Small Business and Small Business

A conversation recently with my insurance broker had me highlighting a problem in the economies of Canada and the US, to which policy is seemingly being addressed, but in reality is not. We are aware, of course, that small businesses play a significant role in our economies, employing large numbers of people and contributing in various ways to research and innovation.

However, what the policies fail to address is the fact that there are two types of small businesses, and their needs are not the same.

On the one hand, there’s the small store which has been operating for many years, employing a dozen people, and churning over annual gross revenues of $2,000,000. Certainly small when compared to large corporations who measure annual revenue in the billions of dollars, these stores are actually not the real small businesses in the economy.

The real small businesses are those built of a couple people just starting out. These are the people who are funding their business out of their savings, perhaps starting with as little as $100 to their name. They grow organically, slowly building up revenues while trying to keep costs down out of necessity. The per capita revenues in their case is often higher after an initial growth stage, since they are forced to keep costs down to hiring people, not buying things.

These companies look at an expense of $1,000 as being a lot of money, and are conceived under the umbrella of austerity. Government funds for growth and development? Sorry, these guys aren’t big enough. Bank loans? Sorry, we only need $50,000 and the bank’s minimum loan is $100,000, which we can’t afford.

If the governments really want to help the economy by helping the small businesses, they should be looking at how to help businesses calling themselves startups, not businesses labeled as small businesses.

Dragons Flush a Good Idea – Bad Business Down the Toilet

Further to my recent post about a successful deal on Dragons’ Den which was the result of good marketing for the business as a business, this article highlights a pitch which was quite the opposite. Reminiscent of Clair Copp and her accounting software, this pitch left a sour taste in my mouth, but for slightly different reasons.

This time around, it was Roslin Stewart and her side-kick Ralph Angotti who were the subjects of the disbelief in the den. They demonstrated their product, a disposable toilet seat cover, which had the Dragons somewhat interested, as it provided good value. With the addition of a plastic, yet bio-degradable version of the cover, they seemed poised to garner interest at the least, though an investment would have been difficult on account of their completely inappropriate valuation and request.

Asking for $2 million for a 30% stake in the company put the value of the company at approximately $6.5 million. The catch, however, is that they had no sales to back up that valuation, despite being in the business for 20 years. What made the five dragons shudder, though, was when they heard the amount of money put into the business – a staggering $1.5 million with no sales to speak of. Not only that, with an expensive product ($2 for the plastic cover, $0.40 for the paper) they were too expensive to become a standard, and the most they could hope for would be to be carried around in case of an emergency.

What Roslin and Ralph failed to hear, though, is that although they have put a lot of themselves and their finances into the business, it does not mean that the business retained that value. Since all the business has to its name currently is a pair of patents, the only value the business has is the cost of those patents, perhaps as much as $100,000 though likely lower. The other factor that could increase the value of the business – sales – was sorely lacking.

That’s not to say the product is bad. Quite the opposite, there are many public restrooms which keep a supply of paper covers next to every toilet, displaying a real market for their product. A plastic version which can be flushed is a step up, though the price would have to be lowered to keep it affordable in bulk.

However, competition does exist, and that in itself should not be taken lightly. Likewise, the fact that Roslin and Ralph would spend 20 years without sales shows that they don’t know how to run a business, and the dragons are not there to do that for them. The dragons will help finance businesses that are being run well, by a capable team or individual, but they are not interested in stepping in to run the business. In this case, other people might be able to turn the business into a success, but that chance will not appear on the den.

Lowering Prices Can Increase Profits

A service provider recently sent me a bill for some work she had done for me. The job was not large, but I had requested a quote for the work before approving it, and when the invoice came, the price was slightly higher than had been indicated in the quote.

I debated the merits of questioning the bill, since the dollar amount in question was only $15, but I decided that it couldn’t hurt. So I sent off an email including the original quote, and asked for an explanation of the price discrepancy.

A few minutes later, I had my response. A new invoice was attached for the original amount, and an explanation of the difference between the two invoices. Apparently, there was a slight difference in materials used which resulted in the surcharge. However, she wrote off that surcharge once I pointed out that I had a quote for a lower price.

She didn’t have to write it off. She could have said that the change in materials justified the higher price. The material change was initiated by someone in my employ, and so I was actually responsible for that.

However, because she wrote off the $15, she made me happy. As a customer, I would now be happy to use her business once again, and to refer her to others. She made a solid business relationship that will ultimately bring her more business. The next time, the margin on the project may be larger, or the volume of referred business may justify the write-off.

Sometimes, the bird in the hand is worth less than the two in the bush. Releasing the one may result in two more coming days, months, or years down the line.

Sometimes, you really do need to pay attention to the big picture, and realize that what’s being debated isn’t worth the time, effort, or dollars you’re putting into it.

Failure to Charge Costs More than Dollars

Over the past few years, I’ve done a variety of small jobs for a variety of clients, with the size of the projects varying in size. A friend of mine with a similar, though significantly larger, business, is in the same situation. A recent conversation regarding pricing of our services made us realize something, when I got a bill from my graphic designer for my new business cards and was well aware I had been given a fantastic deal.

Jeremy and I have been forwarding business to one another for the last few years, and so when it comes to doing work directly for each other, we consider it part of a trade. Since the work we do directly for one another is generally a matter of minutes at a time, it’s rarely worth our while to actually bill one another. Instead, we stack it up to maintaining our reciprocal relationship.

This trading of services is useful for both of us, as it allows us to share skills where it would otherwise be extremely costly to get specific bits of work done. When it comes to charging for that work, though, we both take a different attitude, as it has the potential to seriously affect our individual businesses.

Quite simply, we have to charge a minimum amount to make it worth billing. That is, a $100 or even $500 bill is not likely to motivate either of us to perform at our best. With tiny projects, the margins are generally small to begin with, and if we have not estimated the size of the project accurately, can actually end up losing us money. As such, the motivation to work on the projects, and to complete them, are reduced significantly.

Once we get to the larger projects, this becomes a smaller issue. With larger buffers in place to allow for changes in our understanding of the scope of the project, we less likely to lose money by completing the project. With a larger payout at the end of the work, we’re more motivated to complete the work.

Realizing this made both of us come to an understanding about what we need to do – we need to charge more for the smaller projects, even if we leave the price for larger projects the same. That is, it is no longer effective to take on tiny projects under a certain minimum, because we’re not likely to shine there due to a lack of motivation.

When you’re starting out, the small projects can be really useful by getting your name circulated and build out your portfolio. But as your reputation grows, you need to start cutting the small projects with the non-existent margins, and start focusing on the bigger things.

Investor Takes a Bite Out of a Business

Last week was the premier episode of Dragons’ Den, the CBC show where entrepreneurs pitch their business ideas to five investors. The point of the show, from the perspective of the entrepreneurs, is two-fold. First, there’s the exposure on national television and the chance to get a fair bit of marketing value with minimal risk. While I don’t under-rate this purpose, though, there is another which is the topic of this series of articles.

The second purpose of the show is to land an investment, and to that end, the pitches are meant to showcase the business as a lucrative investment. As a result, there are many lessons to be learned from the show for any business owner looking to attract a bevy of investors over to their company.

When the father and son walked onto the Den to talk about their business, they were introduced as running a waffle business. From past observation, food generally does not perform well on the show in terms of garnering an investment, for a variety of reasons. Part of this is the fact that one of the five investors is Jim Treliving, owner of the Boston Pizza chain, among other businesses. He knows about the difficulties in selling and marketing food, both at the wholesale and retail levels.

Renaat Marchand of Wannawafel, however, wasn’t pitching food. He was pitching a franchise, something else that Jim Treliving knows about. But in order to get Jim and the other dragons talking, he fed them the product.

The unit looks much like a hotdog stand, which can be hitched behind a trailer or car and set up pretty much anywhere. Capable of serving about 100 waffles an hour, the business is intended to operate as a franchise, with the owner of each unit operating in a certain area independantly of all other units.

Renaat served the dragons a sample waffle, and they were all hooked. Using a Belgian recipe that results in a recipe that had all five dragons smacking their lips, he was able to convince the dragons to listen to the idea for the business. As he runs a successful unit in Victoria, BC which has gotten favourable reviews, Renaat didn’t need to go any further than explain why he was talking to the dragons in the first place.

As it turns out, Renaat needed the money to enter the franchise business, to set up the legal side of things, and to get more branding that would be recognized everywhere. While the cost of the trailers is not insignificant ($20,000 each), that money was to come from any potential franchisee.

The dragons saw that Renaat knew what he was about, and once Jim Treliving expressed an interest, there was little the others could do to become involved. While Jim asked for 50% of the company for his money, he made it clear that he wasn’t planning on running the business.

Although, with 50%, he can exert significant influence on the company if necessary. But he’s coming in as an investor, not a business manager.

A Matter of Perspective

There is a known pair of sayings from Albert Einstein:

No problem can be solved from the same level of consciousness that created it.

We can’t solve problems by using the same kind of thinking we used when we created them.

This can be explained as once you see the solution to a problem, the problem itself no longer exists. Perhaps you have to do something to remove one of the side-effects of the problem, but the problem itself is now a non-issue.

Some people are better at resolving problems than others. In a certain sense, we might say that someone who is unable to see the solution is unable to change perspectives. If, when a solution is proposed, they remain unwilling to change perspectives, this would be a form of close-mindedness.

Sadly, when this happens, it is often being done subconsciously, in that people are unaware that a shift in perspective can resolve a significant number of problems they face. In business, this can be extremely detrimental to the potential success of a business. This is, perhaps, one of the main reasons that business owners should be paired with someone that they can discuss and debate problems in the business.

Most people have such support around them, whether a co-owner or manager in the business, a professional advisor, a family member, or a friend. If you find yourself without any of these, your best first step is likely to bring someone into your confidence who can point out the problems you can’t or won’t see in your business, and help advise you on potential solutions.

In short, every business needs a mentor, either internally or externally. The purpose this mentor serves is to offer an alternative perspective on the business, who can help you, the owner of the business, to identify and resolve potential problems before they cause significant damage to the eventual success of your business.

Owners and Managers Don’t Mix

On a fairly frequent basis, I have occasion to talk to business owners and business managers through my work. One owner made a fairly astute observation about the role an owner plays in a business versus the role a manager plays in a business. It was summarized as follows:

An owner and a manager of a business cannot exist for an extended period of time in a single individual.

Of course, there is a limitation built into the statement itself – most businesses start out as a single person, or a couple of people, and only over time does the business grow to the point where ownership and management can be split into separate people. Perhaps another way of looking at this is that when a business starts, its concern is tactics, or how it will survive in the short-term. As the business grows, an additional concern begins to take shape in the form of strategy, that is, how the business will survive in the long-term.

The same person cannot deal with both tactics and strategy at the same time. The simple reason for this is that the two are frequently at odds with each other. An action might be needed to manage cash-flow today which removes funding from a project that will carry the business through the next year. Neither option is right or wrong, but a single person is not likely to be able to balance both needs fairly.

The owner is generally concerned with strategy, since their role is the ultimate bottom-line of the company. This means that the owner is likely to be out chasing sales, to be out bringing in more business of the nature in which the business is intended to grow. That being the case, it would not be possible for that person to also manage the day-to-day business of the company. As a result, one of the first hirings a business will find itself making is to get that of an operations officer, or office manager, who will take over that aspect of the business, allowing the owner to focus on the future.

Personal Mannerisms and Business

In the workplace, whether large or small, the personalities of people in the environment are rapidly recognized by all. Whether it’s peers, supervisors, or subordinates, people understand how those around them will act in many scenarios, especially those common to the workplace. Failure to recognize this fact can have serious ramifications.

Of course, most people are aware that abusive behavior is not acceptable in the workplace, not inclusive of the eventual lawsuit when the abuser explodes at one too many people. However, this is merely the tip of the iceberg, as other forms of manipulation and control can be exploited based on an understanding of the human nature of the people in your work environment.

What must be remembered is that “business is business” and is therefore cold and calculated. That doesn’t mean the people involved in business are always cold and calculating, but the bottom line for business is results, and what will achieve the desired results. As such, attitudes, and mannerisms should reflect this fact, according to each person’s natural tendencies.

Awareness of the attitudes and mannerisms of those around us leads to manipulation, whether deliberately or subconsciously. Children intuitively know how to do this, knowing which parent for permission to visit a friend, to stay up late, or get some candy. Adults are no different, knowing which co-worker will be willing to cover a shift, which supervisor to approach for approval on a project, and who is likely to take credit for work done by others.

The knowledge of all this human nature results in an environment in which manipulation is occurring, whether people like it or not, whether acknowledged or not. If people ignore this fact, they will eventually discover that they are the ones being manipulated. Being aware of this fact will change who is manipulated. The one aware of the manipulation can project the appropriate mien to achieve their own goals, to give the appearance of being manipulated when it suits their objectives, and at all times, to consider their implications.

The second result of being aware of the implications of your mien on the people around you is that you can retain control of what happens in any situation. Whether you choose to project a loud, irate look, or a dominated, submissive impression, it is done with absolute calculation, in that a desired result can be arranged via that particular mien. Neither projection is right, neither is wrong. Both are merely tools in the arsenal of the person on the road to success.