Market on the Future, Sell on the Present

Too often entrepreneurs looking for an investment will fail on this basic concept, thereby undermining their own credibility and in the process, often losing an investment which could have been won.

A sale, of any sort, is often promoted based on its future value – that is, the satisfaction or value it will bring to the buyer over the course of its lifetime. At a restaurant, you discuss the presentation of the food, the ambiance, the taste. In a car, you look to comfort of the drive, efficiency, maintainence costs. In an investment, you look at risk and potential for returns.

An investor must be sold on the concept of returns – they will put their money into a business, and get paid returns as the company uses that money to turn a profit. The investor needs to know what kind of risk they might be exposed to, the odds that they will lose their money.

At the end of the day, though, the price paid will be based on the real value today. A business turning a certain amount in profit annually has a value. While each appraiser will come to their own conclusion as to the value, it is some form of all the assets available, plus a multiple of the profits. This number is the basis for any pricing.

Failing to recognize this, and to sell a product based on its future value, with the price being that of the future value, is foolish. For one thing – it’s not an investment. Even should the predictions prove to be correct, the investor must wait until the future is realized only to get back the exact amount they put into the deal. As soon as they invested, their ownership depreciated to the current value of the company.

For comparison, that like selling someone a stock which you say will be worth $100 per share, is currently worth $50 per share, and you’ll sell it for $75 per share. That’s a lousy investment, with 50% of the investment being lost immediately.

If you want to be taken seriously, market your deal on the promise of tomorrow. But when it comes to pricing, deal with the realities of today.

Response Time and PR

I’m fortunate in that I get little enough email that I can generally respond within a day to most queries. However, being in contact with many people who receive far more messages than I do, I’m familiar with the concept of dealing with vast quantities of mail.

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.

Keep the Learning Growing

Continuing with the theme of basic pieces of advice, today’s suggestion is in regard to your learning.

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.

The One Tip for the New Business Owner

If there was only one piece of advice I could give a business owner, this is it:

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.

Question: How do you calculate salary?

When you hire a new employee in an area for which you have no internal measure to use as a baseline, you must decide how much to offer a prospect in terms of salary. If you’re hiring in an area for which there are industry statistics relative to your location, then that clearly can be used to establish some guidelines.

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.

Upsell Your Investors

When Anna Kats came on the Den looking for an investment in her snack business, she already knew what kind of deal she wanted. There was one particular Dragon she had her eye on, and what the terms of that deal would have to include.

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.

Promises Out of Control

A recent post on Twitter caught my eye:

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.

Business Continuity and Dependencies

When the landlord announced a significant increase in the monthly rent, one small business began to get concerned. Running a fitness facilty has significant overhead, and budgets had been carefully calculated to allow for a certain number of classes to run, for the upkeep of the equipment, and for staff to stay on site. The change in rent meant that a move was in order – but to where?

Unfortunately, this story is not unique. Many businesses, especially in the early stages, are running between paycheques, balancing their bills against the upcoming revenue, and squeezing out the dollars wherever they can. The rainy day fund doesn’t exist – because it’s been raining since the business began.

Some will say that it takes money to earn money, while others may dispute that. Certainly having a small reserve can’t hurt, and if your business depends on some factor outside its control in order to survive, that can create difficulties. Whatever is outside your control is a risk, and risks must be managed.

If it’s rent, as in the case of the fitness center, then make sure you understand the terms of your lease, and how much your rent could increase by should the landlord exert their right to a maximal increase (assuming some form of rent control). Ensure that you have enough of a buffer that from the day of being given notice of the increase, you could continue to operate while searching for new facilities for a reasonable amount of time.

As a rule of thumb, any factor outside your control should be assumed to be about to go downhill, and fast. Your planning should deal with that scenario. While it’s rare for all facets of a business to face such difficulties all at once, being prepared can change events from difficulties to following a script.