Entrepreneurial Lessons

Many seasoned business owners lived through what is commonly known as “start-up screw-ups,” or common mistakes made in early business ownership. However, business owners of all maturity levels fall victim to several common business problems. The one common issue the IEC sees through business owners is a desire for easy solutions to business troubles. Unfortunately, easy solutions are often a dream. If owning and running a business were easy, more people would leap into ownership. In an effort to take charge of your business, Guy Kawasaki suggests the following five tips:

1.       Focus on cash flow. Cash is what keeps the doors open and pays the bills, so knowing how cash works along with your profitability is critical. You need to get your costs under control, understand how much it takes to break even and how much you need financially to keep the business alive.

2.       Make a little progress every day. Don’t believe in the big-bang theory of marketing: a fantastic launch that created such inertia that you flew to “infinity and beyond.” No more. Instead, focus on making a little bit of progress every day – whether that’s making your product slightly better, increasing your skill in one small way, or closing one more business deal. The reason the press writes about “overnight successes” is that they seldom happen -not because that’s how all businesses work.

3.       Try stuff. If you are relying on luck alone, you better re-evaluate that mindset. While luck is a big part of many successes, don’t get too upset when you see less qualified businesses succeed. Secondly, luck favors the people who try new things and take analyzed risks. Be patient, talk with customers and try different products or solutions.

4.       Ignore schmexperts. According to Guy Kawasaki, “Schmexperts are the bad combination of schmucks who are experts – or experts who are schmucks. When you first launch a product or service, they’ll tell you it isn’t necessary, can’t really work, or faces too much competition. If you succeed, then they’ll say they knew you would succeed.” If you believe in your products or services, try it.

5.       Never ask anyone to do something that you wouldn’t do. This goes for customers (“fill out these twenty-five fields of personal information to get an account for our website”) to employees (“fly coach to Mumbai, meet all day the day you arrive, and fly back that night”). If you follow this principle, you’ll almost always have a good customer service reputation and happy employees.

The Economy Blues

 

Lately, it has been hard to help entrepreneurs without talking about the economy and the roller coaster Wall Street saga. While the trickle down effects of the actions on Wall Street and Congress will be revealed in the coming weeks and months, business and consumer confidence has decreased sharply.

One entrepreneur likened this time in the economy to the movie “Airplane.” As the passengers are asked to prepare for an “emergency landing,” the passengers actually begin to panic. In this economy, you are going to see a lot of panic happening; however do not be discouraged by what is around you. Above all things, be aware of your market and industry, watch your profit and loss (P&L) statements, and continue innovating.

StartUp Nation shares in the confidence that is needed by business owners now. “Checking out the newspapers, magazines, and television news over the last few weeks, I think we are being told to ‘assume crash positions.’ But, we’re innovators and inventors, we don’t follow the herd. In fact, we lead the herd.” Business owners need to stay motivated and move forward.

As the public feels more stressed, it’s the entrepreneur’s job to stay cool, stay smart and keep working. If there’s going to be a solution to this economic recession, it will be the innovators who  continue creating that will carry the country out of this problem.

Now is the time to use your business leadership skills to keep your business going strong. Evaluate your expenses, operations and market demands. Like waiting for a hurricane along the coast, prepare now, make adjustments in your business now and revisit your strategic plans now.

 

Law of Attraction

“You are what you believe in” and other well know clichés have gained the attention of business leaders as the Law of Attraction has seen a rise in awareness. Marketing professionals have subconsciously worked with laws of attraction as they implement concepts and strategies to build profits for companies. Business leaders are now seeing a correlation between their attitudes and the health of the company.

The Law of Attraction is a relatively simple concept. It simply implies that you attract toward you what you think about. Your dominate thoughts will manifest and move you. For example, have you driven down the road and fixated on an object in front of you. While your subconscious knew to avoid the object, did you find yourself driving directly for that targeted object?

As a business leader, do you have a target focus? Do you know who you need to attract to your business to achieve great sales, profits or exposure? While running a business of any size, if the leader of that organization does not have focus, direction or a purpose, then the business is not going to attract what it needs to succeed.

Are you a business owner who has been in business for a few years, not seeing great success with the business but enough to get by? Have you developed a negative attitude about the business, or are you skeptical of trying anything new since you have “done that already?” Do you realize that others involved with your business, whether employees, customers, contractors and so forth, take on your same attitude about the business whether you are verbalizing it or not? Being a business leader is a tremendous responsibility and the Law of Attraction applies to your leadership style.

Whether you believe in the Law of Attraction or not, as a leader in the business, you set the tone for all others to subscribe to. If you have a negative outlook, know that no one else who comes in contact with your business is going to have a higher opinion of the business than you. If think the world of your business and believe in it through the up and down cycles, then others around you will too.

In utilizing the law of attraction in your business’ marketing, the Small Business Trends Radio show suggests that you differentiate yourself from the rest. Think and believe of your business as sensational and dare to be different if you can. Being the same as everyone else does not draw the attention of new customers.

Secondly, becoming an expert within a niche in your industry will begin to attract the right types of customers for your business. This may not work for everyone, so analyzing your business within the market is needed. However; creating a niche for the business will attract new customers.

Lastly, capture your customers through entertainment. Speak to them emotionally, as people become less defensive when they have invested their emotions to the situation. Again, dare to be different if you can.

While psychologists and philosophers argue about the validity of the Law of Attraction, there are things you can do to lead your company in positive ways to attract the types of customers that will support your business venture. Ask yourself what you value, where your attitude lies with the company and what you can do different in marketing your company that will have impact on your business. Running a business is hard work, but it can be fun work. What are you going to do for yourself?

Arm Yourself with Knowledge

The internet has provided access to entrepreneurial experts from across the globe. Information on opening, expanding or harvesting your business is readily available. However, entrepreneurs need to be willing to take the time to access the information and learn from what is available.

This may seem like an easy task, yet many business owners do not take advantage of the information available to help their businesses survive, thrive and grow. Knowledge is a competitive advantage, and the business owner who learns about the market place, how to capture that market place and maintain market share will win.

Market research and competitive intelligence is an ongoing research task for any business. The information is critical in maintaining an edge in the market, especially in this time of more aggressive business and global competition. Market research is an ongoing task, because markets are changing very rapidly and the pace of business has increased dramatically in the past few years. The danger for many entrepreneurs comes from feeling overwhelmed and overloaded by the amount of information one can obtain.

To help the entrepreneur with their market research, there are a few key questions to ask. Before you start, ask what decision will be made and how the information will be used. When engaging in internet research, give yourself a time limit for searching the internet. There may be times where you waste more time than you gain by searching for answers on the internet.

Once you begin to engage in research, look at the source being viewed. Who wrote the article, what is their authority or affiliation? How accurate or relevant is the information, what is the intent of the information and how reliable is the information?

While engaging in market research, 50% of the information should be sought from people. Interview or call your competition’s suppliers, any associations for your industry, merchant associations, customers or local reporters. Get a feel for what is happening in your industry, what changes are taking place and what are some of the needs in the industry. Be persistent in contacting and talking with industry informants.

The next 50% of the research can be done on the internet or the library. Begin by using a variety of search engines for the same topic. Some search engines to try are www.google.com, www.yahoo.com, www.ask.com, www.search.msn.com, www.clusty.com and www.vivisimo.com. You can search blogs, local clubs, chambers of commerce, economic development organizations and more. Additionally, a lot of information can be found on GIS Maps. Fort Smith has an excellent GIS department, and they can be found at www.gis.fsark.com. Lastly, if you are in search of regulatory information, you can go to www.Thomas.loc.gov, www.usa.gov or http://asbdc.ualr.edu/.

Other search options include: your competitor’s website, news sites, sites your competitors link to, blogs, patent applications, podcasts, Wikipedia or advanced search engine requests. While the amount of information is overwhelming, entrepreneurs need to equip themselves with information that will help the business win customers. In this information age, anyone can access the information they need for business. The challenge is being disciplined enough to seek out the information that is needed.

NO FREE GRANT FUNDS

Opening a business and being one’s own boss is as much a part of the American dream as owning a home. In fact, being self employed or an entrepreneur is gaining a great amount of attention in this country’s economy. Citizens of this country are blessed with the freedom to start a business and enter an endless number of markets.

However, opening and running a business is not as easy as many make it seem. If you have flipped channels in the middle of the night, a funny looking man with question marks on his clothes lure others into the idea that there are numerous funds available for people to start their own businesses or that you can earn thousands working from home. This gentleman along with other copy cats are selling you untruths in order to sell their own books or services.

Business service providers, like the Innovation and Entrepreneurship Center or the Small Business Development Centers, wish there were easier ways to finance a business like the infomercials suggest. However, the reality is there are no free grant funds for people to start or grow their businesses. There are a small number of technology grants available to companies willing to engage in research and development for departments of the Federal government. These grant funds are highly competitive and come with many strings attached to the funding.

Moving forward on a business, the entrepreneur needs to be prepared to address the financial needs for the business. He/she needs to be able to sustain their personal finances first before moving toward opening the business. Rarely is a business profitable as quickly as the entrepreneur may think. Planning to sustain personal finances is the first step in starting the business.

In the planning process of opening the business, the entrepreneur should prepare conservative financial statements. These financial statements should identify how much capital is needed to start the business. If the company requires more funds than the entrepreneur has, then he needs to seek outside financing to help open the doors. Usually, a business will seek out a business loan to help pay for the materials, inventory or equipment needed to operate the business.

The first place an entrepreneur should look for additional capital in starting their business is through what is commonly called “friends, family and fools (fff).” This form of capital is the easiest to find and obtain. After seeking support from friends or family, bank loans are then sought out for the business. If your business is entering a fast growth industry and your capital requirements are great, then venture or angel funding may be necessary.

Regardless of the type of capital source the business seeks, the entrepreneur needs to prepare a business plan, sound financial statements, and form a solid management team for the business. In addition to preparing the business for capital, the business owner must prepare their own financial worthiness. A good credit score or a cleaned-up credit report will be needed for the business.

Before jumping into a business idea, the first step towards understanding business capital comes with learning as much as possible about the options, opportunities and the requirements of money and one’s business. Utilizing resources like the Small Business Development Center or the Innovation and Entrepreneurship Center are good places to start.

African American Business Owners

According to the US Census Bureau, there are 1 million Black owned businesses in the United States. Black businesses account for over $100 billion in annual sales, and African Americans have over $800 billion in expendable income each year. Minority business enterprises (MBEs) are a rapidly growing and increasingly important segment of the U.S. and global economy.

From 1997-2002, the total number of U.S. companies increased by 2 million. According to the Minority Business Development Agency (MBDA), over 50% of this increase was accounted for by minority-owned firms. MBDA notes that minority-owned businesses are diverse, and participate in a wide variety of industries like financial services, health care, construction, transportation, and other services.

However, despite the impressive growth in the number of U.S. minority firms, MBEs must increase their size, scale, and the economic viability of their firms if they are to compete effectively in the global economy. In this day of the global economy, minority businesses must be assertive and innovative competitors who will not fear or retreat from globalization.

In the MBDA report, “Minority Business Enterprises Mastering the Supply Chain: A Perspective,” research suggests that businesses who understand the supply chain concept will be more equipped to bring their businesses to the next economic level. The report, available at www.mbda.gov, demonstrates how minority businesses are able to grow their companies by coping with the challenges of local, national and international competition.

If minority businesses learn about and master the three levels of supply chain management, new opportunities await their businesses. Supply chain management is defined as the “planning and management of all activities involved in sourcing, procurement, conversion and logistics management activities. It also includes the coordination and collaboration with channel partners, which can be supplies, intermediaries, third-party service providers, and customers.”

The three levels of supply chain discipline according to the MBDA include:

• Managing the fundamentals of supply chain, which includes identifying the risks that exist within the supply chain. Once the risk is identified, the business owner may take steps to mitigate those risks.
• Selling the value of a shorter and more reliable supply chain. By reviewing the supply chain, the business owner can see where efficiencies are needed and where partnerships may be formed to decrease costs yet increase turn-around deliverables.
• Transcending today’s supply chain. By acquiring the skills to get ahead of today’s supply chain trends, moving toward higher value positions and markets and staying ahead of the competition, the business owner will see greater results.

The three levels of supply chain discipline lead to business owners to a path of continues study and learning. Staying abreast of the market and trends happening within the market and with technology will lead to business decisions that are relevant. Minority businesses have great opportunities with their businesses, and taking charge of the business is the first step to success.

Entrepreneurial Finance: The Function of Financial Statements

Money is the bottom line. We start, grow and invest in businesses for money. All the pains, highs and lows of business ownership are to provide for the business owner’s family, lifestyle, employees and so forth. Money allows entrepreneurs to open their business, and it is the key component to keeping the business open. While we may master our inventories, be the best at the services we offer or are brilliant at research and innovation, each business needs money to survive.

Despite the simple objective to make money in business, it is very common amongst entrepreneurs and business owners to overlook their abilities to manage the business finances. Many business owners will engage a bookkeeper or an accountant to set-up and manage the books. Others will buy financial accounting software programs and do their best to understand the power behind those types of software. However, a solid understanding of the business financial statements is critical for all business leaders regardless of how the reports are generated.

The good news is that regardless of the legal structure, type of business or size of business, the same basic financial statements apply. The financial statements are to serve as a mechanism of internal fiscal control, a tool to attract investors, a snapshot into the fiscal health of the company, a way to capture fraud before the business suffers major losses and a means to evaluate the overall functions of the business.

The first financial statement that a business needs to regularly generate is the income statement (also known as the profit and loss statement). Most businesses will want to generate this report on a monthly basis and compare the information with the previous months or to the same month from the previous year or two. If the business hasn’t opened yet, then the entrepreneur will want to generate an income statement for the first twelve months based on projected numbers they think the business will achieve. These projections need to be realistic and will be based off the market research completed during the business planning process.

The first section of the income statement will review the reporting time period’s gross revenues or how much money the business made during that time. Business owners need to include the total dollar amount of the returns and allowances the business gave in that time. The net revenue is found through subtracting the gross revenues from the returns. This is how much money the business made in the given reporting period.

The next section looks at the cost of goods sold. The business should list each major line item that contributes to how much the business pays for the products being sold. For instance, a manufacturer of widgets would track the costs of raw materials, and a retailer may wish to track the direct costs of inventory. Service oriented agencies can total the cost of delivering the service or they may opt to track overhead expenses in the next section.

The third section on the income statement tracks the operating expenses of the business (also known as overhead). Here the business should track salary expenses, which should include salary, payroll tax and any fringe benefits that the company will pay. This section should also include; rent or mortgage expenses, property taxes, sales taxes, depreciation expenses, utilities expenses, advertising expenses, insurance expenses, and any regular expenses incurred by the business.

The last section of the income statement will look at other expenses the business has on a regular basis. Typically, this is where loan interest is noted. While the business owner writes one check to pay off a loan or debt, the principal and interest are traced separately on the financial statements.

To finish the income statement, take the net revenue from section one and subtract that from the total cost of goods sold, operating expenses and other expenses. The resulting number will be your profit or loss for the reporting period.

The second financial statement is the balance sheet. The balance sheet lists all the assets and liabilities for the company. In simplest terms, this is a snapshot of the financial health of the company. A healthy business will show a well rounded balance of assets to liabilities.

On the balance sheet, current assets should be listed first. Current assets includes how much the business has in the bank, accounts receivable, inventory or any other account the business has money available in. Additionally, the business should also list all fixed assets it has. Under the fixed assets section, the business should list the value of all the land that it owns, the value of the building (if owned), value of any cars or major pieces of property owned by the business. The fixed assets should also note the cost of depreciation for any property owned by the business as well. The total fixed assets will be the value of the assets minus the depreciation.

Next, the balance sheet will list all current liabilities. Current liabilities include accounts payable, notes payable (credits, etc.) and taxes payable. Additionally, the balance sheet will list long term liabilities, which include building mortgage payable, equipment loan payable or other large debts owed by the business. Lastly, the owner’s equity will have its own line item on the balance sheet.

The magic of the balance sheet is the total assets added together, should equal the total number of liabilities plus owners equity added together. If the two numbers do not match, then a problem exists in the business or in the preparation of the balance sheet.

Whether the business owner hires help to establish and maintain the financial statements and books or whether they seek to maintain this information on their own, it is important to understand how the numbers work and what the numbers mean. Watching the business financial statements will help guide the business along in its progress, prevent fraud, alert the owner to business trends and show the business owner how the business is working for him or her.

The Business Plan

For many eager entrepreneurs, the business plan is a dreaded burden. Many see it as an obstacle to starting their business, yet others simply don’t see a reason to take the time to create such a document. Unfortunately, many entrepreneurs simply skip the process of writing a business plan to jump right into their business. While some businesses may survive with this renegade spirit, many more start struggling to survive. The business plan may seem complex to newcomers, however it is an exercise to assist the entrepreneur prepare and plan for the business. Essentially, it is a road map with the route mapped out for the business. It is an opportunity to see if the business is worth the time and investment before the business opens.

While time to do the necessary research, writing and financial planning are essential, the effort is well spent seeing if the idea is feasible. The business plan is intended to help start the process of researching, planning and preparing for operations. However, businesses are ever changing, and entrepreneurs need to incorporate ongoing research and planning into their business in an effort to adapt to changing markets.

The business plan acts as the first sales and marketing piece produced for a business, because the document is needed to communicate to potential investors. This one document allows investors to learn about the business, the market the business wishes to enter, how much capital is needed to start the business and what goals the business intends to reach. The business plan allows an investor to understand the risks involved with the business and what steps are being taken to minimize those risks. Most importantly, investors are looking for indicators for a good return on their investment (ROI) as well as how long it may take for the business to deliver that ROI.

While the business owner should give careful consideration to the whole business plan, the two critical sections others will review first are the executive summary and the pro formas (financial statements). The executive summary should be the last piece written in the business plan. This section summarizes the whole business plan into a few paragraphs. The executive summary should express what the business is, what the product or service is, describe the company vision, summarize the financials and capital needs as well as summarize the goals and management team.

In addition to the executive summary, the pro forma statements are vital to creating a sound business plan. This section allows readers to quickly find how much capital the company is seeking as well as learn about how long it will take the company to earn profits.

The pro forma section includes several documents that should paint a picture of what is needed to keep the company alive. To start, new business owners often need to prepare personal financial statements to include in this section, depending on the type of business, how much capital he/she is seeking and the requirements of the capital source. (Note: Entrepreneurs who are unable to show a sound personal financial background may need to take steps to clean up their finances first before seeking business capital.)

Next, all business plans should engage in research to get a realistic grasp of what sort of startup expenses the business will have. Talking to other business owners in similar industries, researching product expenses and other research should yield realistic figures to use in your projections. With startup expenses in hand, the business plan will need to include a 12-month profit and loss projection (or estimate). This needs to include how much in sales this new company needs to make. After the 12-month projection is complete, the business owner will need to create a profit and loss projection for a 4-5 year period.

After the profit and loss statements, an estimated cash flow statement is the next step. This will allow the business owner to plan for how much money will be needed before the doors open as well as see how much cash is needed to keep the doors open. In conjunction to the cash flow statement is the balance sheet. A balance sheet shows what items of value are owned by the company and how much the company owes in debts. The balance sheet is a key document to show the health of the company at any given moment, and it gives investors a quick glimpse into the “bottom line.”

Some entrepreneurs may include a break-even analysis in their business plans. This tool allows business owners to predict sales volume at their chosen price to recover the total costs in running the business. This calculation allows business owners see how much sales they need in order to run the business with a profit.

The marketing component to the business plan is a key aspect for the business owner to understand. Knowing who the customer is, what the spending habits of the customer are, who are the direct and indirect competitors for those customer dollars and where to find the customers are critical components to help the business plan its entry into the market. The marketing plan is far more comprehensive than simply creating an advertising plan. This section is where your research data will help you make even the smallest decision about your business. Your decisions need to be entirely about your customers, since they are the reason why you have a business.

Business planning can seem overwhelming to the new entrepreneur. However, the time and effort spent on researching and carefully planning a business will allow the business owner to start on a solid foundation. We all know what happened to the three little pigs, starting a business requires the same time and attention. Additional resources to help you with your business plan include the Small Business Development Center (http://asbdc.ualr.edu/), SCORE (www.score.org) or the IEC (www.iecfs.org).