How to do Business

Well here we are – the last excerpt from 20 business stories.

One thing I have learned is that you should START with the exit strategy. Because it determines how you set the thing up in the first place. 2 of the people that small business owners read a lot are Michael Gerber of the E-Myth and Robert Kiyosaki aka Rich Dad. However in all the wishful thinking and dreaming the core messages get lost.

Gerber’s is that you should be building a sausage machine to deliver whatever it is you want to produce. Work on the business not in it means that you need to build systems. This is not to everyone’s taste but as I’ve said before – if you haven’t got someone on board at senior level who likes doing this – you’re going nowhere. Kiyosaki’s main insight is that you grow by getting enough capital gains under your belt to buy an income stream.

Businesses are income streams – so if you want to be successful you need to think about what you’re doing in those terms. Just to remind us here is a diagram we looked at earlier. Businesses produce income which after you’ve taken off the expenses give you profits you can spend or invest.

So if you want to sell your business on or get additional investors you will need to get it into a condition where it is a self running income stream. We talked about how to track the growth of value in the business earlier on. However where you go with it depends on what you want do with it.

Basically do you want a capital gain or do you want a pension?

When we set this business current business up, our view was that we wanted to set up a system that we could carry on running indefinitely as we get older and feebler. We called it pro-tirement. We arranged our affairs so that we had some money in the stock market, some property, a business to sell and a business to hang on to for the pension.

In our 6^th year it looks slightly different. The expansion of http://www.plants4presents.co.uk has meant that not only have we acquired a 2 acre glass nursery (currently growing organic veg) but our daughter and my sister are now shareholders and members of the board. Getting the bank loan to buy the place was as dependent on us having a strong team with continuity as it was with the figures in the plan. So indenturing the kids turns out to be an additional exit strategy to add to the others.

Along the way we bought a business that  sells biological controls (ladybird larvae to eat aphids and nematodes to eat slugs) mail order. We were offered it by one of our suppliers and after a bit of haggling we acquired it for 3 times the net annual profit – a fairly widespread rule of thumb for buying or selling businesses.

So if you want to sell your business for cash – you need to demonstrate it’s sustainably profitable. Chances you will have to earn out – continue working for some time – 6 months to 2 years is usual – to ensure you haven’t left any nasty surprises in the woodwork.

Just remember businesses have a finite life-span – taking the money when it’s offered may give you the chance to move on. I had some-one interested in Ai Systems once – but I knew better and ignored it. A real entrepreneur will always be looking for opportunities to cash out.

Finally if you are seriously going for growth you can take the business public. This will however eat a lot of your life and probably involve 2 or 3 rounds of venture finance. It can’t be done organically. However once you get into the swing of it it’s possible to make serious money.

There is no right or wrong. It depends on who you are, your attitude to money, security and status and what you value in life.

It also depends on where you are in your life. As a couple around 60 with our kids through University our attitudes to what we want to do are different from someone of 40 with kids they need to put through private education. We can afford to be more experimental in our approach.

The joy of business is you can use it as a vehicle to live your life on your own terms. Sometimes of course you may have to work harder than you planned. And it may not work – the customers might not want what you have to offer.

But as long as you stay afloat you can always start again next week and have another crack at getting it right – or at least fine tune the model.

I’ve been exploring some new ways of telling our story over the last couple of months. The most impactful has probably been the use of Music to illustrate some marketing issues that was carried out for the Brand Network this week. The video was shot with a standard sony camcorder and then edited in Windows movie maker which comes with most PCs these days. It was rendered in Camtasia which gives a lot of flexiblity in the output format whether you need to get it into 10 minutes to fit on YouTube or the 500 Mb limit that Viddler imposes on you. Here’s the 10 minutes in which we were discussing what the evolution of the Stones can teach us about personal branding.

The editing was a piece of cake compared to learning to sing and play the piano at the same time

The other approach is useful for giving a quick context for complex ideas. I had wanted to get the ideas in “Just 12 Hours” to a wider audience so I came up with the idea of doing the workshop as 90 tweets. However they are a little bald and needed some context. So what I did was use I-Mindmap from Tony Buzan to create a context for a group of tweets. This will output the mindmap as a Powerpoint slide that builds as you click through. I then used Camtasia as means of putting on the voice and the talking head – it sits inside PowerPoint and uses the webcam in the laptop to do the video insert. The editing capabilities are pretty powerful too – I’ve only scratched the surface to create this one.

I’m intending to use these tools on a couple of new projects which we’ll be running in the winter – so I’ll let you know how we get on.

In the “Paradox of Choice“, Barry Schwartz describes research that clearly demonstrates that too much choice is counterproductive if you are trying to get someone to buy something.

Our nervous systems evolved to make binary choices – stay or go – fight or flight – do or not do (there is no try).

We can (if we have to) get the scientific method out of the cupboard and make a rational choice – but we won’t thank you for it. We’ll put off the decision if you force us into rational mode – and if we do decide – then the buyer’s remorse will be terrible. So don’t make us think.

That’s why copywriters through the ages focus on getting us to stay with the gut and create something that feels familiar and innocently enticing if they want us to buy.

Schwartz quotes some evidence from a project carried out on people buying Sony and Aiwa sound systems. It turns out that if you make

• I good offer – 66% of the sample bought
  2 alternative good offers – 53% bought
  1 good and 1 unattractive offer – 73% bought

So provide an offer and a benchmark. This could be a highly priced all inclusive offer as well as the one you actually want them to buy.
If you provide someone with an all inclusive bundle and then offer them a reduction for each item they take out, you’ll do better than if you offer a base price + supplementary prices for add-ins. Because psychologically the pain of giving something up is greater than the gain of adding something to a basic specification

He concludes that people want to have choices made easy for them.
Complexity forces them to trade off which makes them put off deciding.
Conflict reduces mental well-being and so reduces decisiveness.

Schwartz also describes some interesting findings about HOW people choose. They’ll forgo an uncertain large gain in favour of a certain small gain and conversely they’ll risk a complete disaster that’s not certain to avoid a small reverse that will certainly happen.

One other factor that’s counter intuitive is that people also buy to avoid post purchase regret. Some people – Schwartz calls them Maximisers – spend a long time to make sure that they get the best possible available deal. Others labelled Satisficers, are more relaxed.
If you believe that you are writing for Maximisers then you will need to try and make the offer appear the obvious, safe and logical choice. All the research points to the view that decisions taken by gut feeling lead to less buyer’s remorse than decisions taken with a great degree of analytic input.

So if you are dealing with people who need evidence, present it so that the case is unanswerable. And bear in mind how they’ll react if the don’t get what they think you offered them.

I think this book is well worth a read so check it out – it’s currently about £5.99 on Amazon. This article is taken from my latest book – Just 12 Hours.

Alan

Whenever we’ve been putting up the money we’ve bootstrapped. In our second business I spent 6 months on the phone cold calling and managed to get enough orders to finance an office manager and the first salesman. Once it was rolling it was a nice little business that lasted 10 years. This is not to say that we didn’t use overdraft facilities nor that we didn’t use our suppliers to fund it.

Basically I used to ask for cheque on installation (we were selling CAD systems) and expect to get paid in 15 days and I would take 45 days credit instead of the 30 we were supposed to have. That meant I had 70%+VAT of a month’s turnover (usually around £50-60k) of other people’s money in the bank to fund the business.

However if we had wanted to expand seriously I would have had to raise some more money (I didn’t know that then – I still believed in continuous organic growth.) That would have meant an angel.

Angels are generally good for a couple of hundred thousand and they will see you through the development phase until the point at which you are ready to go through the full scalability transition to dominate a small global niche. This is going to need the full VC treatment to pay for that expandable IT system and all that marketing. They’ll be looking for a proven business model and a strong team.

Angels are more flexible. But as it says on the diagram in the previous post, they have a maximum amount of money to lend while a VC has a minimum amount that they’ll commit to. As the old saying goes it’s easier to get £250k than £25k.

Anyway back to our angelic experiences.  Uncle Zak was mustard in some ways. We used to call him dealmaker pro. He was really good at trying to get 4 major players to fund his schemes by telling them that the other 3 were in the running. I’ve known him raise £40k like that. But being a corporate lifer he had no real idea of what running a small business was about. Ruthless control of costs is easy to say but needs an attention span greater than you have if you’re in hot pursuit of the next deal.

Don’t get me wrong – I enjoyed working with him and liked him as a man. But 25 years of running businesses leads to a hard dry wisdom. And angels want their money back. We had some great times and did some great work but in the end he took too much money out chasing pet projects. (Been there too – we used to have pretensions to be software developers once upon a time) and he ended up merging us with some corporate weasels who I didn’t really like very much.

So we jumped ship after about 6 months to set up our current business which has been funded from retained profits except for the bank loan to buy the nursery. As you can see, banks have their uses – but don’t expect them to understand your business or advise you.

Business plans are about people and proven business models. In our current business we’ve managed to meet the targets that we gave to the bank – which were less than we expected to hit. You need some wriggle room after all. That’s what you need to be able to come up with if you are going to get serious players to part with their money. However friends fools and family are often more forgiving.

So start with them.

Don’t unless you’re desperate, max out your credit cards and I would say that Rich Dad’s advice to always pay yourself first is good advice. It forces you to go out and earn to pay the others. Otherwise you become used to genteel poverty. Which is not what you signed up for – I hope.

And so, at last, we come back to finance. Business link research has always shown that access to finance comes after Sales and Marketing and regulatory compliance in the concerns of small businesses. Everything else comes nowhere.

So where do we get our money from. Do we bootstrap and max out our credit cards, do we borrow from family and friends. Do we find an angel, do we go to venture, do we hit the bank?

The answer as always depends on where you are, what you are trying to do and where do you want to go.

If you are setting up as a consultant, your needs are different from that of an inventor who’s got a revolutionary idea for a consumer product. (Most are going to get nowhere but occasionally you get James Dyson)

We’ve done 4 business start-ups to date.

The first one we each put in £3k but we relied on our business partner who had £20k in the bank (this was 1981)

The second one we had 2 second hand computers, a mailing list and the clothes we stood up in. (What does that tell you?)

The third was a management buy-out from a government project funded by an Angel – let’s call him Uncle Zak (not his real name). I was demoted from entrepreneur to Guru on account of my great age and wisdom which is why I’m writing this now.

The fourth time we walked out after an uncongenial merger and did another cold start. Although we were reasonably well off by then. We’re now in our 5^th year of trading with a turnover of half a million.

Fundamentally you have to establish where you are in the overall scheme of things and whether you are running a 1 man band, a life style business or a growth business bent on dominating some global niche. One of the luminaries on Ecademy set up a club dealing with global finance. This diagram was developed to encapsulate what I learned from there and to summarise the overall process. 

This tells us that there are several stages in getting finance. First of all you need to establish that you have got a business model that is going to work. If you just want a life-style business that earns a nice little profit employing up to about 10 people then Friends, fools and family will do nicely. If you are looking to try an invention this is where you should be looking. VC’s won’t touch you. They are only interested in funding things that they know are going to work. That’s why they are entrepreneurs.

There’s a lot of nonsense talked about entrepreneurs and risk. Actually you try and minimise the risk – don’t bet serious money until you know it’s likely to work and try and get an unfair advantage. Our unfair advantage in the current business is that my business partner was able to write the e-commerce engine herself – she’d been writing database apps for 25 years by then with about 8 years experience of putting them inside browsers. It saved us a really risky bet of about £30k on an unproven business model since all that was at stake was her time.

Next time I’ll talk a bit about Angels – and our experiences with them.

Our recent research project tells us that small business owners typically spend 12 hours a week promoting their company.

That’s all you’ve got to cover face to face sales and networking, conventional marketing and whatever you choose to do online – whether using Google ad-words, making use of social media or dipping your toe into the ocean that is twitter.

How should you spend your time? Our current research tells us that lead generation is the number one concern of the small business owner.  In this strange 21st century we don’t have time to prospect the way we did in the ’80s. Back then we did a lot of exhibitions, paper newsletters and cold calling on the phone.  We know that people don’t do that now – for example, only 14% of our sample uses telemarketing in any systematic way.

We found that most companies rely on networking for referrals and introductions. They also use workshops, PR and online advertising too but the focus is on face to face networking and social media..

We compared companies with local businesses (80% of their orders come within a 50 mile radius) and global/national ones – and checked whether the business is scalable or not.  A mail-order plants business is scalable since we can source more product if if we have more demand while a local organic vegetable business whose produce depends on its certification is not scalable.. The limiting factor is production because once the produce is sold – it sold. These businesses need different marketing strategies..

It turns out that the difference is local vs national business. For a local business networking locally will provide the leads you need. For a national business you need the extra reach and randomness that online working gives you.  Twice as many national businesses used linked in and twitter as did local businesses. (42% vs 18% for linked-in).

And the same rules for building trust apply online and offline.
•    Be clear about what you do
•    Do what you say you will
•    Be easy to work with
•    Get back to people quickly

If you need help developing a strategic plan, are wondering about how to tell your story better and how to construct an effective marketing mix we have some new products to help you as well as plain old consultancy.

“12 hours a Week”  workshop

Based on our research findings this 3 hour workshop helps you work out the right balance between face to face and online networking and conventional marketing for your business. Includes new 80 page workbook and BrainMap tool. Arora Hotel Gatwick   17th July £85+VAT . You can book here.
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I’ve been working quite hard on some new materials over the last month or so. A new web copywriting course and a workshop on how to support groups using social media.

However what’s been my real focus is a marketing workshop based on the findings of the last research project. This threw up some really interesting findings about under what circumstances it makes sense to use online media instead of focusing on face to face networking.

The survey itself revealed that the average small business owner spends 12 hours a week on promotion – sales, networking, online activity, conventional marketing. Everything you do has to fit into that envelope – so what to do?

Are you better off focusing on your local BNI branch and getting to know really well the 20-30 individuals who you hope will refer you the business that you need – or are you better off focusing on building an internet presence which will randomly connect you to people all over the world? Or a bit of each?

The last bit of analysis we did suggested that your strategy is going to depend on whether your business is local and whether it is scalable. We ended up by dividing our responders according to those criteria and this is the pattern we found.

It turns out that the strategy to follow very much depends on which group you find yourself in.

The workshop will help you achieve 3 things

1) Become absolutely clear about your story – the narrative that connects you to your customers on an emotional level. Our research shows that this is absolutely critical for credibility and referrals

2) Decide how much online activity you should include in your strategy – and what other marketing tools will work for you

3) Give you some pointers on effective networking and a clear understanding of how to build and maintain a strong online presence suitable for your business without spending your life at it.

First outing of the Workshop is in the Gatwick Area 17th July. More details here. 

So what are the tools of choice?

http://www.Skype.com, http://docs.google.com and Docs and BaseCamp are 3 that should be in the frame for any aspiring gang creators.

Skype includes VOIP, video conferencing 1 to 1 only, teleconferencing (up to 5) and chat (up to 50 in a chat). It’s free if both parties are on Skype. It effectively revolutionises how you do business because any gang can have its own permanent running Skype chat. This means that anyone can raise a topic and it sits there until one of the others has time to deal with it.

It has a much greater immediacy to it than e-mail and is almost entirely opt-in. Because it multi-tasks its possible to have ongoing conversations while engaging in writing complex documents – like this one.

This is what it looks like and here is an example of an ongoing chat. As you can see there are about 50 people in this with topics constantly coming and going.

It can be used in a much tighter way between 5 people delivering a project together, Check it out at www.skype.com

Google Docs is a powerful tool that allows documents resembling word, excel and PowerPoint to be hosted by Google and accessed by you and your team. The real benefit is that you can have a team of several people working collaboratively on a spreadsheet at the same time, each updating their own sections. You can have a look at http://docs.google.com

BaseCamp is a product of 37 signals that also do a chat product and a hosted CRM application. I have been using it to support my projects for the last 18 months. It essentially gives you some space to store the definitive project documents, allows people to comment allows you to enter and agree milestones and track progress.

I have a fairly modest subscription of about £6 per month which allows me to run 3 live projects plus as many archived ones as necessary. It’s real benefit is that it deals with version control, saves you having to be constantly emailing files to everyone and manages the audit trail of emails as commented threads.

Because its all properly backed up it means that your documents are more secure than sitting on your own server at home.

Uploading files is easy and I’ve now run 5 projects using it.

Costs range from $12 per month for 3 live projects and 1 Gb storage up to $149 per month for unlimited projects and 50 Gb. The more expensive versions also contain basic project planning tools and timer recording.

You can allow your clients access to the environment too so that you can add transparency of project management to the other benefits to the customer of dealing with your organisation.

BaseCamp, in its larger capacity offerings is a secure, encrypted environment. This can be very important to clients as would be need for secure encrypted environments for Video Conferencing and chat.

Skype is a free environment but there are other, equivalent, products which for a modest monthly fee will deliver an encrypted and more powerful service. Megameetings,  for instance will offer video conferencing for 5 at its entry level price and will also offer the facility for secure teleconferencing with recording and transcript facilities.

These tools facilitate the development of groups of consultants functioning as consortia which will enable them to bid more successfully for contracts and deliver them more effectively.

This obviously has an impact on the whole smarter working agenda which we’re going to look at next.

As we mentioned in the section on building trust, one of the main drivers that people have when they’re networking is that they are looking for people to collaborate with.

Many people find themselves setting up as one man bands (independent consultants) later in life after a lifetime in a corporate. While the corporate world has some real downsides, if you are an expert in your field it has a number of advantages that the small business owner doesn’t have.

These include

• People to do your admin for you
• People to do your IT for you
• People to do your selling for you
• People that your skills complement to make a complete offering.

However life as a 1 man band is different. You have to either pay someone out of your earnings to do all the above – or you have to do it yourself.

It’s a truism that if you are delivering services yourself you can’t sell when you’re delivering and you can’t deliver when you’re selling. So you might consider forming a little gang of like minded people whose skills complement yours and form a consortium.

This lets you share the load of bidding and spreads the cost and time of customer acquisition. The importance of this can be judged from the preliminary returns from the research project. The average organisation spent about 14 hours on marketing per week which is what you might expect given that most were selling business services, less than half turned over more than £100,000 and employed more than 2 people.

So if the ratio of promotion and admin to delivery is approaching 1 to 1 it makes a great deal of sense to form a collaborative gang which will allow you to deliver a more complete offer to your client as well as spread the load of tendering.

Once trust is developed and you are in a position to start collaborating, the current development of the internet has made life very easy for you. Most of the tools you need, both for online networking and for collaborative working are either free or comparatively inexpensive.

You can even share subscriptions to streams of leads. Many government tenders are notified on portals like http://www.sell2wales.co.uk and http://www.direct2.gov.uk while you can also subscribe to services like Skillfair which will direct particular types of contracts your way.

Apart from email, the main tools you need are a tool to deliver voice over IP (VOIP) which will let you hold conference calls and run chats plus a document repository where you can store documents, manage the email threads and generally work collaboratively. It’s only about 8 years since that was effectively beyond the resources of even a 20-50 person company. So the power of broadband has effectively changed the balance of power for the individual worker. Effectively all you need is a laptop with a wi-fi broadband connection and you can work anywhere. More to the point you can project manage from anywhere too.

We’ll review the tools that you can use next time.