I am eager to get my hands on the rest of Guy’s publications.

Enchantment describes the process by which people have become enchanted with various things, whether people, causes, products, companies, or events. For any business, such information is critical – though, as Guy points out several times in this book, couples would do well to heed some of the advice and suggestions.

Enchanting people takes into account many factors, and to try to reduce the book to a single page of review would be impossible. Throughout the book, Guy kept me enchanted with its content, wanting to read more, to continue deriving benefit from each and every section.

The best comment I can make, having read through the book twice and in the middle of a third reading, is that if you were to select one book to read to improve your business, this should be it. It is absolutely critical that a business owner understand the art of enchantment, and this book contains all the tricks and tips you need to succeed.

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In your business, what do you tell your employees? Do you tell them the customer is always right, or do you take another approach?

Fake it Until You Break It

Last week, I asked about how to reconcile the two sayings: fake it until you make it and don’t bite off more than you can chew without damaging your reputation. Unfortunately, too many small businesses fail for the simple reason that they don’t understand how these two sayings relate to their business, and how they should influence their actions.

The first saying, fake it until you make it, is about giving the impression of being larger than you are, more established, more credible. It’s about impressions – that until you have the data backing you up, act as though you do.

The second saying is about accepting challenges: don’t bite off more than you can chew, or, in other words, don’t accept a challenge you can’t complete.

Just because you act larger than you are does not mean you have to accept every challenge. Even for large companies, not every project is a good fit. Saying no to a project is not a sign of being small, but rather, of knowing and accepting your own limitations. While you may feel pressure to act big and say yes, sometimes the better course of action is to be even bigger, and say no.

A business which manages to learn what types of projects it can do well at, and what types of projects exceed its capacities, and makes decisions accordingly, will not be taken for a small player, but for a seasoned business.

After all, it takes some experience to understand that certain projects, once accepted, can destroy a business as it fails to achieve its objectives.

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Siams Pants, a comfortable, one-size-fits-all Thailand Fisherman’s Pant, retail for $32, and are the base of her growing business. Starting with $5,000 and an initial inventory, Carley managed to expand her business, locking down a supplier. Her biggest problem, though, was distribution. While alone she managed to grow her business, every sale was a significant amount of effort, which would mean she would need to find a representative in any city or country she wanted to reach.

The four Dragons who bowed out did so for some simple reasons – the business was not terribly large, even if it were to succeed, and the barriers to entry for a competitor were non-existant. After all, anyone could manufacture identical pants, or have them imported. Carley’s response that the reality is that she is alone in her market failed to sway any opinions.

Any, that is, except for Jim Treliving. He made an offer, for the simple reason that for him, distribution was not an issue. If the reason for lack of growth was an inability to reach out across the country, Jim could certainly provide assistance there.

Additionally, the lively presentation demonstrated many qualities of a good entrepreneur – to keep pushing, to keep chasing after the sale even when it seems increasingly unlikely that it will succeed. If anyone could make the business succeed, it would be someone with a passion, who had demonstrated her ability to succeed if given the chance.

If you are looking for a quality presentation of a business or product, look no further than Carley Stenson – she has the passion, and she has the credibility. Sometimes, to get a deal, that’s what it takes.

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However, when the spiral has existed from the day of the business launching, and despite positive feedback on the product, making a few dollars has always been difficult, the sharp reversal can be another recipe for disaster. After all, if your customers like what it is you’re providing, then perhaps a tweak or adjustment is needed, but a reversal can merely drive people away.

If, however, due consideration indicates that a reversal may be in order, the business owner would be prudent to do two things:

1. Look at what the true problem with the current business model, and determine whether or not the reversal will result in the same scenario from a different perspective. As an example, if a site has little to no direct revenue, changing the structure of the site will not help bring in money unless the business model is adjusted as well.
2. Warn your customers of the pending change, so that you can gauge their feedback prior to making the change. This allows you to measure the effect the change will have on your existing clientele.

Building trust with your client base is critical if your business is to succeed. If you suddenly change attitudes with them, many customers will feel betrayed. If you take something away, whether a product or a service, customers will notice the absence of that item. Some may stay, but others will leave – because they truly were there for that particular product.

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If you want instant credibility, write a book.

Interesting logic, considering that many writers are people I wouldn’t necessarily want speaking at an event, or even consider credible because of their writing. For some, writing might have the opposite of the desired effect, by demonstrating their own lack of credibility.

However, for someone who does have credibility, just an inability to demonstrate that credibility, writing can provide a simple route to publicizing credibility.

First, the fact that you could come up with sufficient material for a book on a given topic shows that you have knowledge on the subject (though the quality of that knowledge would require actually reading the book).

Second, writing can help you organize your own thoughts on the subject, and help you define what it is your own expertise entails. The fact that you went through this process provides a measure of your credibility.

Having written copious amounts on this site over the past 2 years (over 400 posts and approaching 200,000 words), I considered this exercise of writing a book to be interesting, to say the least. Whether or not I choose to publish a book, the act of writing one could prove to be useful, and if ever I should need to demonstrate my credibility to someone who does not know me, I can always send them a copy of my book.

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The difference was so fundamental, I wondered if any of the rules of larger businesses even applied anymore. I wasn’t merely responsible for gathering requirements, writing code, testing, and supporting production applications – I had to work in advertising and promotions, sales, accounts receivable, accounts payable, janitorial – you name it, I was doing it.

In a larger business, a given employee can stick to their comfort zone, because that’s their area of responsibility. In a small business, the business is your responsibility. Not even the owner of a larger business has as much responsibility as the owner of a one-man shop. It’s not a question of the number of hours worked, but of the work that must be done within those hours.

If you want a true understanding of what owning a small business is like, the best way to learn is to find a small business owner and follow them around for a week. Even then, you will only encounter a small fraction of the roles they play – and if that sounds daunting, then maybe it’s not the position for you.

If it sounds like a welcome challenge, then hop on board, and get ready to be the Jack-of-all-trades.

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However, this can rapidly backfire as you promise the world, and are left unable to deliver on those promises. In other words, you fall prey to the other saying, “don’t bite off more than you can chew”. How would you avoid falling into this trap?

Timely Payments

Last week’s question was one pertinent to anyone who relies on clients for their paycheck – how do you ensure timely payments from your clients? This post got many responses, most of which were variations on two themes. The first response was the stick, the second, the carrot.

Enforcement

The first response involved a baseball bat, some nasty people, and angry letters from lawyers. That is, bully the clients who pay late (after all, they deserve it for treating me badly) until they pay, using whatever means that won’t land you in jail.

This method is like a stick – train a dog to be afraid of getting hit, and it will behave. The problem is that some clients will only respond to the stick, some will pull into their shells and avoid you, and others will leave you for more friendly vendors, and may still not pay you.

Bribery

The second response involved bribing your customers to pay on time by offering a discount for timely payments. One common method is referred to as 2-10-Net 30, which roughly translates to a 2% discount if paid within 10 days, with the full amount due in 30 days. Precise numbers can vary, but this method is aimed to encourage penny-pinching clients to pay earlier rather than later.

There are two issues here. First, 2% is not likely to provide a sufficient incentive to many clients to even care. As a result, this system rewards clients who would anyhow pay early (not that that’s a bad thing) but not really encourage anyone to join their ranks. Second, experience has shown that this system is marginally effective in any case, indicating that this may only work for certain types of clients.

Summary

As with all things in life, it’s about moderation. You need to be nice to your customers, but if they hold out on you too long when it comes to paying, maybe you don’t want them as customers anyhow. Try to avoid the enforcement method, as it is more likely to generate bad-will than be truly effective, and can compromise your ability to get referrals from clients you had harrassed.

One method that is worth trying, at least, is to simply ask your customers to pay early. Explain to them why you need the money earlier rather than later, explain that you understand it’s their right to hold out for 30 days, or whatever your official terms are, and in many cases, you’ll find a check in the next day’s mail.

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1. This is about an investment, not trust. As such, be prepared to offer a fair deal based on what your business is worth today, not what you hope it will be worth in a year. If your valuation is off by too much, the rules of the Den will ensure that no deal can happen.
2. Know your numbers – you will be asked about sales, profit, expenses, margins, and projections. Make sure you have that information ready.
3. Explain your business in a single sentence. What need are you filling? What problem are you solving? It’s okay to tell a story, but you may be asked to summarize your business, in which case, one or two sentences should be all you need.
4. Know the industry and the competition – what are other people doing in the industry, and what sets you apart? What barriers to market exist? What has happened to other small companies that tried to enter this market?
5. Why do you need the money – sure, it’s nice to have extra cash, but the investors will want to know that their money is being spent for things the business needs, not things you, the owner, want.

Additionally, understand what expertise each of the investors has, and pitch accordingly. If your business needs help with marketing, Arlene Dickinson may be the investor you need to woo. If you’re looking into franchising your business, target Jim Treliving. Philanthropic based businesses may resonate with Brett Wilson, while the cold cash deals tend to connect with Kevin O’Leary. For technology businesses, be prepared to answer tough questions from Robert Herjavec.

If you come into the Den unprepared (and that includes rehearsing your presentation, having someone drill you on the numbers and play devil’s advocate in regard to your business), then it should come as no surprise that you don’t get a deal. Prepared and ready with the facts? If you don’t get a deal, you will, at least, walk away with some good advice.

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The reasoning is simple – the effect of coffee is not as extreme as that of coke, but it lasts significantly longer.

This is an analogy to life as a business owner. At times, we must be like coffee, plodding away at a steady rate as our business grows and develops a level of stability.We must look to our current customer base, and ensure that they are being provided for and are happy. The business moves into a rut in which it can be productive and does not look for anything that may significantly impact the status quo.

At other times, changes happen fast, and perhaps at a rate that is not maintainable for very long, and the result may not be completely stable. New opportunities may be explored, calculated risks taken. Perhaps new customers are being wined and dined, and the workload for the business grows beyond its capacity, and other decisions have to be made.

Staying too long in either state can be disastrous for a business. Without taking advantage of new opportunities, of taking risk, the business will stagnate. On the other hand, a business which is constantly taking risks may wake up one day to find that it has no core customers, that the internal workings of the business do not work.

As with all things in life, everything in moderation.

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The banner seemed to contain fairly current information – it had a cancelled class and a new class starting, both pieces of information being about a week old. Not too bad for a gym with a relatively stable schedule.

The Twitter feed was more disturbing. It had not been updated in about a year. Looking around at the rest of the site, signs of neglect were everywhere. Schedules were out of date, information was no longer current.

It had the feel of a passing fad.

In social media, and online in general, being current is incredibly important. If some information is clearly dated, visitors will quickly leave. While a website and a Twitter account are by no means expensive, they can cost quite a bit in terms of lost business.

Unfortunately, it can be difficult to find motivation to keep going, but persistence is required. It took 9 months of writing articles on this site before I made my first sale that I could attribute directly to my writing, but it paid for that effort. Even when you think there are no visitors reading, you continue to write, to update, to maintain a sense of freshness.

You never know when the big break will come, and you don’t want to have only yourself to blame for not being prepared.

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In any company, there are a multitude of tasks that need to be done in order to achieve success. All of these tasks can be broken down to either be:

1. Central to your business;
2. Needed by your business.

Central to your business

Tasks which are central to your business should rarely be outsourced. If your company specializes in graphic design, you should not outsource the design process, since that is what defines your company. Such tasks you need to retain full control over, as your entire company image hinges on how you accomplish those tasks.

You may choose to hire employees in order to grow, or to bring in contractors when the workload gets to be more than you can handle. But such tasks are ultimately your responsibility, and so you should keep them close.

Needed by your business

There are many tasks, though, which are necessary to be done, but don’t define your business. The accounting for your business is not something your clients would ever care about, or which company you use for advertising, or whether your website is hosted by a particular vendor.

These items can, and often are, outsourced to people or companies who define themselves by their ability to do such tasks. All you care about is that the task is done at a particular level of quality.

When you think about outsourcing, think about how the job fits into the above categories. Only items in the second category should even be under consideration.

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