Sharp Reversals

In business, when progress seems to have embarked on a downward spiral, a sudden reversal can be key to survival. The ability to look at the business objectively, and see where the new opportunities lie, can spell the difference between the life and death of a company.

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.

Bolster Credibility by Writing

At a marketing course on how to be asked to be a guest speaker at universities, an observation was made:

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.

Small Business is NOT Like Big Business

There was something I discovered when I started working for myself about small business, and how it compares to larger businesses. Coming from a company with several hundred employees and many contract staff, I moved to a company that had exactly one employee – me.

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.

Question: Fake it Until You Break It?

There’s a saying commonly bandied about in relation to small businesses that you should “fake it until you make it” which is implying that you should act bigger or better than you might otherwise appear to be, until that becomes a reality.

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.

Preparing a Pitch

As Dragons’ Den crosses Canada in search of new entrepreneurs looking for investment dollars, and past participants with fresh ideas, this is a good time to review some of the rules for making a deal on the den. It is surprising how many people come onto the show, having presented their ideas to a panel of judges prior to meeting the investors themselves, and still manage to completely blow their presentation.

  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.

A Time for Coffee, A Time for Coke

Despite being attached to coffee to the point that I am highly unproductive without any coffee, and can increase my productivity relative to the amount of coffee I’ve drunk that day, I still refuse to drink it in the evening. Once dinner is over, if caffeine is required, coke will have to suffice.

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.

Persistence is Required

Looking at the website for a local fitness center, I noticed that they had 2 portions of their site devoted to news. One was a banner across the top of the site, posting information about changes to their schedule. The other was a Twitter feed.

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.

Choosing to Outsource

I don’t do my own accounting for my business – I hire a professional firm to do that for me. I have a lawyer who deals with any contracts or legal issues that I encounter. For marketing, I go to a company that specializes in that. For business advice and software consulting, I hire myself.

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.