Tuesday
Sep092008
Video: Reading your way toward expertise
Tuesday, September 9, 2008 at 1:27PM
This is a short four minute video following up on yesterday's blog post.
Tuesday, September 9, 2008 at 1:27PM Monday
Sep082008
Becoming a student of your industry
Monday, September 8, 2008 at 7:02AM
Shortly after college I was challenged by a successful professional to become an expert in my industry. According to him all I needed to do to become an expert was spend 10-20 minutes reading material relevant to my chosen profession, EVERY DAY. He claimed that in five years anyone could become a noted expert in his or her industry if they followed this advice. I tried this for a few weeks, but I wasn't disciplined enough to stick to it. A friend of mine did. About seven years later we ran into one another and I discovered he had kept up the habit of reading for about 15 minutes during his lunch hour, every day. At the time of our meeting he was known as a national expert on a new computerized financial reporting language called XBRL (in March of 2008 the Securities and Exchange Commission required all large publicly traded companies to submit their financial information via XBRL by December 15, 2008).
Most of us as business owners get bogged down in the day-to-day running of our businesses, and if we're smart we pull back and work "on" the business to make sure our strategy and tactics are appropriate to the situation. We work on staff development, sales, business planning and a whole host of other executive tasks, not to mention the unexpected crisis or two that keeps life interesting every month. But how many of us have continued on in our role as students since leaving high school and college? I would say not many, and a guy named Jerrold Jenkins probably agrees with me. He's compiled the following statistics:
One-third of high school graduates never read another book for the rest of their lives.
58% of the US adult population never reads another book after high school.
42% of college graduates never read another book.
80% of US families did not buy or read a book last year.
70% of US adults have not been in a bookstore in the last five years.
57% of new books are not read to completion.
But who cares? Is this really important? Well it turns out it's only important if you want to lead your industry. This is a crucial point. You don't have to become an expert in your industry. You can continue to be subject to the whims of your competitors. You can continue to let economic conditions dictate your success. You can continue to be at the mercy of your business partners. You can continue to experience the same flat or incremental revenue growth. You can even keep those customers you would love to hand over to your competition. If you're satisified with the status quo then by all means never pick up another book or spend another day in training. But if you want more keep reading.
Jenkins focused on books in particular and so do I, for good reason. Magazines and trades are great for keeping abreast of who is doing what, but sooner or later you'll need to dig into the meat of a good book to learn something you need to know. Newspapers and trade publications are notorious for getting it wrong in an effort to get it quick. Peer reviewed journals are somewhat better, but their ideas have not been proven in the broader industry landscape. Books are the primary means by which experts in any industry build their knowledge, insight and wisdom. So how do you get started?
Find out what to read
I do this in a couple of ways. First, I'm always on the lookout for good books to read. I ask friends, colleagues and other business owners what they are reading right now. I write down their answers in my little notebook and later I check out book reviews on Amazon to see if it's a book I might be interested in reading. I also keep an eye out for book titles or authors that are mentioned in other books or trade publications that I am reading. I write these down and do the same thing.
A second way that I find things to read is by just going to the book store. I'm a bit of a book geek so it's really enjoyable for me to find myself with an extra hour to spare wandering the aisles of Barnes and Noble or Books-a-Million. Sometimes I go with a particular topic or idea in mind, but usually I just browse. I thumb through the contents and maybe read a few pages from a chapter in the middle of the book. If it grabs me I buy it. If I'm hesitant I put it back on the shelf.
Make it easy to read
Reading is much easier when you surround yourself with books. I read anywhere from three to ten or twelve books at a time. It makes sense. We need variety. How many people do you know that watch an entire television series start to finish before flipping to another channel? Reading a variety of books allows you to pick up something that coincides with the mood you are in at the moment. I have books everywhere. There's a stack on my nightstand. There are two or three in my briefcase. I have an entire bookshelf at the office with probably 70 or 80 books on it.
If you want to get serious about increasing your industry knowledge and prowess you need to make reading books a higher priority than reading a newspaper. Take a book to the deli with you when you go to lunch. Get to the office a few minutes early and read a chapter before you crack the first file or make the first phone call. When you are at home spend a few minutes before going to bed with a book rather than the TV remote. You will be surprised how much reading you can get in between the commitments, chores and everyday happenings of your life.
Apply what you read
When you read do so with a pen in hand. I don't believe books are meant to be kept in pristine shape. I underline, highlight, write in the margins, take notes on the inside cover, stick post it notes in between pages and occasionally index my books. You need to digest what you are reading so you understand it and remember to apply it later. Not everything you read will be noteworthy. But if you are looking for those little nuggets with a pen or highlighter at the ready you are more likely to get something meaningful you can use. I am amazed how quickly the things I read find application in my work or home life. It is not uncommon for me to take something I've read that morning and use it with a client in the afternoon. This is the true magic of continuing to be a student every day. The stuff you read should find application very quickly. If it doesn't you might be reading things that are not relevant to your industry or business.
Whether you read fifteen minutes a day or during every waking moment I hope you find these tips helpful. Share with me your thoughts on becoming an industry expert and what role reading plays in your business life.
Most of us as business owners get bogged down in the day-to-day running of our businesses, and if we're smart we pull back and work "on" the business to make sure our strategy and tactics are appropriate to the situation. We work on staff development, sales, business planning and a whole host of other executive tasks, not to mention the unexpected crisis or two that keeps life interesting every month. But how many of us have continued on in our role as students since leaving high school and college? I would say not many, and a guy named Jerrold Jenkins probably agrees with me. He's compiled the following statistics:
One-third of high school graduates never read another book for the rest of their lives.
58% of the US adult population never reads another book after high school.
42% of college graduates never read another book.
80% of US families did not buy or read a book last year.
70% of US adults have not been in a bookstore in the last five years.
57% of new books are not read to completion.
But who cares? Is this really important? Well it turns out it's only important if you want to lead your industry. This is a crucial point. You don't have to become an expert in your industry. You can continue to be subject to the whims of your competitors. You can continue to let economic conditions dictate your success. You can continue to be at the mercy of your business partners. You can continue to experience the same flat or incremental revenue growth. You can even keep those customers you would love to hand over to your competition. If you're satisified with the status quo then by all means never pick up another book or spend another day in training. But if you want more keep reading.
Jenkins focused on books in particular and so do I, for good reason. Magazines and trades are great for keeping abreast of who is doing what, but sooner or later you'll need to dig into the meat of a good book to learn something you need to know. Newspapers and trade publications are notorious for getting it wrong in an effort to get it quick. Peer reviewed journals are somewhat better, but their ideas have not been proven in the broader industry landscape. Books are the primary means by which experts in any industry build their knowledge, insight and wisdom. So how do you get started?
Find out what to read
I do this in a couple of ways. First, I'm always on the lookout for good books to read. I ask friends, colleagues and other business owners what they are reading right now. I write down their answers in my little notebook and later I check out book reviews on Amazon to see if it's a book I might be interested in reading. I also keep an eye out for book titles or authors that are mentioned in other books or trade publications that I am reading. I write these down and do the same thing.
A second way that I find things to read is by just going to the book store. I'm a bit of a book geek so it's really enjoyable for me to find myself with an extra hour to spare wandering the aisles of Barnes and Noble or Books-a-Million. Sometimes I go with a particular topic or idea in mind, but usually I just browse. I thumb through the contents and maybe read a few pages from a chapter in the middle of the book. If it grabs me I buy it. If I'm hesitant I put it back on the shelf.
Make it easy to read
Reading is much easier when you surround yourself with books. I read anywhere from three to ten or twelve books at a time. It makes sense. We need variety. How many people do you know that watch an entire television series start to finish before flipping to another channel? Reading a variety of books allows you to pick up something that coincides with the mood you are in at the moment. I have books everywhere. There's a stack on my nightstand. There are two or three in my briefcase. I have an entire bookshelf at the office with probably 70 or 80 books on it.
If you want to get serious about increasing your industry knowledge and prowess you need to make reading books a higher priority than reading a newspaper. Take a book to the deli with you when you go to lunch. Get to the office a few minutes early and read a chapter before you crack the first file or make the first phone call. When you are at home spend a few minutes before going to bed with a book rather than the TV remote. You will be surprised how much reading you can get in between the commitments, chores and everyday happenings of your life.
Apply what you read
When you read do so with a pen in hand. I don't believe books are meant to be kept in pristine shape. I underline, highlight, write in the margins, take notes on the inside cover, stick post it notes in between pages and occasionally index my books. You need to digest what you are reading so you understand it and remember to apply it later. Not everything you read will be noteworthy. But if you are looking for those little nuggets with a pen or highlighter at the ready you are more likely to get something meaningful you can use. I am amazed how quickly the things I read find application in my work or home life. It is not uncommon for me to take something I've read that morning and use it with a client in the afternoon. This is the true magic of continuing to be a student every day. The stuff you read should find application very quickly. If it doesn't you might be reading things that are not relevant to your industry or business.
Whether you read fifteen minutes a day or during every waking moment I hope you find these tips helpful. Share with me your thoughts on becoming an industry expert and what role reading plays in your business life.
Wednesday
Sep032008
Back to school: supplies for business owners
Wednesday, September 3, 2008 at 7:08AM
I made a mistake in our newsletter and did not change the link to this week's article. If you are looking for "Becoming a Student in Your Industry" click here
It's September, Labor Day is over and we're all the way up to "I" with named tropical storms. It must mean school is back in session. My little guy started a couple of weeks ago and one of the first things we had to do was survey the school web site for his list ofsupplies. This month we're going to key in on the back to school theme and this week we will start with supplies for business owners. No matter what business you are in there is a basic toolbox of things you should have. Let's get started.
This year's sales forecast
Number one on the list is your revenue forecast for the year. Without it you won't know whether it's been a good day or a bad one. Business owners who don't forecast their sales are either too lazy to do so or they just don't know how. I hear all the time "you just can't forecast sales in this industry" or "in this market we don't waste time forecasting sales." That's like a football coach refusing to watch game film because the opposing team might change their plays. The exercise of forecasting sales forces you to think critically about your business plans and the outcomes you need to support your plans for the future. A business without a revenue forecast is much like a like a sailor without a map or a compass. If you don't know how to forecast revenues for the next year call me. It's one of the most exciting exercises we perform with business owners.
Last week's financial statements
Number two in your list of critical business owner supplies is last week's financial statements (balance sheet, income statement and statement of cash flows) preferably measured against your forecasted financial statements. Human beings operate on a weekly schedule. This means your customers, vendors, employees and business partners all operate on a weekly time scale and your business should too. If you are going to operate on a weekly basis you must measure on a weekly basis and that means financial statements need to be produced 52 times per year. If you have trouble conceiving just how you can achieve such a feat give us a call. It's easier than you might think.
Your operations manual
A good operations manual contains job descriptions, checklists, diagrams that describe how work gets done, organization charts that detail reporting responsibilities and a whole bunch of other critical pieces of information that help your business operate when you are not there. Building a good operations manual doesn't happen overnight. Step one is to agree upon a central storage system for all of this critical information. Step 2 is to delegate custody of the information and spell out the system for making changes. Step 3 is to get everyone using, editing, and updating the manual on a weekly basis. It can take a year or more to flesh out a good operations manual, but any business can see a big difference and start to realize the benefits of this system in as little as two weeks.
Your to-do list
I highly recommend David Allen's book "Getting Things Done." Every business owner should have a master to-do list where all of the reminders, projects and tasks that flood in on a daily basis can be kept, organized and followed up on. Whether you use Allen's system or something else I believe there are two key ingredients to a useful to-do list system. One, it needs to be portable. PDA's and smartphones are useful for this but I've found a simple little Moleskine notebook is portable, low tech and easily accessible. I carry one with me everywhere. I write down additions to my to-do list as well as meeting notes, article ideas, book chapter notes...anything. When I get back to my laptop I move to-do list items from my notebook to a software program that keeps track of everything for me. Second, your list needs to keep track of the things everyone else owes you. Carlos Ghosn, the CEO of both Nissan and Renault keeps a handwritten list in his jacket pocket of the five or six top priorities for the day AND the things his direct reports still owe him on unfinished projects. Keeping track of delegated tasks is the key to effective management and accountability.
Something to write in
Notice I said something to write "in" not something to write "on". You can find a cocktail napkin, an old receipt, a business card or a post-it note almost anywhere. The problem is that these items usually disappear in the laundry with all of those unmatched socks. This is another reason that I'm a huge fan of Moleskine notebooks. I carry one with me almost all the time. It's on the nightstand, it's in my jacket pocket at client meetings, it goes to church with me, I carry it on vacation. My notebook lasts about three or four months before I need to start a new one and it contains all kinds of things. To-do list items, meeting notes, inspirational quotes, journal entries, notes from books I've read, business ideas, personal goals, prayers....you name it, I've written it in my little notebook. I started doing this just a few years ago and I have seven or eight of these little notebooks filled to the brim. They have bailed me out of tough spots, provided great ideas for clients, helped me work through business ideas, and improved my memory. You should always have something with you to write in. Something you can refer back to later, and most important, something you are not likely to run through the washing machine.
A good book recommendation
I can usually tell a great business owner apart from a mediocre one by asking just a few questions. Two of my favorites are "What are you reading right now?" and "What's the best book you've read in the last year?" The truth is if you're not growing you are dying. If you are not learning you are regressing. If you are not reading you're probably spending way too much time in front of the television. Reading is a marvelous thing. It allows us to explore places, ideas and people on a scale and at a pace unequaled by any other media. People who don't read are limited in their exposure to ideas and experiences just like a pre-schooler who knows only what he is told by others or what he can see for himself.
I am sure there are other things you will find vital to your role as a business owner every day, and I hope you will share your insights with the rest of us. As for me, the single most important thing I carry with me is my faith. It is easy to become cynical when prospects don't follow through, when customers don't pay on time or when things just generally don't go your way. It helps me to remember that my role as a business owner is part of a much broader picture. A picture whose edges extend beyond the routines of business ownership and financial statements. I hope you have found your roles to be similarly eclipsed by something greater than the STUFF by which so much of the world measures success.
It's September, Labor Day is over and we're all the way up to "I" with named tropical storms. It must mean school is back in session. My little guy started a couple of weeks ago and one of the first things we had to do was survey the school web site for his list ofsupplies. This month we're going to key in on the back to school theme and this week we will start with supplies for business owners. No matter what business you are in there is a basic toolbox of things you should have. Let's get started.
This year's sales forecast
Number one on the list is your revenue forecast for the year. Without it you won't know whether it's been a good day or a bad one. Business owners who don't forecast their sales are either too lazy to do so or they just don't know how. I hear all the time "you just can't forecast sales in this industry" or "in this market we don't waste time forecasting sales." That's like a football coach refusing to watch game film because the opposing team might change their plays. The exercise of forecasting sales forces you to think critically about your business plans and the outcomes you need to support your plans for the future. A business without a revenue forecast is much like a like a sailor without a map or a compass. If you don't know how to forecast revenues for the next year call me. It's one of the most exciting exercises we perform with business owners.
Last week's financial statements
Number two in your list of critical business owner supplies is last week's financial statements (balance sheet, income statement and statement of cash flows) preferably measured against your forecasted financial statements. Human beings operate on a weekly schedule. This means your customers, vendors, employees and business partners all operate on a weekly time scale and your business should too. If you are going to operate on a weekly basis you must measure on a weekly basis and that means financial statements need to be produced 52 times per year. If you have trouble conceiving just how you can achieve such a feat give us a call. It's easier than you might think.
Your operations manual
A good operations manual contains job descriptions, checklists, diagrams that describe how work gets done, organization charts that detail reporting responsibilities and a whole bunch of other critical pieces of information that help your business operate when you are not there. Building a good operations manual doesn't happen overnight. Step one is to agree upon a central storage system for all of this critical information. Step 2 is to delegate custody of the information and spell out the system for making changes. Step 3 is to get everyone using, editing, and updating the manual on a weekly basis. It can take a year or more to flesh out a good operations manual, but any business can see a big difference and start to realize the benefits of this system in as little as two weeks.
Your to-do list
I highly recommend David Allen's book "Getting Things Done." Every business owner should have a master to-do list where all of the reminders, projects and tasks that flood in on a daily basis can be kept, organized and followed up on. Whether you use Allen's system or something else I believe there are two key ingredients to a useful to-do list system. One, it needs to be portable. PDA's and smartphones are useful for this but I've found a simple little Moleskine notebook is portable, low tech and easily accessible. I carry one with me everywhere. I write down additions to my to-do list as well as meeting notes, article ideas, book chapter notes...anything. When I get back to my laptop I move to-do list items from my notebook to a software program that keeps track of everything for me. Second, your list needs to keep track of the things everyone else owes you. Carlos Ghosn, the CEO of both Nissan and Renault keeps a handwritten list in his jacket pocket of the five or six top priorities for the day AND the things his direct reports still owe him on unfinished projects. Keeping track of delegated tasks is the key to effective management and accountability.
Something to write in
Notice I said something to write "in" not something to write "on". You can find a cocktail napkin, an old receipt, a business card or a post-it note almost anywhere. The problem is that these items usually disappear in the laundry with all of those unmatched socks. This is another reason that I'm a huge fan of Moleskine notebooks. I carry one with me almost all the time. It's on the nightstand, it's in my jacket pocket at client meetings, it goes to church with me, I carry it on vacation. My notebook lasts about three or four months before I need to start a new one and it contains all kinds of things. To-do list items, meeting notes, inspirational quotes, journal entries, notes from books I've read, business ideas, personal goals, prayers....you name it, I've written it in my little notebook. I started doing this just a few years ago and I have seven or eight of these little notebooks filled to the brim. They have bailed me out of tough spots, provided great ideas for clients, helped me work through business ideas, and improved my memory. You should always have something with you to write in. Something you can refer back to later, and most important, something you are not likely to run through the washing machine.
A good book recommendation
I can usually tell a great business owner apart from a mediocre one by asking just a few questions. Two of my favorites are "What are you reading right now?" and "What's the best book you've read in the last year?" The truth is if you're not growing you are dying. If you are not learning you are regressing. If you are not reading you're probably spending way too much time in front of the television. Reading is a marvelous thing. It allows us to explore places, ideas and people on a scale and at a pace unequaled by any other media. People who don't read are limited in their exposure to ideas and experiences just like a pre-schooler who knows only what he is told by others or what he can see for himself.
I am sure there are other things you will find vital to your role as a business owner every day, and I hope you will share your insights with the rest of us. As for me, the single most important thing I carry with me is my faith. It is easy to become cynical when prospects don't follow through, when customers don't pay on time or when things just generally don't go your way. It helps me to remember that my role as a business owner is part of a much broader picture. A picture whose edges extend beyond the routines of business ownership and financial statements. I hope you have found your roles to be similarly eclipsed by something greater than the STUFF by which so much of the world measures success.
Sunday
Aug242008
Turning an idea into a startup
Sunday, August 24, 2008 at 9:22PM
One of the most exciting parts of my job is helping startups. I've started businesses, I've been on startup teams and I've sat across the table from dozens of entrepreneurs as they've poured out their dreams and hopes for a new idea. It never gets old. The act of creating something is a marvelous experience. If you think you've got it in you to start a business I say "GO FOR IT!!!" You'll learn a lot about yourself and as long as you've got a good attitude even the disappointments will one day be remembered as highlights.
I think there are three ingredients to startup success, and I'm writing about them this week because I see a lot of people with good ideas who aren't quite sure what to do next. You can probably go about it a hundred different ways, but this framework has worked for me and my clients. It can work for you too as long as you ACT every day to make it happen.
Ingredient one is a good PLAN. A plan answers a lot of questions. What is your product or service? How will it be delivered? What sets you apart from everyone else? When will you open the doors? Why will you succeed where others have failed? A good plan answers all of these. It budgets the costs you will incur along the way. It quantifies your market, the share of the market you need to be successful and how likely you are to capture it. The plan includes a LOT of stuff. From finance, to marketing, to operations, it seeks to anticipate what you will need and when. Plans are best developed with someone who can push back on your assumptions. You need a devil's advocate to make you examine every angle before you start spending big bucks. Often times a SCORE counselor or your CPA will act in this role. Don't get me wrong, CPA's aren't cheap, but neither is spending $100,000 on inventory that won't sell.
Ingredient two is a TEAM. I should pause for a minute here and explain that there is a difference between starting a business and simply giving yourself a job. A business is something that will eventually run without you on the strength of the processes and people you've put into place. A job is something you don't get paid for unless you show up. A business requires a team. A job requires a time clock. Make sure you understand the difference.
The team often starts to surface while you are developing the plan. If you're lucky you'll have a business partner already on your team. Or maybe you've found an investor with some specific industry experience to help you layout the next steps. In any event you're going to need to start putting some names next to all those to-do lists that came out of the plan. You need to start building your team, and you usually have two choices. Experienced and expensive or hungry and cheap. If your business is like most you will need a mix of both, but that doesn't mean you must add the expensive ones to the payroll.
A team is comprised of more than just employees. Vendors, accountants, attorneys, consultants, suppliers, buyers and customers can all be part of your team. I think it's better to find hungry and cheap employees and get more expensive team members to commit to short-term goals and solutions. With outside parties you can limit the amount of time you're committed to expensive fees. It is great if you can get someone who is experienced, knowledgeable and competent on the payroll early, but most new businesses cant afford it.
The most important aspect of the team is chemistry. I was at a meeting last week and a fellow business owner at our table said "I'd rather hire the desire than the experience any day!" I agree 100%. As a new business founder you face risk, uncertainty, long hours and little short-term reward. If you have a workforce that is eager, willing to sacrifice and passionate you won't feel like you're going it alone. Passion and energy will trump experience every time.
Finally, when putting together a team it is important to decide who you want, first. You need to mentally describe the people you are looking for before you start looking. Age, sex, married or single, children or not, gregarious or introverted, hip and young or mature and wise...you will be amazed how quickly these people start to show up on your door step once you decide exactly what it is that you want. I have had people counsel me to be careful of discrimination when giving such advice. Baloney! There's nothing wrong with finding exactly the person you want.
The third ingredient is MONEY. Whether it's yours or someone else's you are going to need some cash to give this great idea some legs. Part of your plan will involve putting together the budgets and forecasts that help quantify the amount of money you will need. The people you select for your team will also help determine the amount you need. But just as important as the amount of money is the type. You basically have three choices: 1) use your money 2) borrow it or 3) use an investor's money. Each has benefits and drawbacks.
If you use your money you don't have to give up any ownership in the company and you don't have to worry about a monthly loan payment. Unfortunately, this route is rarely affordable for new businesses. For the same reason it is often very risky. If you put most or all of your savings into a new venture and it fails you may be left with nothing. That kind of situation can lead to emotional and desperate business decisions, and that is never good.
If you borrow money it can be more affordable initially, but you'll get stuck with a monthly payment and if you succeed in paying off the loan you will have paid out a lot more cash (in the form of principal AND interest payments) than you originally borrowed. Besides being more affordable on the front end borrowing also has the advantage of allowing you to retain ownership in the company. Banks and other lenders don't want stock in your new company, they just want repayment. This is an important distinction. Many people starting a new venture tell me they want to find investors, but what they really mean is that they need to find a lender.
The last option is to get someone to believe in your idea enough that they invest their money into your company. In return they expect to own a piece of the pie. Most people need to think long and hard about this. Using an investor's money is tempting when you don't have the cash yourself. It can also be more attractive than going to a lender who may not approve you for a big enough loan. But investor money is often the most expensive. Investors expect a return on their investment in the form of future profits. If the company does well they do well. If the company fails they lose everything. That kind of gamble means investors expect a lot more than a lender. Lenders can sell your collateral. Investors get left with nothing. For this reason an investor might demand a 30% return where a lender is satisified with 10%.
To get a sense for how expensive investment money can be assume your business is expected to generate $50,000 of cash and you need $100,000 to get things started. If you borrow the money at 10% you'll have $40,000 left after interest. But if you get an investor that requires 30% return you'll need to give away 60% of your company (30,000 divided by 50,000 = 60%). It gets worse. The lender will eventually get paid off once you return the $100,000 plus interest. Investors stick around forever or until you buy them out. If you think loans are expensive go through a buy out.
Investors also have a habit of sticking their noses into the business. And they have a right to. After all, these are your new business partners. They own the company too and you'd better listen to their suggestions. Not everyone is cut out for this and many founders find themselves at odds with fellow shareholders when it comes to strategic business decisions. It's also the case that many inexperienced investors (friends and family especially) don't truly understand the risk that they are assuming as shareholders. If things don't work out you could be setting yourself up for a lot of awkward Thanksgiving dinners.
If you haven't guessed by now my personal preference is to self fund businesses first, find cheap borrowed money second and go after investors as a last resort. That said, there are times when investors make the most sense, especially if they bring more to the table than money (industry expertise, contacts, sales dollars, etc). Friends and family rarely possess the kind of expertise and non-financial help that you are going to need so I try to discourage people from giving this group an ownership interest. In my mind it's far better to borrow the money from them and repay it at a generous interest rate. And speaking of Thanksgiving, don't close these deals at the family bar-b-q. If you have someone in your family (or a close friend) that is going to give you money INSIST that they sit down with your attorney and CPA and that they fully understand the exact terms of the deal. The last thing you want is Uncle Bob claiming he is entitled to half your millions after you've repaid his startup loan with 15% interest.
There's a lot involved in taking your idea from conception to successful business, many more steps and nuances than are covered here. But if you focus on building the plan, putting the team in place and using the right kind of money you will be better off than the 90% of new business owners who lay awake at night wondering whether they've done the right thing.
I think there are three ingredients to startup success, and I'm writing about them this week because I see a lot of people with good ideas who aren't quite sure what to do next. You can probably go about it a hundred different ways, but this framework has worked for me and my clients. It can work for you too as long as you ACT every day to make it happen.
Ingredient one is a good PLAN. A plan answers a lot of questions. What is your product or service? How will it be delivered? What sets you apart from everyone else? When will you open the doors? Why will you succeed where others have failed? A good plan answers all of these. It budgets the costs you will incur along the way. It quantifies your market, the share of the market you need to be successful and how likely you are to capture it. The plan includes a LOT of stuff. From finance, to marketing, to operations, it seeks to anticipate what you will need and when. Plans are best developed with someone who can push back on your assumptions. You need a devil's advocate to make you examine every angle before you start spending big bucks. Often times a SCORE counselor or your CPA will act in this role. Don't get me wrong, CPA's aren't cheap, but neither is spending $100,000 on inventory that won't sell.
Ingredient two is a TEAM. I should pause for a minute here and explain that there is a difference between starting a business and simply giving yourself a job. A business is something that will eventually run without you on the strength of the processes and people you've put into place. A job is something you don't get paid for unless you show up. A business requires a team. A job requires a time clock. Make sure you understand the difference.
The team often starts to surface while you are developing the plan. If you're lucky you'll have a business partner already on your team. Or maybe you've found an investor with some specific industry experience to help you layout the next steps. In any event you're going to need to start putting some names next to all those to-do lists that came out of the plan. You need to start building your team, and you usually have two choices. Experienced and expensive or hungry and cheap. If your business is like most you will need a mix of both, but that doesn't mean you must add the expensive ones to the payroll.
A team is comprised of more than just employees. Vendors, accountants, attorneys, consultants, suppliers, buyers and customers can all be part of your team. I think it's better to find hungry and cheap employees and get more expensive team members to commit to short-term goals and solutions. With outside parties you can limit the amount of time you're committed to expensive fees. It is great if you can get someone who is experienced, knowledgeable and competent on the payroll early, but most new businesses cant afford it.
The most important aspect of the team is chemistry. I was at a meeting last week and a fellow business owner at our table said "I'd rather hire the desire than the experience any day!" I agree 100%. As a new business founder you face risk, uncertainty, long hours and little short-term reward. If you have a workforce that is eager, willing to sacrifice and passionate you won't feel like you're going it alone. Passion and energy will trump experience every time.
Finally, when putting together a team it is important to decide who you want, first. You need to mentally describe the people you are looking for before you start looking. Age, sex, married or single, children or not, gregarious or introverted, hip and young or mature and wise...you will be amazed how quickly these people start to show up on your door step once you decide exactly what it is that you want. I have had people counsel me to be careful of discrimination when giving such advice. Baloney! There's nothing wrong with finding exactly the person you want.
The third ingredient is MONEY. Whether it's yours or someone else's you are going to need some cash to give this great idea some legs. Part of your plan will involve putting together the budgets and forecasts that help quantify the amount of money you will need. The people you select for your team will also help determine the amount you need. But just as important as the amount of money is the type. You basically have three choices: 1) use your money 2) borrow it or 3) use an investor's money. Each has benefits and drawbacks.
If you use your money you don't have to give up any ownership in the company and you don't have to worry about a monthly loan payment. Unfortunately, this route is rarely affordable for new businesses. For the same reason it is often very risky. If you put most or all of your savings into a new venture and it fails you may be left with nothing. That kind of situation can lead to emotional and desperate business decisions, and that is never good.
If you borrow money it can be more affordable initially, but you'll get stuck with a monthly payment and if you succeed in paying off the loan you will have paid out a lot more cash (in the form of principal AND interest payments) than you originally borrowed. Besides being more affordable on the front end borrowing also has the advantage of allowing you to retain ownership in the company. Banks and other lenders don't want stock in your new company, they just want repayment. This is an important distinction. Many people starting a new venture tell me they want to find investors, but what they really mean is that they need to find a lender.
The last option is to get someone to believe in your idea enough that they invest their money into your company. In return they expect to own a piece of the pie. Most people need to think long and hard about this. Using an investor's money is tempting when you don't have the cash yourself. It can also be more attractive than going to a lender who may not approve you for a big enough loan. But investor money is often the most expensive. Investors expect a return on their investment in the form of future profits. If the company does well they do well. If the company fails they lose everything. That kind of gamble means investors expect a lot more than a lender. Lenders can sell your collateral. Investors get left with nothing. For this reason an investor might demand a 30% return where a lender is satisified with 10%.
To get a sense for how expensive investment money can be assume your business is expected to generate $50,000 of cash and you need $100,000 to get things started. If you borrow the money at 10% you'll have $40,000 left after interest. But if you get an investor that requires 30% return you'll need to give away 60% of your company (30,000 divided by 50,000 = 60%). It gets worse. The lender will eventually get paid off once you return the $100,000 plus interest. Investors stick around forever or until you buy them out. If you think loans are expensive go through a buy out.
Investors also have a habit of sticking their noses into the business. And they have a right to. After all, these are your new business partners. They own the company too and you'd better listen to their suggestions. Not everyone is cut out for this and many founders find themselves at odds with fellow shareholders when it comes to strategic business decisions. It's also the case that many inexperienced investors (friends and family especially) don't truly understand the risk that they are assuming as shareholders. If things don't work out you could be setting yourself up for a lot of awkward Thanksgiving dinners.
If you haven't guessed by now my personal preference is to self fund businesses first, find cheap borrowed money second and go after investors as a last resort. That said, there are times when investors make the most sense, especially if they bring more to the table than money (industry expertise, contacts, sales dollars, etc). Friends and family rarely possess the kind of expertise and non-financial help that you are going to need so I try to discourage people from giving this group an ownership interest. In my mind it's far better to borrow the money from them and repay it at a generous interest rate. And speaking of Thanksgiving, don't close these deals at the family bar-b-q. If you have someone in your family (or a close friend) that is going to give you money INSIST that they sit down with your attorney and CPA and that they fully understand the exact terms of the deal. The last thing you want is Uncle Bob claiming he is entitled to half your millions after you've repaid his startup loan with 15% interest.
There's a lot involved in taking your idea from conception to successful business, many more steps and nuances than are covered here. But if you focus on building the plan, putting the team in place and using the right kind of money you will be better off than the 90% of new business owners who lay awake at night wondering whether they've done the right thing.
Monday
Aug182008
When should you build a checklist?
Monday, August 18, 2008 at 2:55PM
If you're a small business owner and you haven't read Michael Gerber's book The E-Myth you've got some catching up to do. I am a big fan of Berger's because so much of what he advocates is common sense. For instance, if you're the owner of a business you can take five minutes to do a task yourself or you can spend an hour writing out the instructions so someone else can do it. The thing is if you spend five minutes guess how long you'll be doing that task...FOREVER. If you spend an hour guess how many times you'll have to do that task again...NEVER. As a whole these checklists build a how-to manual for your business. We call this an operations manual.
The problem as business owners is that we rarely have enough time to sit down and write out the instructions. The temptation to just get it out of the way in five minutes is too much for us. We crave action, we crave closure, we crave being able to check one more item off our to-do list. For me it all comes down to two things: timing and format.
Let's start with format. You can get all wrapped up in fancy binders, fonts, titles, and tabbed sections or you can actually get some work done. The fact is all businesses need an operations manual but very few need a glossy, professionally published document to impress the HR department. I favor checklists because they focus on HOW a job should be done, the are easy to CHANGE by inserting or deleting certain steps, and they can be used ON THE JOB. You don't need a lot of fancy narrative explaining WHY the job should be done. The WHY should be covered in your job descriptions and culture. Operations manuals and more specifically checklists are about the HOW.
Format also deals with how all of these checklists will be stored. You can pick any method that makes sense as long as it passes these three criteria.
Timing is the other major issue with generating a useful operations manual. I do two things to make sure I have the time to put together checklists that help my business. First, I schedule one day per week to work on my business. It's rare that I get the whole day to do things like financials and checklists but by not scheduling appointments, avoiding vendors, and spending time with employees I have a lot more time on this one day for doing things like checklists. It takes a little discipline but ask your staff for help. They can be invaluable in guarding your time and making sure you stick to priorities.
Second, if I know it's going to be more than two months before this particular task or type of task comes up again I don't give myself a choice. I MUST prepare the checklist, even if it means staying after hours to do it. A good example is our storm preparedness checklist. At the moment tropical storm Fay is rumbling around down in the Florida Keys and threatens to hit our immediate area as a hurricane in the next twenty four hours. We don't currently have a checklist for tropical storm and hurricane preparedness but I'm building one today because I don't know when we'll get this opportunity again. The important thing here is to draft the checklist while you are doing the task. Otherwise you're going to miss something. If you can't be assured of another forthcoming opportunity to build a comprehensive checklist you must take the time now to make sure it gets done.
Checklists aren't the big hairy monsters that most business owners think they are. With the right format and a few extra minutes you can build an operations manual that helps your business run without you.
The problem as business owners is that we rarely have enough time to sit down and write out the instructions. The temptation to just get it out of the way in five minutes is too much for us. We crave action, we crave closure, we crave being able to check one more item off our to-do list. For me it all comes down to two things: timing and format.
Let's start with format. You can get all wrapped up in fancy binders, fonts, titles, and tabbed sections or you can actually get some work done. The fact is all businesses need an operations manual but very few need a glossy, professionally published document to impress the HR department. I favor checklists because they focus on HOW a job should be done, the are easy to CHANGE by inserting or deleting certain steps, and they can be used ON THE JOB. You don't need a lot of fancy narrative explaining WHY the job should be done. The WHY should be covered in your job descriptions and culture. Operations manuals and more specifically checklists are about the HOW.
Format also deals with how all of these checklists will be stored. You can pick any method that makes sense as long as it passes these three criteria.
- Changes can be delegated. If you are the only one who can make changes you've only created more work for yourself. It's important that your checklists be maintained in a system that others can access and edit when given permission.
- Each checklist is a distinct file or document. When you give someone permission to update a checklist you want to make sure their changes are limited to that document. By keeping everything separate you can maintain the integrity of your operations manual.
- Changes are available immediately. This is where technology becomes your friend. If you have ten employees and each keeps a printed copy of the operations manual on their desk it's going to be hard to make sure everyone is using the latest version of each checklist. If all documents are maintained on a company intranet or file server it's much easier to keep everyone on the same page.
Timing is the other major issue with generating a useful operations manual. I do two things to make sure I have the time to put together checklists that help my business. First, I schedule one day per week to work on my business. It's rare that I get the whole day to do things like financials and checklists but by not scheduling appointments, avoiding vendors, and spending time with employees I have a lot more time on this one day for doing things like checklists. It takes a little discipline but ask your staff for help. They can be invaluable in guarding your time and making sure you stick to priorities.
Second, if I know it's going to be more than two months before this particular task or type of task comes up again I don't give myself a choice. I MUST prepare the checklist, even if it means staying after hours to do it. A good example is our storm preparedness checklist. At the moment tropical storm Fay is rumbling around down in the Florida Keys and threatens to hit our immediate area as a hurricane in the next twenty four hours. We don't currently have a checklist for tropical storm and hurricane preparedness but I'm building one today because I don't know when we'll get this opportunity again. The important thing here is to draft the checklist while you are doing the task. Otherwise you're going to miss something. If you can't be assured of another forthcoming opportunity to build a comprehensive checklist you must take the time now to make sure it gets done.
Checklists aren't the big hairy monsters that most business owners think they are. With the right format and a few extra minutes you can build an operations manual that helps your business run without you.