Question: Assessing Competency in an Interview

Perhaps one of the more difficult things to assess in an interview is whether or not the candidate is competent in the needed area. After all, it can be quite easy to talk in a manner that indicates competence without actually being able to do the job, and it can be extremely time consuming to conduct a complete test of the candidate’s ability to perform.

In some businesses, it has become the practice to request a portfolio, or a sample of the candidate’s work against which their abilities can be assessed. However, many businesses shy away from this practice, and some candidates are reluctant to provide copies of their work for a variety of reasons.

What methods does your business use to assess the competency of potential employees prior to making an offer

Naming a Business

There are a few common methods used for naming businesses. In general, though, naming a business should be a serious endeavor, as it will continue to be used to identify your business long after the reasons for choosing the name may be relevant.

Named for the Owner

The simplest, often used in service-based businesses, or those which have grown out of a consulting or sole-proprietorship, is to simply use the name of the owner[s] as the name of the business. Common examples include Dell, HP, Ford, Lloyd’s, Harry Rosen, and many others.

The industries in which this is fairly common are legal and accounting, in which the people involved in the business are highly relevant to their clients, or fashion, in which the name of the business is the name of the designer behind the business.

Named for the Product

Other businesses name themselves after what they sell. This can serve a business well if the name is chosen to be both specific and vague such that it covers its market effectively, and can outlive the life of any of its specific products.

Examples of such businesses include Home Depot (which caters the home renovation market) and Business Depot (servicing the business market).

Named for the Vision

Some businesses use their name as a derivation of their vision. As an example, No Frills is a grocery store which tries to keep everything as simple as possible. Best Buy includes an association with good deals as part of their name.

One additional factor to consider when choosing a name is that there needs to be an avoidance of brand confusion. If there is another business with a similar sounding name, even if they sell a different product, you need to be sure that your target market will not confuse the two businesses. This includes looking for a domain name that is easily associated with your business, and the domain most easily associated with your business is not owned by someone else.

Think About Boxes from Inside the Box

It’s a rare occurance on Dragons’ Den when an entrepreneur arrives with a valuation that is reasonable and a business worth investing in. This week, that happened, and perhaps there’s a reason why these entrepreneurs succeeded where many others have failed.

Bryan McCrea, Channing McCorriston and Evan Willoughby came pitching their business, 3twenty Solutions, which converts shipping containers into modular buildings. They were asking for $115,000 for 25% of their business, which had, in its first month of operations, $70,000 in sales. Their estimates for the first year of operations was about $500,000 in sales, which would triple each of the following two years.

Running at about 15% net profit, that meant the business was tracking to have $75,000 in profit in the first year. Their requested investment, with a valuation of $460,000 was quite reasonable, to the point that Robert Herjavec made the unusual move of making an offer on the condition that there were no other offers, at the price they were asking for.

Kevin O’Leary tried to muscle his way into a deal, made all the more difficult because of Robert’s pending offer, and was politely, and then not so politely, told to screw off with his offer of $115,000 for 50% of the business. It was pretty clear, though, that the three entrepreneurs were hoping for a deal from Jim Treliving or Brett Wilson, who had to deal with the fact that Robert left them little room for negotiation.

Brett, with his knowledge of the oil industry (which provided a significant number of potential clients for the modular units), made an offer of $120,000 for 25% of the business, raising the valuation slightly to $480,000. He was aware that part of what Bryan, Channing and Evan were looking for was a strategic investor, who would provide more than just dollars to their business. While investors will often take a seat on the board of directors, it is not usual (though not unheard of either) for them to take an active role in the running of the business.

The deal was accepted, and completed after due diligence.

What Bryan, Channing and Evan understood that so many pitchers on the Den do not is that an investment is not about free money, but about selling something of value. The investor is buying a piece of a business, and they expect to pay a fair price for it. To do that, one must be brutally honest about the value of their business, taking into consideration the work that has gone into the business to date, the assets owned by the business, and the sales history of the business. While some businesses can look to the future in calculating their value, that is the unusual case.

As CBC prepares for next year’s pitches for the Den (auditions are being held shortly – if interested, click here for more information), entrepreneurs hoping for a moment of fame would be wise to watch past episodes, and focus on the pitches that resulted in offers. Make sure you know your numbers, make sure you understand and can present the revenue model clearly.

A Convincing Argument

I just finished reading a book by Scott Adams, author of the Dilbert cartoon, and was browsing through the list of his best quotes, as picked by his fans. There was one recurring theme, which I think was best expressed in the quote:

If you think that offering excellent reasons for your thinking will change anyone’s mind, you might be new on this planet.

In business, it’s important that you understand this because it relates to how you turn prospects into customers. That is, what type of arguments should you be presenting to convince someone that your product or service is worth spending their time and money on?

The key is that while facts cannot be ignored, they’re also not the most important piece of your marketing and sales pitches. Purchases are driven by emotion, and so you have to connect with your prospects at an emotional level. Sure, you need the facts to back you up, but they should not be the basis of your arguments.

No News is Bad News

There’s a famous saying:

No news is good news.

which many believe to be true. In business, however, where other people are involved, whether they be customers, vendors or employees, little could be further from the truth.

Not everyone likes to be informed of every little change, but when change is happening, people generally like to be informed. They like to be reassured that the status quo will remain, or how it will be changing. The lack of news during times of change, or perceived change, is one way to trigger rumor-mongering, which rarely has a happy ending.

This applies not only internally, for example, when an employee is fired (and people start to wonder if the company is starting to downsize), but also externally. As an example, we can examine what happened this week with one well-known company.

Earlier this week, it was discovered that Apple had rejected an eBook reader published by Sony because of the way purchases were made in the application. Specifically, Apple has a standard purchasing procedure (known by developers as IAP) which the Sony application was not using.

Looking at the Apple guidelines, however, it becomes a little unclear as to what the problem with the Sony application might have been, and what the rejection of the application might mean for other applications, for example, the Kindle app. The guidelines clearly state that all purchases made within an app must use the Apple IAP process, which apparently this app did not.

However, initially there was no comment from Apple, and people started to talk. Was Apple about to take on Amazon for violation of their guidelines in allowing people to purchase books without using the IAP process?

Afterward, to deal with the various rumors that had festered, Apple announced that no changes were being made to their policies, though their announcement left some room for doubt as to how accurate that statement might be. The real issue, though, is the length of time it took to get clarification from Apple.

Apple failed by providing no news, which created a world of speculation as to what the news might be, had they cared to share it. Rather than prevent this, Apple responded and failed to solve the problem.

In your business, when change is expected, make sure you provide information, even if that information states that nothing is changing. People like to be reassured, and the preemptive announcement that there is nothing new can save you from dealing with a large number of rumors that have no basis in reality.

When the Menu of Services for your Business is Lacking

A friend recently asked about how to develop her business, when all her prospective clients are requesting a service she does not offer. The service being requested is not, from the perspective of people who understand the industry, an assumed skill, and in this particular case, the friend does not have the skill, nor the desire to acquire it.

My friend asked me, since I’m in the same industry, what I might suggest for her. The truth is, from the description about, there are two possibilities for what’s going on, and each has a different approach.

The first possibility is that her prospects all require her services as well as the complementary service, and will generally only work with firms or freelancers who can provide both. The solution here is simple in concept, though execution can be tricky. Find another business which offers the complementary service, and start sub-contracting that portion of the work to them. In return, that business will send you work in a reciprocal agreement.

While you are unlikely to get an exclusive agreement like this, it can help bring in new business that you would otherwise have never seen, as well as enable you to close contracts that might have been lost.

However, there is another possibility, and it needs to be considered carefully. It is possible that the prospects she has been in discussion with are not her ideal clients. I’m often surprised by how many people in business do not understand who their perfect clients are, and spend great efforts pursuing the wrong types of clients. The perfect client is going to help your business grow in the direction you want it to go. If that client is asking you for something your business does not provide, and does not want to provide, then that is not an ideal client.

In this particular case, I believe the first answer is the better one. Many people in her industry either offer the complementary service themselves, or have a list of providers they use who can. When the menu is lacking, you have to choose to either supplement with an insert from another company, or redefine who and what your busienss is, and what services belong on the menu.

Question: How do you name your business?

Something many businesses struggle with in their early days is finding a name which identifies them. Sole proprietors may have it easy, since they can name it after themselves. However, as soon as additional people join the business, using your name to identify the business may not be the best idea. However, there are certainly exceptions, for example, Dell or Gucci.

When you named your business, how did you choose the name? What vision were you trying to portray with your choice of name?

Mentors

Last week, I asked about finding a mentor, or where you might look to find a mentor. Perhaps the best answer was the one from Jeremy:

Friends in business, business partners, customers that you respect, or hire a business coach!

The best approach here is to address each on its own.

Friends in Business

These are your peers, who have no vested interest in the performance of your business in particular, beyond a desire to see you succeed. They may not have much more experience than you, but their experiences are similar, and yet different enough to be of use. An issue you face now might be one a friend dealt with a while ago. Additionally, this mentorship relationship can be reciprocal, with you giving your friend the benefit of your experiences when they need it.

The downside to such a relationship is that finding a friend with sufficient experience, and where having a mentor-like relationship will not impact your friendship, can be difficult. Not every business owner can find such a resource, but if you can, it should certainly be used.

Business Partners

The upside to business partners as mentors is that they know exactly what issues you’re facing, and the implications of the decisions you need to make. The downside, though, is that they also have a vested interest, and some of those interests might not align themselves with your own.

When using a business partner as a mentor, try to find at least one other resource who can act as a mentor as well.

Respected Customers

This one may be surprising, but the perspective customers bring to a business is not to be taken lightly. They see the short-comings of your business, as well as what it is you do well that keeps them around as customers. If you have a customer who has experience with business, and with whom you have a good relationship, try to at least spend some time with them on a regular basis to get feedback on how your business is developing.

Business Coach

This is, perhaps, my least-liked approach to mentorship, though many advocate it. My primary issue with such a mentor is that they are in the business of mentoring, and as such, want to see you succeed. However, this lends itself to a potential pitfall, in that if you succeed too quickly, you may abandon them sooner rather than later. Of course, that also might result in more referrals, but you are a guaranteed customer, while referrals are a maybe.

However, a business coach who has experience running a business (other than their coaching business) could be an extremely valuable resource. If this is the route you are taking, be sure to get personal referrals for a coach from other business people you know and trust.

A Good Entrepreneur Knows How to Listen

Doug Burgoyne came on the den this week pitching his business Frogbox, which supplies hard plastic boxes as a rental in place of cardboard boxes. His pitch, coming in with a valuation of $1.2 million, was that the business is profitable (though apparently not yet to a significant level), and is designed to scale.

The basics of the business model is that Frogbox drops off and picks up sets of hard plastic boxes which are sturdy and waterproof, at a cost to the consumer on par with using new cardboard boxes. A quick check of their website shows that renting 35 boxes with a dolly for a week would cost about $109 plus a delivery fee (in the case I looked up, the delivery fee was $40).

Robery Herjavec and Kevin O’Leary made the first offer with a valuation of $400,000 to which Arlene Dickinson pointed out that the offer was ridiculously low. Jim Treliving and Brett Wilson then put out an offer with an $800,000 valuation. Arlene, who had been pushing a higher valuation, made an equivalent offer to that from Jim and Brett.

Doug Burgoyne, after some discussion, came back with a request – that Jim and Brett join their offer with Arlene, which would mean that the investors would bring the full set of experiences needed. Jim, of course, with his various franchises, could show them how to scale their business to add new cities to their list. Brett could provide more general business experience. Arlene, the master of marketing, would help in bringing their brand into the public awareness.

On air, the dragons accepted, and the deal moved forward with the three dragons. However, after the show, Arlene stepped out of the deal when it became difficult to determine the exact role she are her business, Venture Communications, would play in the marketing of Frogbox. However, Jim Treliving and Brett Wilson continued with the deal and closed recently.

Part of coming on the den with a pitch is being prepared to explore new options. An entrepreneur who believes they know how to run their business better than anyone else and cannot listen to new suggestions will find themselves on the receiving end of harsh criticism from the dragons. At the same time, there are aspects to every business that are truly best understood by the people in the trenches.

Doug was aware that expansion was the key to making the deal go forward. The two offers dealt with the problem in different manners. Jim and Brett were likely to focus on the ability to franchise the business (starting in a new city had a cost of about $60,000 which is not unreasonable for a cleaning franchise model). Arlene was more likely to focus on how to market the business more extensively. During growth, both aspects of growing the business are important, but one needs to dominate the other.

Ultimately, the business would take one of the two paths, and that would be determined by conversations between the owners and the prospective investors. As smart business owners, they made the decision before the deal closed, and will be more likely to see success in their growing business.

The Expansion Dilemma

Perhaps this issue is more relevant to those in service-based businesses, though I believe that no matter the nature of your business, this issue will resonate with you. I would be interested in hearing your feedback on this issue – as I believe that it has no right or wrong answers, merely a large set of choices.

At some point during the life of a business, the amount of work coming in the door will exceed the limits of the business. Product based businesses will see this when demand outstrips their ability to supply, service-based businesses will see this when the demands on their time exceed the number of hours available to work. In a large business, this issue may have already been solved, either by having a process for increasing the supply, or by increasing the price to reduce demand.

However, smaller businesses walk with trepidation when faced with this issue. On the one hand, their ability to increase supply is severely limited – they may not have the necessary cash flow to handle additional hires, or to front the money required to pay for additional goods. On the other hand, the inability to supply the increasing demand may hamper their ability to expand, and may result in a negative impact on their existing business.

Additionally, there is the inability to see the future, which means that the business owner trying to decide whether or not the sudden increase in demand justifies hiring another employee must guess (hopefully with some helpful data) whether the sudden demand is merely a spike in activity, or if it is sustainable. This has ramifications on what is needed to ensure that the decision is made with appropriate resources allocated to support it, should the spike in demand be followed by a dip.

To determine how to best handle the spike in demand, it is necessary to look at the goals for the business. If the aim is to grow by hiring more people, to increase the supply, then the spike in demand can be one way of moving toward that goal sooner than expected. If the aim is to reach a certain level of activity, or, in other words, to cap the supply at a certain point (for example, to work 40 hours per week), then the decision that needs to be made is only how to go about reducing the demand – should you raise your prices, or merely refuse to take on additional customers?

Others, though, are stuck between the two decisions. While they don’t mind working more than a certain number of hours, or, in other words, to work with an expanding business, they also may not be actively looking to expand. As a result, they are unprepared for the expansion, both from a fiscal point of view, and psychologically as well.

Some may choose to bridge the gap by using sub-contractors to take on the work they are unable to do. This can help defer the decision until it is clear whether or not the increase in demand is going to be enduring, but it also exposes the business owner to various risks associated with delegating work (the quality may not be up to standard, managing the contractor can be complicated). Others may raise prices moderately, in an attempt to drive up margins while they debate internally how to handle the demand.

What would you do? How have you handled sudden spikes in demand beyond your abilities to provide?