The Paradox of Fear


 

Michael Raynor’s great book - "The Strategy Paradox" - should be required reading for any investor or executive seriously interested in understanding the real connection between risk and return in the modern economy.

Raynor’s basic premise is that almost everyone - because of how human beings are fundamentally wired – over-rate the consequences of “things going bad” and consequently default to seemingly safe strategies way too often.

Raynor goes on to make the point that while this may be perfectly fine from a personal health and safety perspective, it is disastrous business and investment strategy.

The reasons, he cites, are both subtle and obvious.

The obvious reasons revolve around classic “agency” challenges - namely that there are a different set of incentives in place for operators versus owners of businesses.

The owners - i.e. the shareholders - main goal is investment return. As such, they usually evaluate strategic decisions through the dispassionate prism of expected return.

The operators of businesses, in contrast, usually act as who they are - namely highly emotional, emphatic, and personal-safety focused human beings.

And while, as professionally trained managers, they are of course aware and focused on expected value and shareholder return, their analysis of those rational probabilities often get overshadowed by more "human" concerns.

Like friendship.

Like the stable, comfortable routine of a job. Of co-workers. Of a daily, comfortable work rhythm.

And the result of this natural human bias toward more of the comfortable same is executive decision-making that defaults way too often to the seemingly (that word again) conservative option.

Now as for why this conservatism is a huge strategic problem, Raynor delves into the concept of survivor bias and how it pertains to traditional studies of what factors separate successful companies from the unsuccessful ones.

Survivor bias can be best illustrated by all of those statistics that too many of us unfortunately know by heart regarding the abysmally low percentage of companies that make it through their first year of business, the number that make it to five years, to 10 years, to a Million, Ten Million, a Hundred Million in revenues and so on.

Now most of us naturally interpret these statistics as to mean that the leaders of these failed businesses were too aggressive, that they took too many risks, made too many big bets that didn’t pan out.

But Raynor's research actually demonstrated the opposite.

As opposed to Jim Collins’ famous (and famously flawed) Good to Great analysis, Raynor found that when the full universe of companies were surveyed – not just those that survived – that there was a direct negative correlation between those that didn't make it and the relative conservatism of their leaders and their pursued business strategies.

Or from the other perspective, the successful businesses were led and managed far more so by leaders who could be described in those seemingly pejorative terms - "aggressive," "risk taker," "bet the house" types.

So what should the entrepreneur interested in building a big business do? And what should the investor looking for executives to back look for?

Well, to quote the title of a famous self-help book from many years ago, "Feel the Fear…but Do It Anyway."

Accept that as human beings, we are wired to be afraid.

BUT to prosper in in our modern age we must step out and into the brave new world of modern possibility, opportunity, and wealth.
 
And leave fear in the hunter - gatherer caves from which it came and where it belongs.

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Why I Hate & Love Mobile Marketing


 

Mobile marketing is here, and it's here to stay.

Interestingly, I both hate and love mobile marketing.

Here's what I hate about it, and particularly, my frustrations with mobile phones:

1. I've seen families out to dinner together where 2 or more of the family members are on their mobile phones (come on, it's family time)

2. I've seen kids spending too much time texting and playing games on mobile phones, when they should be reading, playing sports, doing school work, etc.

3. Texting and driving has gotten out of control, and has made driving much more dangerous (According to AAA, 46% percent of all teenage drivers admit to text messaging while driving).

4. I've seen too many cases of mobile phones being used to entertain children so their parents can converse amongst themselves. It just concerns me that kids brought up with constant entertainment and less inter-personal communications are going to have issues later.

So, as you can see, my frustration with mobile phones is largely when they are abused. I clearly thing there's a time for them. But we (kids AND adults) need limits.

Ok, I'll get off my soapbox now, and talk about the positives of mobile phones, and specifically mobile marketing.

The fact is this: mobile marketing is highly effective and it's growing like crazy.

In fact, earlier this month, Facebook announced in its second-quarter earnings. In it, Facebook disclosed that a whopping 41 percent of its advertising revenue was generated by mobile users. This was up 11 percent from just one quarter earlier.
 
What this means to all marketers is that smartphones and tablets are becoming more and more prevalent over desktop computers as a means of accessing information (and time spent).

Here are some of the benefits I see of mobile marketing:

1. Mobile marketing is where your customers are. 80% of Americans have their mobile phones with them virtually all the time. Since your customers and prospective customers are on their mobile devices, you have a better chance reaching them there versus most other channels (e.g., telemarketing, print ads, etc.).

2. Mobile marketing incurs a very low cost. Mobile advertising is relatively inexpensive. And mobile marketing activities like sending text messages only costs pennies.

3. Some forms of mobile marketing are very intrusive and thus get seen. Text messages are highly effective. In fact, according to the CTIA Wireless Association, while it takes 90 minutes for the average person to respond to an email, it takes just 90 seconds for someone on average to respond to a text message. Likewise, most mobile ads are more intrusive, and thus more seen by customers, than ads in other media like print and web.

4. High response rates: Response rates to mobile marketing are nearly 5 times higher than response rates to print advertisements.

These benefits mean that mobile marketing should be part of every company's marketing plan. Mobile marketing allows you to reach customers quickly. Customers will get more and more used to paying you and other companies via their mobile device.

And mobile applications will continue to grow like wildfire, and are not only a way for you to stay in front of customers, but they could be a huge revenue source for your company. Note that in the first quarter of 2013 alone there was an 11 percent increase in mobile app downloads versus the entire year of 2012.

So, personally, I ask that you don't abuse mobile phones per my frustrations above. But do embrace mobile marketing as it's a must-have in your marketing plan.

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How to Find the Most Qualified People When Outsourcing


 

There are many websites, such as ODesk, Guru, and Elance, on which you can find people and firms to which you can outsource projects. Regardless of the site you choose, the key is to get the largest pool of qualified providers to apply for your project. This way, you have more people from which to choose.

Even if you only hire one, you can go back and contact the same pool of talent for future projects later. Consider applicants as being in your "rolodex" of people to contact in the future.

Below are tips to keep in mind when posting your project. In a nutshell, you want to include all of the information that an applicant needs to know, but do so succinctly.

If anything is left out, you'll have to go back and answer their questions about it later. It's always easier to clarify everything up front.

Create a Clear Project Title

Here, include the work to be performed, on what, and in what industry. For example, "Help Developing Ebook" could mean anything from research to writing to editing to cover design. Compare that to "Writing 10,000 Word Real Estate Ebook."  The latter will be more likely to catch the eye of writers with real estate knowledge.

Create a Clear Project Description

This sounds simple enough, but you should try to answer as many possible questions as you can, which means addressing certain areas, like:
 

  • The scope of the project. In the above example, wanting a 10,000-word Ebook written vs. 20,000 words would be helpful information for applicants to know. This helps them estimate the time it will take them and therefore their bid for the project. If you are paying hourly, it will help prevent misunderstandings later.

  • Software needed. Make sure they at least have Microsoft Word and Excel, if that's what you use. Other software is industry-specific, like Adobe Photoshop among graphic designers.

    You may or may not know what software is needed for things you don't specialize in, but you will soon enough. All other things equal, choose the person who already has the best software for the job, as you'll get better results.

  • Programming languages. Some website projects require that the provider knows certain programming languages besides standard html, such as PHP, AJAX, etc. In these cases, it's better to post "PHP Programmer Needed to..." than just "Programmer." You'll get fewer, but more qualified responses. If you don't know what languages are needed, either ask a friend or do a Google search beforehand, or you could post in the project that you don't know what language is needed, and ask them to make suggestions.

    Ideally, you will want to hire people who can educate you, so this sets the tone right from the beginning. I know some people who post $10 projects for 30 minutes of a programmer's time just to have their questions answered.

  • Payment amount. First, decide if you want to pay them by the hour, or for the whole project. There are pros and cons to both. If you estimate that something will take 5-8 hours, going hourly is fine. For work that will take longer than that or that has a higher likelihood of uncertainty, I would try a project-basis.

    Sometimes you can't estimate how long something will take, in this case, hire them on an hourly basis for a little while to get started and figure things out. Sometimes applicants will claim that they can't estimate how long it will take, while others can. I would go with people who are able to give you specific information as it shows they're more organized and have done something enough times to know how long it should take.

  • Payment terms. I would never pay more than 50% up front. In this case, I would pay the remaining 50% when the work is done, or have a milestone payment of 25% and 25% upon completion.

    Also, never pay someone the final payment if there is still work left to be done; you may never see your project finished.

  • Payment methods. When you outsource through third party websites, they will typically handle the payment method.  If or once you start outsourcing directly, you will have to figure out the best method for paying your contractor. In the latter, there are multiple options such as PayPal and Dwolla.


Upload samples of what you need

You can write 5 paragraphs trying to explain the final product, or you can show them something similar you have had done before (or someone else's to model yours after). The latter is typically more effective.

Most sites will allow you to upload files to show the contractor what they'll be working with or making. You can also insert links in the project description to websites, files, audios, or videos showing or explaining things more vividly.

Particularly if you are asking the person to develop a website, you must show them examples of other websites you like. If you don't, I can nearly guarantee you'll be disappointed with the results.

Choose the time period for bidding

On outsourcing websites, you are typically given options like 3 days, 5 days, 7 days, 15 days, or 30 days to accept bids. I lean towards giving a longer time period, unless the urgency of your project means that you don't have as much time to wait.

In general, the more time that providers have to find and respond to your project, the more qualified applicants from which you'll have to choose.

Also, some of the best providers are also the busiest, so by giving a longer time frame to respond you are more likely to catch them when they're available.

Follow these tips and my other key outsourcing strategies to get a qualified pool of outsourced applicants to complete your projects. These outsourcers will give  you the manpower and expertise you need to grow your business at a very economical price.

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RISK…and what to do about it


 

The four letter word in all conversations between entrepreneurs and investors is risk.

Investors are always interested in getting ownership stakes in high potential companies but are also always weary of the considerable risk-taking necessary to actually do so. 

The most successful investors and entrepreneurs I know take a dispassionate and detached approach. 

They don’t get caught up in all of the “drama” around thinking and talking about risk.

Rather, they view it for what it actually is - simply a measurement of the likelihood of a set of future outcomes.

In the context of evaluating whether or not a business will grow and be successful, risk has three main drivers:

1.  Technology Risk. Can the entrepreneur actually bring-to-market a product or service and on what timeframe?

2.    Market Risk. Once the product is in the market, will anyone care?

3.    Execution Risk. Can that entrepreneur lead and manage a growing enterprise?

Critically, this risk calculation is done not by adding, but rather by multiplying, these factors together.

As such, poor grades on any one of these factor has an exponential impact on the business' overall risk profile, and thus its overall attractiveness.

And as should be obvious, better led and better managed companies simply have better answers when queried regarding the above - their technology plans are better thought out, they understand their market and customers more deeply, and their people have better resumes and track records. 

But it goes deeper than that. 

Human beings – conservative by default - are disproportionately prejudiced against higher risk undertakings and strategies, even when their expected returns more than compensates for their higher risk.

As a result, higher risk deals are normally underpriced while the lower risk ones are usually over-priced. 

That is good knowledge for investors seeking alpha (and who isn’t?), but what about the entrepreneur?

Well, it should be to always remember that the real dialogue going through the mind of an investor when considering a deal is not really about technology, or market, or management, even when that is what they want to talk about…

No, it is almost always about risk - both its reality and its perception.

Address this concern above all others, head-on, thoughtfully, confidently, and candidly. 

And then risk will be put back where it belongs - as a factor to consider - and not something that just automatically stops a deal.

To Your Success,

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The 5 Biggest Outsourcing Blunders


 

The term "outsourcing" describes contracting out of a business process to a third-party, that is, someone or some firm outside of your core organization.

Outsourcing generally refers to ongoing processes versus one-time processes. For example, the development of your website is generally a one-time process. Conversely, the maintenance of your website is an ongoing process. However, some people consider both one-time and ongoing processes to be outsourcing when you select someone outside of your organization to complete them.

Regardless of your definition, outsourcing has many benefits, my favorite of which are these four:

1. Focus: Outsourcing allows you to focus on your core competencies and activities. For example, if you own a chain of restaurants, you generally don't have (nor should you) the skills to develop a cutting-edge website in-house.

2. Cost Savings: You can often outsource to individuals and firms in areas with lower costs of living and thus lower prices than you can attain in-house.

3. Expertise: When outsourcing to individuals and firms who specialize in a certain area, they will have expertise that you simply don't have.

4. Flexibility: Outsourcing allows you ramp up and/or ramp down more quickly than maintaining a full-time staff for all functions.

Unfortunately, when they start outsourcing, most entrepreneurs and small business owners make several mistakes. Below are the 5 most common ones to avoid.

Mistake #1: Failing to define tasks/projects clearly


If you don't clearly and comprehensively define the task or project you need fulfilled from the start, your project will inevitably fail. You might choose the wrong person for the job and/or they won't perform to your expectations if you haven't completed this crucial step.

Mistake #2: Failing to hire someone without enough experience


Nothing is worse than the blind leading the blind. When I hire someone to do something that I do not know how to do personally, they need to know how to do it. They need to educate you on their chosen skill set, not the other way around.

Your role is to describe the end result you want, ask for and listen to their suggestions, and rely on their expertise and talent to achieve it according to your description. Make sure you check their past work and references to ensure they have a track record of getting similar work completed on-time and to the satisfaction of those who've hired them.

Mistake #3: Failing to establish and abide by the timeframe

If you've ever provided services for a client in a rush, you know how stressful it can be to drop everything at the last minute and make their emergency yours. The people you outsource to are no different, and it will benefit you to plan and begin things in advance and not at the last minute.

So, map out by when you need to hire someone, when the work needs to commence, and when it must be completed. Create milestones within each of these processes, such as by when you will complete your project description, and when the contractor must complete the first draft, etc.

Mistake #4: Failing to adequately communicate

Just because you hired a great person, it doesn't mean the project will go smoothly. The key here is to effectively communicate with them.

Make sure you check-in with them and get status updates. Get them to send you drafts of their work, and then provide detailed comments regarding what you like and don't like.

The fact is that the more and more thoroughly you communicate with them, the better they will perform. This is true up to an extent of course; because if you micro-manage (or manage too aggressively) it will take up too much of your time and often aggravate the contractor.

Mistake #5: Failing to leverage talented outsourcers


Once in a while, when you outsource, you will find gems. Gems are those outsourcers who do a phenomenal job.

The key is this: once you find these gems, keep them. Give them additional projects. And if you don't have any, refer them to others you know. And keep in touch. At a minimum, email them every month or two to say hi.

In fact, I've had amazing success with just this. I hired an outsourced tech person on August 16, 2005. He did a phenomenal job. I've often kept in touch since then, and he's helped me with several projects. And even though he now has a full-time job (he's in India), he still helps me on the side a lot. And he still does a great job each time!

Knowing how to effectively outsource is a critical skill all entrepreneurs must have. It allows you to accomplish more, accomplish it with more expertise, accomplish it faster, and accomplish it with less money. These are key benefits you can't do without.

 

Suggested Resource: In today's competitive business environment, you must outsource to stay competitive. Outsource the right way using Growthink's Outsourcing Formula.

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Strategic Plans And Business Plans: 5 Key Differences


 

Over the past 15 years, I've helped over 500,000 entrepreneurs and business owners to develop their business and strategic plans.

And, as you might imagine, I've spent a lot of time discussing business plans and strategic plans internally. Enough so that among other things, I use the acronym "BP" for business plans and "SP" for strategic plans.

Now, because these terms are often used synonymously, let me explain the key difference as I see them. Business plans or BPs are plans created for the primary goal of convincing an investor or lender to fund you. Conversely, strategic plans or SPs are developed to determine and document your strategy so your company understands and can attain its objectives.

As you can see, both plans serve very different and very important purposes.

Below are the 5 key sections that a strategic plan must have that need not be included, or require much less focus, in a business plan.

1. Elevator Pitch

An elevator pitch is a brief description of your business.

It is included in your strategic plan since your elevator pitch is both important to your business' success, and should often be updated annually.

An elevator pitch got it's name because you need to be able to describe your business succinctly and within the time it takes to travel from the ground to the top floor in an elevator.

A quality elevator pitch:

  • Gets everyone in your company on the same page regarding what your business is and what the key objectives are.

  • Allows everyone in your company to give a concise and consistent explanation of your business which leads to more customers.


In a business plan, you do include your elevator pitch in the Executive Summary section to concisely explain your company to investors and lenders. In your strategic plan, it is used to ensure consensus within your organization.


2. Company Mission Statement


A mission statement explains what your business is trying to achieve.

For internal decision-making, it helps as key decisions should be made with regards to how well they help the company progress in achieving its mission.

Also, for internal (e.g., employees) audiences, the mission can inspire and get them excited to be part of what the company is doing.

While your mission statement is often also included in your business plan, investors and lenders are generally more concerned with your ability to earn them a return on investment. As such, it's not as heavily emphasized in your business plan.

Some great examples of mission statements include the following:

  • Google's mission is to organize the world's information and make it universally accessible and useful.

  • Kiva's mission is to connect people, through lending, for the sake of alleviating poverty.


3. Goal Specificity

Because your strategic plan focuses on setting your company's vision and getting your team to execute on that vision, your strategic plan must include a greater focus on your goals than your business plan.

While your business plan focuses more on your long-term goals, your strategic plan is more granular. Specifically, your strategic plan should lay out your company's 5 year goals, 1 year goals, and your upcoming quarterly and monthly goals.


4. Key Performance Indicators (KPIs)

As the name indicates, your "KPIs" or Key Performance Indicators are the metrics that judge your business' performance based on the success you'd like to succeed.

Identifying and measuring your KPIs is absolutely critical to ensuring you are effectively executing on your vision and plans. Conversely, if you don't measure your KPIs, you have no idea whether you are achieving the success you desire.

In your strategic plan, unlike in your business plan, you must identify the KPIs your business must track in order to achieve your goals.


5. Identification of Required Strengths


In your business plan, you should stress your existing strengths that make your business uniquely qualified to succeed. This helps convince investors and lenders to fund you.

Conversely, in your strategic plan, you must identify the strengths you need to develop. For example, how could you gain competitive advantage by modifying your products or services? Or by hiring and training certain personnel? Or by creating new operational systems? Etc.

By asking and answering these questions in your strategic plan, you can create a strategy for building a rock solid company that's the envy of your industry.

To summarize, the right business plan allows you to raise money to fund your business' growth. The right strategic plan gives you and your team the vision, goals and game plan to achieve this growth. Finally, using the right strategic plan template helps you create your strategic plan quickly and easily so you can start growing immediately.

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What Do Wal-Mart, McDonalds, and Starbucks have in common?


 

Wal-Mart.McDonalds. Starbucks.

What do they have in common? Well, for one, they are businesses that were not started and grown from scratch by their original founders.

Rather, they were all started by others and then bought by ambitious and talented entrepreneurs (i.e. Sam Walton, Ray Croc, and Howard Schultz) who propelled them to a new stratosphere of growth.

And while high profile, statistically they are not atypical.

Census Bureau statistics show that a purchased business is eleven times more likely to still be in business 5 years from time of purchase as compared to those started from scratch.

However, for most business owners and investors, the business “transaction” path is far too often overlooked.

The main reason is lack of know-how.

You see, the vast majority of business owners and investors have never even attempted to buy or invest in a business other than their own.

As such, they have big knowledge gaps – ranging from the strategic, such as in how to identify the right kinds of companies to target for purchase…

…to the tactical, such as in how to best review and evaluate historical and projected financial statements prepared by sellers.

And bridging these gaps can only be accomplished experientially – i.e. by actually trying to buy or invest in a business.

Please let me emphasize try because the majority of attempted business purchases and sales do not consummate.

This is just fine, however, because the attempt itself always leads to unique wisdoms being gained.
 
These include being forced to really think about the evolving industry and competitive conditions in a given market.

And to getting real as to the level of expertise, effort and resources necessary to translate a business’ potential into actual results and profits.

Now, even in those rare circumstances when a business is bought, for cash, on a "straight from the treasury" basis, the deal maker still must make a strong financial and strategic case to justify a deal’s opportunity cost.
 
Of course, for deals requiring outside capital, this case must be made that much more thoroughly.

Again, there is no substitute for experience.

Only by going through the exercise of actually building and defending a financial projections model can one acquire the knowledge base and savoir-faire to effectively deal make.

Let me close with a few words about deal advisors - management consultants, business brokers and investment bankers.

In spite of the mystique these sometimes fine folks like to maintain around themselves, when one cuts through the haze the best of them offer three critical value-adds.

First, as intermediaries, they massage and facilitate the naturally combative negotiating process of a one-off transaction that is a business purchase and sale.

Second, they act as accountability coaches.

Like other undertakings that require great proactivity - such as committing to a fitness or diet regimen - having an outside agent who is paid to keep you doing what you say you want to do has enormous and tangible value.

Now, on their own, these two value-adds are usually more than enough to justify the expense of an advisor.

It is a third value, however, that the best advisors offer that creates the really high ROI.

And that is working with an entrepreneurial and executive team to envision and articulate a business’ future value.

And then, helping to create and maintain existence structures that translate this visioning into day-to-day business reality and results.

THIS is the highest form of business work.

And the highest ROI.

So whether you decide to go it alone, or to work with a talented and ethical advisor, the business purchase and sale process is one that all serious business owners and investors should engage in regularly.

Because yes, even when a deal is NOT consummated, the return on time and investment will be VERY high.

And when a deal DOES get done then the stars align…

…well it is THE fastest and most predictable path to business wealth and success known to humankind.

Just ask Sam Walton, Ray Croc, and Howard Schultz if you have any doubt about that.

To Your Success,

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10 Real Profiles of Angel Investors


 

There are hundreds of thousands of individual or "angel" investors in the United States (and many more throughout the world). This is many, many times greater than the mere 6,000 members of angel investor groups.

And here's the key: the vast majority of these individual investors are what I call "latent angel investors." That is, they have the interest and ability to make an angel investment. But they don't actively seek to make angel investments.

Basically, you have to find them and pitch them, since they aren't actively seeking entrepreneurs to fund. And in most cases, they've never before invested in a private company.

So, who are these "latent angel investors?" The short answer is that they are people with money. I sat down this morning and wrote brief profiles of some the angel investors that have funded some of Growthink's clients. Here they are (I changed the people's names for privacy reasons).

1. Roger is a lawyer.

2. Alan is an executive at a large consulting firm.

3. Bill is the COO of the US branch of a multi-national corporation.

4. Allison is a restaurant owner.

5. Randy owns a small consulting firm.

6. Catherine is an executive at a large financial services company.

7. Robert used to run his own business and is now retired. He does some consulting on the side.

8. Victor is from Europe. He attended business school in the United States. He now has business ventures throughout the world including one in the United States.

9. Josh is a super successful entrepreneur in his early thirties. He had a lot of success in his first venture, and continues to launch new companies.

10. Richard is a retired executive from a Fortune 500 company.

Here's some additional info: All but two of these angel investors are between the ages of forty and sixty five. All but three of them live within 20 miles of the companies they funded. And of the three, two live within an hour's flight or 3 hour drive.

The key lesson here is this: potential angel investors are all around you. They are current and retired doctors, lawyers, executives, business owners and otherwise successful people with money (interestingly, none of my current clients have doctors as investors that I know of; although doctors are very common angel investors).

Yes, there are specific ways to contact and present your venture to these investors that I explain in my Angel Investor Formula, but the key is to network, network, network. Don't be shy. Rather, start telling people about your venture and get referrals to people with money that could invest in your company.

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5 Rookie Business Plan Mistakes to Avoid


 

When developing their business plans for investors and lenders, there are lots of mistakes that entrepreneurs make. Here are the 5 biggest:

1. Forgetting that Your Business Plan is a Marketing Document


On of the key goals of your business plan is to convince lenders and/or investors to fund you. As a result, you need to think of your business plan as a marketing document.

In brief, think of your business plan as a brochure versus a product manual. A brochure gives high level features and benefits and gets people excited. Conversely, a product manual provides tons of details (which are often boring) and is generally hard to read.

Use your brochure/business plan to excite the reader so they agree to meet with you. During the meeting, you can provide additional details they want to know.

2. Failing to Prove Your Case


The second common business plan mistake is not adequately proving your case. Just like a lawyer has to prove his or her case, your business plan should prove the case as to why an investor or lender should fund you. There are two key ways to do this.

First, show why you are uniquely qualified to succeed in your business. For example, maybe you and/or your management team have unique expertise and experience. Or you have a unique and patented product. Or maybe you are first to market. Or maybe you have already secured critical strategic partnerships. Identify these key reasons and include them in your plan.

Second, include market research that proves your ability to succeed. For example, show how big your market is. Show how market trends support (or at least don't hurt) your business' success prospects. Detail who your customers are and their needs. And show you understand who your competitors are and their strengths and weaknesses.

3. Not Clearly Describing Your Business at the Start


Too many business plans fail to clearly describe the business at the very beginning of the plan. This is a critical mistake, because if readers are confused after the first paragraph, they often won't continue reading.

So, rather than starting your plan with a long story, start by clearly describing what your business does so readers "get it." Then, you can explain why it will succeed, the origins of your idea, etc.

4. Using Lots of Superlatives

Using too many superlatives turns off most investors and readers, and when unsubstantiated, hurts your credibility.

Specifically, avoid superlatives like "best," "greatest," "most powerful," etc., unless you can back them up. For example, saying that you have the "best management team" will turn off many investors.

Rather, you should say something like, "our management team has the experience, skills and track record to successfully execute on our plan. Among other things, our management team has [and then list the credentials of your team]."

5. Trying to Answer Every Question

The final mistake that most entrepreneurs make in their business plans is trying to answer every question in them. The solution, rather, is to answer the key questions, but not all the questions.

Similar to the above mention of how your business plan should be like a brochure, your plan should not answer every conceivable question readers might pose.

Rather, answer the big questions that will get readers excited about your venture, proves you really understand it, and influences them to invest more time meeting with you to discuss further.

During the meeting you'll have the opportunity to fill in the details, which are often different for each potential funding source.

Avoid these five mistakes in developing your business plan and you will have much more success completing your plan and using it to positively influence funding sources.

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5 Situations That Kill Businesses and How to Avoid Them


 

Every successful business requires a lot of planning.  From market research to internal corporate structure, the planning stages of starting and growing a business can be quite extensive.  While this preparation is a key factor in the success of any company, there are a few things which far too many business owners neglect.  Planning for success and growth is important, but smart businesses are also prepared for the worst case scenario.

Situation #1: Disability

No matter what a business may do, if it has employees then it needs to consider disability insurance.  Accidents happen every day and they are not restricted to those jobs which would traditionally be considered dangerous.  Even in an office environment, for example, there is a potential for an employee to be injured (perhaps outside of their work activities).

When an employee is injured while on the job, the company may be personally liable for medical bills and worker's compensation payments.  This is why disability insurance is so vital.  If something like this should happen, the insurance will cover any bills and fees for which the company will be responsible.

In addition to insurance, a smart business owner will spend time on succession planning.  There is no telling who might be injured and it is entirely possible that this person is the business owner. 

What will you do if you cannot run your business - temporarily or longer term?  Do you have the right disability coverage to protect your income?  Do you have people who are trained and familiar with different parts of the business so they can be called upon to pick up where you left off?

Situation #2: Natural Disasters


One thing which can rarely be predicted is a natural disaster.  Regardless of where a business is located, there is the possibility of one natural disaster or another.  Whether it is earthquakes, floods, fires or tornados, these disasters can literally destroy a company.

This is why disaster insurance is so important.  It may seem unnecessary to pay for insurance for something which might never happen but, when it does, this insurance will be the difference between a temporary setback and total destruction.  Smart business owners need to know what types of disasters are possible and find insurance which covers them completely.

No, this article is not about promoting insurance. It's about making sure you have the protection you need to keep your business operating and your income flowing. 

While disaster insurance will help cover the financial aspect of such a catastrophe, contingency planning is equally as important.  Rebuilding a business can take months and work should not stop during that time.  A good business owner will have a contingency plan set up which allows the company to continue, even if an entire physical location was lost. 

When reasonable for the business model, redundant operations, back-up equipment, data back-up, and/or employees/contractors in other geographical areas are critical components to recovering from and/or minimizing the impact of a natural disaster.   

Situation #3: One Revenue Stream

One of the biggest mistakes many businesses make is relying too heavily on one customer or revenue stream.  Most companies will work with different clients and customers, but may rely on one specific client for the majority of their revenue.  The problem here is that the loss of this client can mean a sudden loss of the majority of a company's revenue.

Just as anything can happen to a business, the same can happen to clients and customers.  Relying too heavily on one specific source of revenue is a recipe for disaster.  Smart business owners will focus on diversifying their revenue sources and creating a situation where the loss of any one source only represents a small loss of overall income.

If you don't have the resources to handle more clients, create a client back-up plan.  What accounts or work-streams can you quickly put into action if you lose your main client? If diversifying pushes to outside of your production capacity, always have other work lined up to fill any vacuums.

Landing a big client may make you feel like you can take a break from marketing and customer acquisition.  But beware of this false sense of security.  Every day, dozens of businesses, from small to multi-national corporations, close their doors because they lost their main account.  Remember the old adage; don't put all your eggs in one basket.

Situation #4: Data Loss


We live in the information age and nearly every business relies heavily on stored data.  This can include, among others, payroll records, inventory systems, emails, documents, and even client contact information.  This data can be so important to the success of a company that the loss of it can be just as damaging as any natural disaster.  With technology constantly changing, this sort of data loss is a very real possibility.

Smart business owners plan for this problem.  Much of the stored information will be confidential and having it fall into the wrong hands can have far reaching consequences.  It can open a business to lawsuits from clients and make your business liable for paying damages to hundreds if not thousands of clients.

A business's data and information needs to be protected through proper security measures and backed up in multiple ways.  There are many online options from Google to specialty companies that can do this for you.  If you are in a regulated industry such as healthcare or real estate, you have a legal obligation to store documents in a specific way for certain number of years. 

Situation #5: Regulatory Changes

Speaking of regulations, most businesses have to follow certain laws and compliance guidelines.  These can govern nearly any aspect of what a business does.  The problem is that many of these regulations can change over time.  These changes can be unavoidable and are often unexpected.  As new politicians are voted into office and the economic climate changes, the rules for doing business will also change.

Smart business owners will familiarize themselves with the laws and regulations related to their business.  What many of them fail to do, however, is plan for changes in these regulations.  A business that refuses to be dynamic and able to adapt to such changes is one which is precariously close to disaster.

For example, in 2011 there were far reaching changes made by the FCC that drastically affected how a telemarketer could get access to calling lists and contact consumers.  Businesses that didn't adapt in time where shut down by the FCC.  Only those businesses that made sure their business model could survive the new operational restrictions survived to dial another number.

How to Protect Your Business

Planning for negative possibilities can be stressful.  And it is impossible to predict all of the threats facing any business.  Fortunately, there are a few simple steps any business owner can take to protect themselves from these problems.

Take the time to review your business model and assess your risk in these 5 categories.  Then start by mitigating your biggest risk.  Work your way down the list so that within 90 days, you are completely protected. 

  1. You need a plan to cover the potential loss of any vital employee, including yourself! Create and document systems that allow the business to run without current employees.  Insurance should also be purchased to cover the company in the event of an accident or injury, and a firm succession plan should be updated every six months.

  2. Business owners need to be familiar with any potential natural disaster in the area in which they have assets such as offices or warehouses.  Storm-proof your business as much as possible.  Create a business continuity plan (example: can employees work from home while the office is restored?).  Finally, get adequate insurance to protect your assets and income.

  3. Revenue sources need to be analyzed.  Clients and customers need to be diversified to help mitigate the trouble associated with losing any one of them.  If there is only one main source of revenue, its time put a client acquisition plan into action.  If you can't handle any more clients right now, have other sources of work lined up at all times.

  4. All data should be backed up on a secure server which, if possible, is located off site.  These days cloud storage makes backing up data easy and affordable.  Information such as contracts and other legal documents should be printed out and stored in a secure location.  Schedule a day each month or each week to back up all new data.  Start this immediately.

  5. Smart business owners need to keep an eye on the current state of laws and regulations relating to their business.  Make sure you have the systems in place to keep your business operational.  If you are not sure how things affect you, contact an attorney with expertise in your industry.  A consultation is a lot cheaper than losing your business.


These are relatively simple steps which any business owner can take.  While there may be no way to predict the future, proper planning can help turn a major problem into a minor inconvenience. 

You have the power to protect your business and your income.  Not only will these steps help protect your business; they will help you sleep a little more soundly.

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