Wednesday, January 21, 2009

Beyond Hope is Action

Like so many Americans, I was inspired by the inauguration of our new President, Barack Obama. My initial impression is that he is an eloquent speaker, a caring soul and a thoughtful leader. His comprehension of the complex issues related to governing this great nation appears to be strong and he seems poised to foster an improved level of cooperation and bipartisanship among our lawmakers.

Millions of Americans flocked to Washington, D.C. for one of the greatest celebrations of the 21rst century. In Barack Obama's inaugural address, he said, “We have chosen hope over fear,” yet he was also sobering in reminding us of the challenges that remain, both from an economic and a national security standpoint.

It was a historic day on January 20, 2009 and it was a great day for the United States of America. “Hope” was a word that was used quite a bit throughout the day. It is a beautiful word that spurs dreams of promise and opportunity. It can be used as a noun or a verb. We can possess hope or we can hope something will happen (thanks Ms. Lierni, Oak Tree Elementary School).

President Obama can inspire us with hope the noun, but if we utilize hope the verb too much, nothing will get accomplished. Hope is not an action verb; it is a passive verb (thanks Ms. Ward, John Adams Junior High). I can hope I don't get hit by a train, but I will if I just sit on the tracks and hope. I have to move, jump, run, walk or take some other action beyond hope if I am going to survive.

As we take to heart the inspiring words of our new President, the reality is that if we expect things to change we have to take action and not just hope for change. Barack Obama also added, “Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America - they will be met.”

While some people may have listened to his words and heard a promise, I heard a call to action. He went further to remind us of the words that George Washington spoke during the Revolutionary War, before his famous crossing of the Delaware River, "Let it be told to the future world...that in the depth of winter, when nothing but hope and virtue could survive...that the city and the country, alarmed at one common danger, came forth to meet (it)."

It was a historical day for our nation, yesterday and many of us were inspired and filled with hope. Yet President Obama alone will not solve our problems. We can hold on to the hope from his message, but beyond that we all need to use our minds, our strengths and our passions to meet the challenges facing our nation. There is nothing stopping us from making tomorrow another historical day with a new accomplishment of grand scale.

How does this relate to small business? Well, I have to admit I am slightly off topic again. Yet our economy is driven by small businesses and I am tasked with helping our clients operate more successful businesses. To me, President Obama's call to action has only inspired me further to do my part and help our clients bring their dreams to a successful business reality. It starts with hope, but the achievement only comes with a good plan and a commitment to action.

Thursday, January 15, 2009

I Refuse to Participate in This Recession

I was at a very inspiring meeting in Lake Placid this morning. At the meeting, Jim Williams, from radio station WSLP, gave me a button that said, “I refuse to participate in a recession.” I quickly put the badge on and wore it with pride!

Mr. Williams also sent me a link to a video by Dr. Ivan Misner, who is the founder and chairman of Business Networking International. Here is that same link:

http://www.youtube.com/watch?v=9266NvfUHrk


While I give my usual disclaimer that this is not an endorsement of any particular product or service, I will not hide my feeling that that Dr. Misner is a kindred spirit. His message resonated and clearly articulated so much that I have been trying to communicate in previous posts.

I hope you listen to his message, but if not, at least let me share this quote that came out of his inspiring monologue, “Don't let a bad economy be your excuse for failure; instead, make it your opportunity to succeed!”

I think back to that last article I referred to in my previous post. Some of those businesses interviewed claimed the economy was forcing them to close. Looking at some of the businesses and the reasons given for their difficulties, I just had a hard time accepting that the economy was the root cause of the problem. I obviously don't have access to all the details from these businesses and I don't want to diminish any of the challenges they have faced. Yet, I still refuse to believe all opportunities were exhausted.

Opportunity comes in many forms. Adding product or service lines, expanding markets and, the granddaddy of all opportunity, developing innovation -- finding new solutions to meet market demands.

As Dr. Misner said, this is not an attempt to ignore reality. There are real problems in so many areas of our economy. But we can't pull a magic blanket over heads and hide. Rather than dwelling on all the problems, we can choose to seize the opportunity to be a part of the solution.

I welcome you to join Dr. Misner, myself and all the others who refuse to participate in a recession. Choose instead to be a part of a recovery.

Since I was a young child, I have admired the writings of Shel Silverstein, author of the “The Giving Tree.” I share this poem of his:

Listen to the mustn'ts child.
Listen to the don'ts.
Listen to the shouldn't haves, the impossibles, the won'ts.
Listen to the never haves, then listen close to me.
Anything can happen child.
Anything can be.

Monday, January 12, 2009

Survival of the Fittest

Another gloom and doom story about small businesses in this economy has somehow managed to make its way into the mainstream media. I found this Associated Press (AP) article on the homepage of MSNBC.com before heading to work this morning. The title, Small Businesses Struggle to Survive Downturn obviously caught my eye.

First and foremost, the struggle to survive is a daily consideration for most small businesses. At any time, in any economy, there are factors that threaten every businesses' very survival. Natural disasters, new entry of competition, the health of the leadership team; there are so many other possible factors that could extinguish the livelihood of a small business, it is a wonder that so many people still consider it the American Dream to pursue business ownership.

Like in nature, business mortality is an unfortunate reality. Survival is reserved for those businesses that are poised to grow and adapt. The businesses that can evolve and meet the changing demands of the marketplace will ultimately succeed and those that can't will not survive.

If you could indulge me, I would like to address some specific claims in this article. The following bullet points are contained in just one paragraph of this article:

* Financing is hard, if not impossible, to come by
* Vendors are being skittish about extending credit for inventory
* Rents are rising
* And profits are falling — or vanishing altogether as sales slip

First of all, I know a number of lenders in my area who are trying to fight this misconception that financing is impossible to come by. The credit markets are not frozen and credit is quite available. Of course banks are learning their lessons from some of the looser underwriting practices that allowed defaults to increase. They are paying closer attention to the borrower's capacity to service any new financing. Yet banks can't succeed without lending out money. Lending money is still an income source for them and I know of a number of financial institutions that are still quite eager to extend credit.

And banks are not the sole source of financing. For ventures that require a little bit more risk than what banks may be comfortable in underwriting, now is a perfect time to consider private equity. There are investors out there who have money sitting on the sidelines waiting for that right deal to come along. The prospect of having a more intimate review of a business model may be enticing in these days of corporate greed and mismanagement. The key is to craft an investment deal that provides a win/win situation. More flexibility to the business owner and a good prospect for return on investment to the investor.

To address the comment about vendors being skittish about extending credit for inventory, I would like to know when have vendors not been skittish about extending credit? Nothing has changed here. Vendors are always enticing their customers to pay quicker, but if they don't want to experience their own drop in sales, they are going to make some deals and extend credit terms. Maybe not for those businesses that have abused credit terms in the past, but again, that is another form of business Darwinism. Vendors are looking for the right partners to bring their products to the marketplace and they are going to pair up with the stronger businesses who have show a commitment to making timely payments.

The comment that rents are rising baffles me to a certain extent and contradicts so much that I have been hearing with all the gloom and doom economic data on the fall of property values. Yes, I know there have been some property tax issues in various communities, but with the fall of property values, the increased tax rates will eventually be offset by the decrease in property values. Now is a great time to consider negotiating lease terms. Many landlords that I know have been rewarding their long term tenants with discounted lease extensions and it is up to each individual business owner to negotiate the best terms to meet their needs. Of course, it has to be reasonable and beneficial to the landlord, as well. But just because the MSNBC article says rents are rising, don't believe it until you get the bill. And if rents are indeed rising, decide what you are going to do to adapt to this change.

The final claim from the MSNBC article that I will address in this post is that profits are falling or vanishing altogether as sales dip. I am absolutely astounded by this astute financial observation. If I may be as bold, I offer my own prognostication that if you jump into Lake Champlain, you are bound to get wet.

I apologize for being so flip, but sometimes stating the obvious just isn't the answer. Survival in operating a small business is definitely a challenging prospect, no matter what state of our economy. Yet there are plenty of resources for those who wish to find solutions. Our NYSSBDC Research Network has published some good articles on their blog. Here is a link to one:

http://sbdcrn.blogspot.com/2008/12/recession-survival-guide.html

While searching for other resoources to help business owners, I came upon this excellent article by Christine Corelli:

http://www.creativeimpactgroup.com/PDF/Generatingbizchallengingeconomy.pdf

I am also a big fan of these two retail blogs:

http://www.ricksegel.com/blog/

http://bobphibbs.wordpress.com/

As I noted in other posts, your business can also contact a local Small Business Development Center counselor to help you develop specific strategies to deal with challenges or to explore new opportunities to grow your business.

W. Edwards Deming is known for developing the management training that was shunned by many American companies and often attributed with leading the revolutionary improvement of Japanese manufacturing practices. The author of the great management book, Out of Crisis, Mr. Deming once said, “Learning is not compulsory... neither is survival.”

Sunday, January 11, 2009

Work the Plan, Not the Idea

I've often commented that my clients like to ask me what I think of their ideas. My standard response is, “you have a great idea, now let me see your plan.” Here is where my clients reactions to this will vary, as some clients will show me their drafts and others will ask how to go about writing a plan. Unfortunately, a good number of others will tell me that they don't have the time to be bothered with this process. My feeling is that if you don't have time to plan, then you don't have the time to achieve success.

I don't care how great the idea may be, the actual process of developing a business should involve a planning process. And planning is not just an exercise of putting your idea on paper. It is a process where you think about how you are going to make your business work.

It is actually a fairly simple process and I like to refer to what I call “the four cornerstones of success” that are the foundation of any successful business. This includes:

* Marketing
* Operations
* Financials
* Leadership

The planning stage should encompass a process that will bring your vision into reality. From the marketing perspective, this involves thinking about who will be your customers, what is your competition for those customers and what message will you send to effectively entice enough of them to purchase your product or service.

On the operations side, this is envisioning the process of everything it takes to produce your product or service and effectively deliver it to your customers. It should also involve contingency planning for things that can interrupt this process.

The financial side of planning involves thinking about how much it will cost to start or expand your business and the holy trinity of financial documents: cash flow statements, profit and loss statements (or income statements) and the balance sheet. Since you are in the planning process, you should plan what they will look like in the future. Usually a three year period is a good starting point (projections are sometimes referred to as pro formas)

Leadership is identifying the direction and goals for your business. It also identifies who will be responsible for the different roles in managing the business and should include some accountability for what dictates success. I've written in a previous post that everyone should own a number. The business plan is a great starting point to identify who owns which numbers.

Probably the most frequent question I get about the business plan is, “How long should it be?” My answer is always, “As long as it needs to be.” Ask a good question, get a good answer!

First of all, as long as the business is going, the planning process never ends. It is something that should be revisited and refined over and over again. I refer to a great book by James D. Murphy, entitled Flawless Execution. Mr. Murphy is a retired Top Gun pilot from the U.S. Air Force who runs a business consulting firm, named Afterburner. In his book, he refers to a cyclical process that involves the Plan, the Briefing, the Execution of the Plan, the Debriefing and then the process begins over again. I highly recommend this book to those who are serious about improving their businesses.

While the business planning process never ends, there are obviously times when your business plan will need to be presented. Usually, it is because financing is needed for the business and any reputable investor, whether it is a banker or a private investor, will want to see a business plan before making an investment decision.

Of course, if you want to get a positive response from a potential investor, you have to think about what they want to see in a your business plan. The key in the business plan is to sell your plan for success, not the idea. The biggest mistake I see in most business plans is it focuses too much on what is wonderful about the proposed product or service, rather than focusing on how the business will be successful and, more importantly, why this is a wise investment decision for the potential investors.

While I am not going to speak for bankers and say that they could care less about your business proposal, certainly they are more concerned with how they are going to be paid back rather than consider how wonderful your business idea may be. So think about risk and reward analysis in your business planning process.

Speaking of risks and rewards, I can't stress enough the importance of the business planning process to assess feasibility of your proposed business start-up or expansion. Think about the risks and rewards as they relate to your particular situation. While the your business plan may have a good chance of providing you the opportunity to do something you love, it may not provide enough financial rewards to justify the financial (as well as time) investment you may have to make.

There are a number of great resources for providing assistance in writing business plans. Consider visiting your local SBDC as a good starting point (go to the "Find Your Nearest Small Business Development Center" and search by zip code or State).

I also provide a caution about paying someone to write your business plan for you. While you may use a consultant to provide advice for you in assessing market potential, develop operating systems or to help you format financial documents, the business plan has to come from you.

“Setting a goal is not the main thing. It is deciding how you will go about achieving it and staying with that plan.” Tom Landry