Elie Kochman on Business and Networking

There are few, if any, situations in life which do not have rules. Sometimes the rules are vague, others are very specific. But there are always rules, although a new inductee into the field may not be able to discern them.

Business has its own set of rules. Some govern how we advertise our business – what we can and cannot say (for example, you aren’t allowed to make false claims about yourself). Others govern how we earn money – records that must be kept, files that must be submitted. Still others deal with the environment in which we can act – as a sole proprietor, a partnership, or a corporation.

What is common to all of these rules is that as new inductees to the field, we are not familiar with all the rules. We are, however, liable for failing to follow them. If you don’t file your taxes correctly, you can face significant fines, for example, despite the fact that you were not aware of the error in your filing at the time of reporting.

As a small business owner, we face significant risk on a daily basis. We have expenses to pay, clients to talk to, prospects to woo. Often, especially at the early stages, we’re worried about the success or failure of our business as a whole, and just how long and hard the crash and burn might be.

For this reason, we need to mitigate risk as much as possible, especially for the things we know we don’t know about. So, if you’re starting a business, make sure you have the following resources available to you:

1. Lawyer: Every business has paperwork that needs to be drafted, filings that need to be made, and, if you’re successful, complex negotiations with investors. You need someone who knows and understands the law as it relates to your business, and who works with other businesses of your size and type. (Divorce lawyers are out unless your business deals with breaking up relationships.)
2. Accountant: You will have to file income returns every year. You will have to pay taxes – certainly income taxes, but if you have employees, you may be required to withhold tax, or you may have to submit sales tax at regular intervals. You will want to structure your revenue and expenses in such a way to keep your taxes down.

Ideally, your accountant and lawyer should be in touch with one another, to set up your company in the most strategic way possible. Naturally, they both have fees which may make such coordination prohibitively expensive, but you should certainly dedicate part of your budget to planning with both. At a minimum, you should have their phone numbers available when you need them – and they should know who you are when you call.

As I’ve mentioned a few times in the past, I spend a significant amount of time on various Q & A sites, mostly on either LinkedIn, or on Answers on Startups. Recently, I’ve noticed a few questions come up where the answers all came down to a very simple point – what is the ideal balance of skills in a set of founders?

Before I can even get into the answer to that, however, there is another question that needs to be answered – what is the ideal number of founders for a company?

Unfortunately, the answer is not simple, and depends heavily on the nature of the business.

As an example, if you make custom jewelery and sell it online, then the ideal number might be one. As an example, my friend Rachel does this, and, as far as I am aware, she is truly a sole proprietor. The limiting factor in her business would be the amount of jewelery she can personally produce or maintain, so adding a second person would only be useful if she had more demand for her jewelery than she could keep up with.

On the other hand, if you’re looking to build a complex piece of electronic equipment, you might need a wide variety of distinct skills just to produce the product. You would also need someone to help you market it, and so your minimum number might be 10.

However, looking at a variety of businesses which have grown to be well-known companies, many of them started off with just 2 or 3 people, and that worked really well for them. Here’s how to determine what those people need to bring into the room:

• A thinker – someone needs to be thinking about what the product is, what it should do, who might use it.
• An implementer – someone who can turn the idea into a real product or service, something that actually works.
• A seller – someone who can take the constructed product or service and find people who will pay for it.

That’s it. There are only three basic components to starting a business – thinking of an idea, converting it to something that can be sold, and selling it. Everything else can wait until you have sales and revenue.

When looking for co-founders, make sure that each one is bringing one of those skills into the company. At the same time, make sure that each person is bringing a skill that you don’t already have. If you think of an idea, and know how to sell it, then the next co-founder needs to be able to implement the idea. Until you have someone who can implement, there’s no need for another salesman.

I recently had my site added to Small Business on Alltop (scroll down to the bottom – I’m not the last site on the page, but close). This got me thinking about the concept of the site itself, and what it represents.

First, for those of you who don’t already know, Alltop is essentially an online magazine rack that displays the latest 5 posts from each magazine (a.k.a. website or blog) in the selection. Those sites are organized by category, and there are thousands available to choose from. You can make a custom page that includes those sites that you’re interested in from the selection available, so that you don’t have to keep searching for them.

In some sense, you might call Alltop a big RSS reader with twist – each feed has been manually reviewed to ensure that it fits within the scope of the site. Yes, you could build your own, and it might not even be that hard – but Alltop is already there, someone else’ responsibility to keep it working, and works really well!

What’s the revenue model? It’s actually quite simple – advertising. Alltop is ranked just over 2,700 according to Alexa globally, so they have more than enough traffic to make this a viable model. There are over 750 topics, each with its own page with available advertising. On the Small Business page, for example, there are 2 large advertising blocks currently populated. A quick look at their advertising page reveals that they accept two sizes of ads, but no pricing information.

Unfortunately, at the moment you’re limited to seeing sites that have been already approved for Alltop in your personalized page. However, you can always submit another site for consideration, and the current selection is quite diverse.

The one other feature that seems to be missing is the ability to search for a particular site. For example, despite the fact that the title of my blog is listed as “Elie Kochman on Business and Networking”, searching for Elie does not turn up any results.

All in all, a great website, with a couple of additional features that may eventually make their way into the site.

Several months ago, I wrote an article The Customer is Always Right… Sometimes in which I discussed many of the reasons a business should be listening and obeying its customers, even when it seems to go contrary to what the business stands for. However, there are times when not only is it inappropriate to listen to the customer, you should also get rid of that customer as fast as possible.

The first example is where you sell a product, and on occasion, will be asked for a refund. While you need to have a clear refund policy, you also need to know when to give in and issue the refund anyhow. A customer who won’t be happy, and is out of pocket because of your business (whether reasonable or not) is capable of generating a lot of negative attention for your business. Issuing the refund to get the customer to leave you alone will often not only rid you of an annoying customer, but also generate positive feedback for good customer service.

OK, so the first example wasn’t really about firing customers, but about having good customer service. Here’s another example.

If you do work for a customer, and they don’t pay – get rid of them if you can. A good customer who can’t pay will be upfront with you about their situation, and try to arrange alternate payment schedules. A bad customer will keep taking work, thereby driving up their balance, and not mention that they cannot pay the bill. The problem with such customers is that many of them try to justify their position and explain that they don’t actually owe you the money. In other cases, they will ask for special treatment to get their bill reduced.

It is not in your best interests to do either. When you are out of pocket on a customer, and realize that you will have difficulty collecting, you need to stop. You need to stop working for the client, you need to stop arguing with them (and yes, such situations usually end up with grudge matches, often held through long sequences of e-mails) and you need to just issue a notice that payment is due.

Be polite. Tell the client that you will not be doing any more work for them until full payment is received. Give the client any outstanding material of theirs that they may not have (for example, if you’ve collected data as part of the project, send them the data – even if that’s not part of the contract). Tell them when you expect payment by.Tell them what’s going to happen if they don’t pay (for example, I’ll sue you for the shirt off your back!).

Here’s another example where it’s wise to get rid of a customer.

Sometimes the issue is not that the client can’t or won’t pay, but that the work being done does not match the work requested originally. In that case, if discussing with the client to resolve the differences doesn’t improve the situation, you may want to stop the project. If you do, then you can try referring them to someone else who can better serve their needs. As an example, if you run a business doing SEO and SEM work, but the project turns out to be website development, then you may want to refer them to a web development business.

Sure, you may lose the project as a result, even the parts that were your forte, but at the end of the day, you’ll have less aggravation as a result.

This week’s feature article is about a great business resource that I use time and time again – SCORE. The basic description of SCORE comes from their site:

SCORE, the “Counselors of America’s Small Business Owners”, is a national association dedicated to helping small business owners form and grow their businesses.

Unfortunately, their own description of themselves falls well short of reality, although it is everything that they claim to be, but also so much more.

I first came across the site when browsing through the Answers pages on LinkedIn where it would be listed on occasion as a resource for small business owners. After that, I started noticing references to the site on a variety of websites I frequent, and decided to check it out. My delay in looking at the site stemmed from the fact that I am in Canada, and the organization is clearly an American organization.

I was delighted to find that, while I could not take advantage of the various counseling and coaching opportunities (extra for all you American readers), there were still many resources that I could make use of.

The one feature that I found most useful, however, was the resource section, which includes dozens of document templates, from business plans to sales forecasts, balance sheets to board of advisor drafts. There are also dozens of podcasts on a variety of topics, and I’ve started listening to them as often as I have time. For days when you need some extra motivation? Check out their success stories.

All in all, this site provides many excellent resources for small business owners, regardless of whether or not you are able to make use of the advising facilities offered.

In any endeavor, it is of critical importance that you be able to communicate clearly, and that you exercise that ability as often as needed. There are two parts to good communication, and either without the other can lead to avoidable problems.

The first component is the ability to clearly express ideas, concerns, requests, or questions. While this skill is needed in both the oral and written form, it is possible to develop one without the other, and have it suffice.

The second component is the ability to deliver communiques as often as necessary, and to be available to receive and respond to such communiques when needed. Within an organization, this extends to knowing who to send a particular request or piece of information to. The chain of command needs to be known, and each link in the chain must be able to access the surrounding links whenever needed.

Where these two components become particularly important is when the various people communicating are not located in close proximity to one another. The more difficult it is to establish a line of communication (point two), the more important it is that what communication does occur be particularly clear. As the clarity of communiques decreases, the frequency of communiques, or, more particularly, the ability to request clarification, must increase.

I have witnessed one business suffer because of a failure in this area – with an absentee decision maker, the chain of command began to fail. While everyone in the business knew who made certain decisions, they were unable to communicate with him easily, and often significant amounts of time were lost just waiting for a response. Additionally, some of the communiques were difficult to understand, leading to mixed messages being sent, and many people in the business unclear as to their duties and responsibilities.

If you want to ensure that this doesn’t happen to your business, ensure that you know who is ultimately responsible for each segment of the business. Next, ensure that all communiques issued are clear and sufficiently verbose to avoid mixed messages. No, you don’t need an essay to explain each decision, but don’t assume that “sure, okay” means the same thing to the person reading it as it does to you.

Kelvin.23 - a great multi-tool

Wednesday night was the first episode of Season 5 of Dragons’ Den on CBC, and it was fantastic. Also called the Celebrity Episode, 3 well-known TV celebrities were on hand to endorse great business ideas.

For fashion, there was Jeanne Beker from fashion television. Mike Holmes was there to check out the tools (and inform one Den hopeful that she better make sure her liability insurance is paid up). Debbie Travis, a well known expert in home decorating, was there to check out the Kelvin.23, the subject of this post.

Kevin Royes from Vancouver invented the Swiss Army Knife of home decorating, and everyone on the show loved it. Called the Kelvin.23, it features a variety of tools that will let you do most light to medium jobs around the house:

With 23 essential features integrated into this one compact design, kelvin.23 is ideal for anybody in need of a quick fix. It hammers, screws, measures, levels and even shines a bright light when you need it most. Made from cast aluminum, zinc, carbon steel and ABS plastic…kelvin.23 is built to last.

The deal Kevin was asking for was $200,000 for 10% – and he had $250,000 in sales during the preceding 6 months prior to the filming of the show to back up his $2 million valuation.

The first Dragon to decline was Kevin O’Leary on account of the initial description of what the money was to be spent on – manufacturing. There’s risk in manufacturing that Kevin O’Leary felt was not intrinsic to the business. While further questioning of Kevin Royes revealed that he intended not to set up a factory, but to directly negotiate the manufacturing process, Kevin O’Leary remained out.

Jim Treliving, however, saw a bargain at $200,000 for a solid business, and offered his money. When Arlene Dickinson asked to go in on the deal, Jim balked, and so Arlene made the same offer on her own. Robert Herjevac offered to match Jim’s offer in conjunction with Jim (that is, combined at $400,000) for 25% of the company, and Arlene joined the partnered bid.

With three of the Dragons vying for a piece of his company, Kevin Royes stepped out for a quick consultation with his wife and his marketer for the U.K. On his return, he countered with an offer for $500,000 for 25%, which, after some brief discussion, was accepted by all three.

This was someone who played his cards well. Kevin had a solid business, impressed Debbie Travis, who would then feature the product on her show and record an infomercial as part of the deal. He had sales to back up his valuation, putting him in a strong bargaining position.

But most of all, he impressed the Dragons as soon as he did his demo. At that point, they were interested in investing, and he could stick to his valuation, and they would pay for it.

Building a business on loyalty

In my recent posts on questions to be constantly asking yourself as the owner of a small business (10 Questions to Keep Asking About Your Business and  Readers Respond: Questions to Ask About Your Business), the area I seemed to miss was in regard to employee satisfaction. Yet, this is a critical component to the success of your business, and deserves a significant amount of attention.

As a small business owner, you have few employees, and know each and every one of them by first name. They are, in essence, the family of your business. However, unlike your biological family, who are always part of the family, these people can come and go as they please. As a result, it is up to you to ensure that they stay around. The most effective way to do that is not to pay them more.

Money will only buy you so much loyalty. Think about the recent recession, in which businesses were forced to cut costs in order to survive. At times like those, a business that has been buying the loyalty of its employees will find that this is an expensive endeavor, and attempt to cut expenses. If money was the only incentive for loyalty, then the employees will leave at the first opportunity.

As a small business, then, loyalty must be earned. This is done by providing each employee with what makes them truly happy. While a nice paycheck helps, other factors can come into play.

If you have an employee who is creative, are you providing an environment in which they can express themselves?

If another employee likes challenges, are you constantly pushing them to expand their horizons?

Each person has a different issue that they find to be important. As the owner of the business, it is your responsibility to determine what those issues are (if you aren’t sure, you should ask each employee what is important to them in a workplace besides for salary). If your employees are happy and motivated, then you will find their loyalty to hold strong through the thick and thin.

A question was recently asked on answers.onstartups.com as follows:

How novel does a startup idea need to be?

There were several answers provided, and I obviously like my own the best:

Even if your idea is novel, within days of your site going live, there will be several imitators out there hawking a similar product. You have to do the best job you can to make your product provide as much value as possible. Thus, the issue of being novel is [almost] irrelevant, since even if it is novel today, it won’t be tomorrow, so why worry about that? Instead focus on being better than whatever competition is out there!

Thinking of a novel idea?

However, in looking at the question, there really is more that can be said about this. An idea for a startup needs a few components in order to be eligible for success, and novel is not one of them:

1. Is there an unfilled demand for this idea?
2. Who will pay for developing this idea?
3. Can I do this, or can I recruit someone who can?

Is the idea original? It doesn’t really matter if the demand is not being filled currently (question 1). If I can fill the demand (question 3), and someone will pay for it (question 2), then my idea has the potential to be a success. If any of these questions cannot be answered satisfactorily, then it may be a good idea for someone else, or it may not be a good idea at all.

As a hopeful startup founder, what you need to do is be aware of how unique your idea is, because it will help you pay attention to the appropriate competitors. If there aren’t any at the moment (which in general demonstrates that you haven’t done your research properly, but occasionally might be true), then as soon as you launch, find out who started right after you. There is not a single niche market for which there is no competition – and I challenge you, my readers, to show me an exception. No, the competition may not be exactly the same as you, and they may not be at the same level as you. But they exist.

If you can understand who your competition is, and how you and they differ from one another, then you’ll understand the being novel is not that important. What is important is to be as good as possible at whatever it is you do.

Working holiday

Christmas and New Year’s fall on Fridays this year, which means for many people, they are not working from Thursday afternoon on December 24 until Monday morning, January 4. That’s 10+ days of not working. Even for those who do go into the office in the week between Christmas and New Year’s, there is little work getting done, as people are in the holiday spirit.

As a small business owner, though, you may not have the luxury of being able to take off 11 consecutive days. My own plans include a significant amount of work to get done while everyone around me is in party mode. No, I’m not being a party-pooper, but when I have some time to spare, I’m getting projects advanced, meeting with what clients are available, and setting myself up to have an easier January by being prepared.

If you are able, then you might want to consider joining me in this. Sure, you can’t work with your suppliers (they’re on vacation somewhere warm), nor with your clients (they’re busy closing out the books for 2009). But you can work to figure out where your business is going, and how you can adapt to changes. The good thing about getting a break like this is that it lets you catch up, while the world around you slows down to party.

It’s a once-a-year opportunity to get ahead. What are you doing to help yourself for next year?