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Written by Pete Kennedy on Wednesday, September 3, 2008
During the process of growing a business, entrepreneurs, business owners and managers are often faced with the question of whether to bring in an outside business business planning consultant. This can be an especially challenging decision for entrepreneurs, who are by definition independent and self-reliant. However, it’s important to recognize that even the most talented businesspeople can benefit from the support and guidance of an experienced consultant (or consulting firm).
What are other reasons why you have hired an outside consultant? What advice would you give regarding the pitfalls and benefits of hiring a consultant?
Written by Andrew Bordeaux on Wednesday, August 13, 2008
Earlier this month, Walt Disney Co. made an interesting decision regarding their theme park pricing strategy. Faced with slowing sales growth at home in the US, the company decided to raise the price of one-day admission at its largest resort by more than five percent.
While price is an important factor in purchasing decisions, the vast majority of people don't buy based on price alone. They buy based on value. However, a larger percentage of consumers will buy based on price alone, in the absence of any other value indicators. The key is to effectively communicate your value.
When you start to feel the squeeze of a slowing quarter, don't be afraid to go against the initial instinct that many have to drop prices right away. Sometimes, boosting your price can be just the tool you need to get you over the hump and get back to making money.
Written by Andrew Bordeaux on Wednesday, August 6, 2008
By now, most entrepreneurs have heard the old saying, "Businesses don't fail -- they just run out of money." While that saying often holds the most salience for fledgling ventures, it can and does apply to most small businesses and growing companies as well. The steps you take to deftly allocate your company's capital today can help ensure that you'll still have that company six months, six years, or six decades down the line.
The New York Times and AllBusiness recently provided a list of tips for the best ways to manage cash flow. Most of the solutions that suggest frugality and thriftiness are somewhat intuitive -- limiting spending, avoiding wastefulness, keeping your inventory at practical levels and, for the austerity-minded, foregoing a salary. The most compelling suggestions on the list, however, are those rooted in strategic planning.
A strategic assessment of your business and some clever maneuvering can put your company in line to truly maximize each dollar. Crafting financial projections that anticipate your expenses and revenues for the next 12 months can help you determine if and when you'll need more capital. The formation of contingency plans that account for the worst case scenarios can prepare you for the unexpected.
One mistake many business owners make is purchasing equipment when it can be leased instead. While a cursory look at leasing vs. buying will reveal that leasing is usually more expensive over time, the leasing process prevents you from needing to shell out large sums of upfront capital, which then frees that capital to be allocated towards other important areas.
Lastly, effective cash flow management entails knowing what areas require patience, and which need to be expedited. When it comes to bringing on new employees, try to wait as long as you can. As permanent hires are a serious commitment of resources, it's recommended that you first strive to increase current employee productivity, investigate independent contractors, or even outsource some of the less essential aspects of your enterprise. On the other hand, when it comes to receiving customer payments, it behooves you to make these exchanges happen as soon as possible. Incentivize or reward early/timely payments, and don't shy away from penalizing late payments.
Written by Andrew Bordeaux on Wednesday, July 30, 2008
As individuals and businesses alike struggle to deal with a wayward economy, one of the first things we can do is look outward for tools and techniques to help weather the worst of the storm. Fast Company founder Bill Taylor recently examined three companies that seem impervious to market fluctuations and the economic turmoil faced by their respective competitors, and the lessons we can draw from their successes.
Written by Andrew Bordeaux on Wednesday, July 16, 2008
Imagine you are at a job interview. Right before the interviewer offers you a position he states, "Unfortunately, I cannot tell you the details of our project. You will have the opportunity to make mistakes and struggle, but eventually we may do something that we'll remember the rest of our lives." Would you eagerly jump at this project or would you stand up and walk out?
Written by Andrew Bordeaux on Wednesday, July 9, 2008
Before the ink has dried on newspapers reporting the impending close of 600 Starbucks locations nationwide, news has surfaced that clothing retailer Steve & Barry's is preparing to file for bankruptcy. For many years, both the coffee giant and the clothing chain have been two of the most-discussed, high-growth companies. So what has gone wrong?
Written by Andrew Bordeaux on Wednesday, June 18, 2008
Imagine reaching all of the goals you’ve set out to achieve within the confines of a four-day work week. Sounds pretty nice, doesn’t it? Now imagine hiring significantly fewer employees than your competitors and developing products that are dramatically scaled back in comparison to what those same competitors are building down the street….and then watching your venture reach milestone after promising milestone! That’s a reality for Jason Fried and David Heinemeier Hansson, the entrepreneurs behind the company 37Signals.
With an iconoclastic view of what is needed to succeed in the fast-paced, whiz-bang world of web-based product development, 37Signals takes the old mantra “less is more” to a new level. In a recent interview with Bill Taylor, the founders shared their view that “less is less- because more is not better!” Their approach, which focuses on solving only the problem at hand by avoiding superfluous add-ons and unnecessary tweaks has not only resonated with their customers, but has created a large number of 37Signals evangelists.
Jason and David, while they are best known for their project-management software Basecamp and contact-management software Highrise, have also authored a book on the subject of success through simplicity, titled Getting Real. Inside, they tell entrepreneurs to add only the ingredients of the utmost importance when it comes to staffing, operations, and product development. They also passionately implore business owners to resist the urge to scale up, just because the opportunity to do so presents itself.
Though 37Signals is known for its frugality and prowess in the world of programming, there are strategic lessons for businesses of all types here; whether it’s scaling back the development of unessential functionality for your Web 2.0 company or modifying the operations at your coffee shop so that you don’t need to hire that extra barista. What can you do to simplify your business?
Written by Pete Kennedy on Wednesday, June 11, 2008
As every entrepreneur knows, a great business plan is essential for effectively launching a business. As the business grows, an effective strategic plan is required to successfully reach the business’s full potential.
But what about planning your exit strategy?
Far too many business owners do not realize that careful strategic planning to sell your business is just as important as planning to launch and grow your business.
In addition to an independent lifestyle and personal fulfillment, a successful exit is the primary motivator for business ownership and entrepreneurship.
(Not to mention that a successful exit tends to improve one’s lifestyle and personal fulfillment...)
Because acquisition is the most common exit for an entrepreneur / business owner, here are some tips to better prepare you to sell your business.
Many business owners wait until the last minute to try and sell their business. They wait until the business is stagnating, or they are exhausted with running the business. In fact, the best time to sell is when business is booming.
If you are in too much of a hurry to sell, you will probably leave a lot of money on the table. Buyers – especially sophisticated larger corporations – will likely sense your urgency and will take advantage of it in the negotiation period.
It’s a good idea to begin preparing 2-4 years BEFORE the sale. It’s much more expensive and time-consuming to rush and prepare all of the necessary financial and other information in a few months than it is to consistently record and compile records over a period of years. This record-keeping is also important for your business’s growth, since it provides more perspective on your company’s performance.
Make sure that you have been keeping accurate financial records and that your assets are ready for sale. This includes both tangible assets such as equipment and inventory, as well as intangible assets such as contracts, leases, patents, trademarks, etc. Make sure that everything is assignable to the buyer and be prepared for extensive due diligence.
A buyer’s motivations are often different than the typical business owner’s. While the entrepreneurial business owner may get excited about innovation and creative strategies, the buyer cares much more about the potential for stable revenue streams and growth potential. Take time to understand your potential buyer’s point of view, interests, and motivations.
The buyer wants to buy a business – not you or your job. From the buyer’s perspective, it’s better if the current owner is not important to the success of the business. Therefore, in planning for the sale of your business, you should begin training your management team to take over critical business functions. If all of the key decisions revolve around you (the owner), then the value of the company will be limited without the owner – and therefore, the business is less attractive to a buyer.
When starting the sales process, you must keep a laser-sharp focus on your business’s operations. It’s important that you do not get too wrapped up in either the sales process or in the romance of any particular sale offer. As difficult as this is, it’s best to act as if any deal can fall through, even if you are in the final negotiation period, because any deal can come unraveled at the last moment. Keep your focus on growing your business until the check has cleared and is in the bank.
In addition, you should do your best to keep the sales process confidential so that you do not endanger relationships with any key clients, employees, or partners whose departure could threaten a transaction or the operations of your business.
If you are a business owner seeking to sell your business, you can benefit from outside advice and assistance. As the old saying goes, “The attorney who represents himself has a fool for a client.” The same applies for a business owner selling without an advisor. Your advisor will provide you with guidance regarding valuation, due diligence, and the marketing of your business opportunity. Without a competent advisor, you decrease your chances of selling your business at its maximum price.
If you have invested a lot of time and energy into the search, negotiation, and due diligence phases, you may be reluctant to reject any deal that comes across the table. However, just because you have a deal in front of you, you do not have to take it. If the price is not attractive or if the deal is not right for another reason – and it cannot be mended – you may be wise to walk away and consider the next opportunity.
Sometimes, during the process of preparing their business for sale, business owners will find themselves at the helm of a much more profitable, attractive business. If you have a profitable business, keep in mind that you have other options at your disposable. In addition to selling your business, you can continue to grow organically, raise growth capital, and/or explore strategic partnerships.
It’s important to continually evaluate your options throughout all phases of business growth to ensure that you are making the best decisions for the long term.
Founded in 1999, Growthink is a leading middle market investment bank. Our professional investment bankers have assisted clients in raising more than $1 billion in growth financing, as well as advising on mergers and acquisitions transactions.
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Written by Andrew Bordeaux on Wednesday, May 28, 2008
There is an age-old dilemma out there, which all entrepreneurs will come across at some point in their career: To be, or not to be... the CEO, that is the question!
When envisioning the ideal CEO, undoubtedly many images come to mind: A charismatic persuader, a visionary, a multi-tasker, a passionate leader. The real world expectations of a CEO can be so varied and so all-encompassing, that it can be a daunting hat to consider.
Some entrepreneurs tackle this issue with the notion that they are obligated to lead their company from the CEO chair, while others will avoid the title at any cost. These stances are seldom the result of any actual measure of their own abilities, but rather from pre-conceived notions of what is expected of a Chief Executive Officer, and what skills they assume are needed to effectively assume the role.
To add a dose of empirical data to the conversation, venture capitalist Seth Levine has released a rubric that he and his colleagues use when evaluating a CEO. Now that we know what the VCs use when sizing up leaders, it might not be such a bad idea to go through this rubric yourself and see how you'd stack up.
As you can see, the criteria for a great CEO (at least in the eyes of these Venture Capitalists) aren't as elusive as many people think. If you've got these skills, you're in good shape. If not, it might be time to start the CEO hiring process.
Written by Pete Kennedy on Wednesday, April 2, 2008
Over the last thirty years, baseball statistician Bill James has revolutionized the way that players, managers and fans think about statistics in baseball. By carefully analyzing statistics, James has dispelled numerous myths and has shifted the Boston Red Sox management’s decision-making process from one based on intuition and “gut” to a rigorously fact-based approach.
What has been the result? After decades of loss and heartbreak, the Red Sox have won two World Series Championships in the past 5 years.
Bill James’ analyses have dispelled many myths and have helped both the Red Sox and much of the industry focus on proven measures of performance. For example, James was a leading force in emphasizing the significance of on-base percentage over a player’s batting average. On-base percentage, James argues, is a more significant statistic, since batting average fails to account for bases gained from walks.
Regarding batting strategy, James says that the order of the line-up is inconsequential to overall performance, and that the concept of a “clutch” hitter is nonsense.
On the subject of a player’s lifetime performance, James concluded that the “prime” years of a baseball player’s career are his mid-late 20s. The Red Sox took James’ recommendations into account when deciding against re-signing star player Johnny Damon.
Regarding pitching strategy, James argues that “closers” – pitchers traditionally brought in during the final inning(s) of a game – should instead enter at critical moments when a team’s lead is at stake (e.g. perhaps in the 6th inning), rather than waiting longer.
What does all of this have to do with business building and entrepreneurship?
James makes a compelling case that all businesses – not just professional baseball teams – can benefit from careful statistical analysis. Such analysis can dispel unfounded theories, identify significant measures of performance, and illuminate creative, counter-intuitive strategies to bolster a business’ competitive advantage.
James’ fact-based analytical approach is especially valuable for emerging companies who are competing against larger, more established businesses.
If Bill James were to analyze your industry or your business operations, what myths would he dispel? What performance benchmarks would he stress? What strategies would he recommend?