Business Owners Toolbox Blog Discussions and articles to help the small business owner solve the challenges they face as they grow their business.

August 25, 2011

Can Apple Thrive Without Steve Jobs?

Filed under: Growth Management — Tags: , , , — Mike Van Horn @ 11:56 am

Could your business thrive without you? Can you “bottle your soul”? Can you instill in your top team your seemingly unique qualities and values?

“The better people you have in place, the longer you can afford to be away,” I tell my small business clients.

— If you have a good part-time admin assistant, plus good instructions and checklists, you can take a long weekend, knowing that no customer is left hanging.

— If you have a good manager who can oversee the work, plus good systems, you can take a nice vacation without constantly checking in via cell phone.

— If you have a strong #2, who has been carefully groomed, and who has a reliable management team, you can safely be away for an extended period, like a sabbatical or world cruise, or to focus on a major expansion.

But what if you’re going to be gone forever, like Steve Jobs? How can you assure that your company, into which you’ve poured your heart and soul and sweat and tears, will continue to thrive? Very few strong CEOs and visionary leaders do a good job of this.

For this to happen, you’ve got to make sure that someone there (perhaps more than one) can excel at the things that seemingly only you can do. Seems paradoxical, but this is your challenge.

Look at what Steve Jobs has brought to Apple:

— Product visionary—from conception and design to execution.

— Strong attention to detail

— Able to attract a top-quality team, and hold them together despite their strong personalities

— He’s the soul—the creative force—of the company.

For Apple to continue to thrive beyond the products currently in the pipeline, Tim Cook or someone else must manifest all these qualities.

If your company is based upon your vision, your sure perception of opportunities, your attention to quality and detail, and if you wish for it to thrive after you depart, then you must find a way to “bottle your soul” and convey it to your top people so that they internalize it. This is difficult if, like Steve Jobs, you are a strong-willed leader. It may be hard for you to allow others to grow into these qualities, which have been your special domain. It may be tough for you even to hire people capable of replacing you.

At our recent retreat, for my senior business owners, this was a major topic of discussion. I’m going to do a series of posts here on “how to bottle your soul” and instill it in your top team. If this is a live topic for you, please subscribe so you’ll receive them all.

I would also love to hear from you. Your experience with this (positive or negative), or your questions about how to make it happen.

August 15, 2011

How Do You Set Prices for Your Products and Services?

Filed under: Finances,Profit — Tags: — Mike Van Horn @ 3:54 pm

Question from Alicia Terry on Linked In. She also asked, “What is your biggest challenge in setting your price?”

Set prices using two different methods:

A. What the market will let you charge, e.g., competitors

B. What costs you must cover, plus a profit margin

If A > B, charge A

If B > A, then go back to the drawing board. Perhaps you can redesign your product or service so that you can sell it profitably at the price point the market will allow.

Or perhaps you need to promote it in a way that will justify the higher price in the eyes of your target customers.

Many entrepreneurs fail to include all relevant costs when setting prices. Items often neglected: Markup on direct labor, sales commissions, freight costs, damaged goods, warranty work, project management. And #1: the value of the time put in on the job by the owner!

Small business owners underprice. They’re notorious for this. “I’m new, so I’ll offer more for a lower price.” You can’t compete this way with larger, better-capitalized competitors. It’s the route to bankruptcy.

In many fields, if you price too low, people don’t take you seriously. “Is that all he’s charging? He can’t be much good!” Charge at least what your larger competitors are charging, and demonstrate to customers why you are worth it, since you are better.

For small service businesses, look for clients who know the value of their time. If you can save them time, they are willing to pay more for that. Turnkey, troublefree, flexible, responsive–these are the things I will pay extra for. And of course friendly, personal service.

August 8, 2011

Alternatives to Bootstrap Financing

Filed under: Entrepreneurship — Tags: , , , , — Mike Van Horn @ 11:03 am

Bootstrap financing may be unavoidable initially, but it’s a huge barrier to healthy growth, and you should get outside growth capital as soon as possible. Besides bank loans, what other sources are there?

• Borrow from yourself, even from your retirement fund. To do this, you must be as hard on yourself as any banker would be. You’ve got to demonstrate to yourself just as you would to  a banker that your business plan is sound and profitable and will pay back this loan in a timely fashion.

• Friends and family. Same thing goes. Before taking your rich uncle’s money, be able to demonstrate convincingly that this is a good business to invest in. He won’t give it to you otherwise.

• Leasing equipment and fixtures. Leasing can be very expensive but it’s worthwhile to shop different options to see where you can get the best deal. It’s best to have the advice of someone who is familiar with this type of financing.

• Vendor financing. Companies that want to do business with you and are convinced you are a good credit risk will extend you terms that will allow you to purchase goods from them. Use them to make money and then pay for these goods out of the resulting sales revenue.

As a last resort . . .

• Credit card. Financing via our credit card is an expensive trap. You’re playing with fire–or dynamite. Yet, sometimes we must do it. There’s a way to make it work if you are an excellent manager. If you have a good credit score, you will get offers for low cost balance transfers into a new account. Sometimes at 0% for a time. If you manage very well, you can replace one loan with another loan before the interest rate increases to a higher level. This is a dangerous game to play but it can be done successfully.

Downsides of Bootstrap Financing

Filed under: Entrepreneurship — Tags: , , , — Mike Van Horn @ 10:57 am

Bootstrap financing means to fund your business launch or growth without outside capital, relying on internal savings or cash flow generated by operations. This severely limits their rate of growth.

Some entrepreneurs bootstrap out of necessity: they have access to no capital. But many rely on internal resources even when they could obtain capital. I see two main reasons:

• Fear of debt, perhaps out of prior bad experience. They don’t trust their own resolve to repay debt so that it doesn’t just pile up.

• Lack of trust in their own business model and acumen. They’re just not convinced they can make their business succeed so that it is a good investment.

Owners achieve a major leap in business maturity when they overcome these fears and become willing to invest in their own company—via loans or equity investors.

Many small companies that self-finance their launch or growth are chronically under-capitalized. They are always running on empty. This can lead to some very bad habits in the way you run your business.

• You take any work that comes along because you are so cash starved. Thus you take unprofitable work that can actually put you deeper in the hole.

• You’re more worried about revenue than about making a profit.

• You work all the time. If you bill by the hour, anything that is not billable is suspect, such as planning, marketing, developing strategic relationships. When you make commitments to yourself, to develop new products or service for example, you are always willing to break these commitments to take paying client work. You always bump your commitments to yourself—or your family.

• You operate as the “lone ranger.” You are reluctant to get outside advice and expertise because of the time and money it requires.

• You wear all the hats. You do everything yourself. You are reluctant to spend on outside services, even if it would allow you to use your own time more effectively.

• Thus, you use your time poorly.

No plan. No strategy. Just work. This is the route to burnout or bankruptcy. And staying tiny.

“Alternatives to bootstrap financing” are described in my next post.

The Power of a Strong #2

Filed under: Employees and Human Resources,Growth Management — Tags: , , — Mike Van Horn @ 10:47 am

“I’m now getting a glimpse of what I can do in my business if I’m not in charge of day to day operations.”

So says a woman who owns an eight-person professional service company and who just hired a top-notch marketing associate. “Execution–doing the work–isn’t our problem; it’s keeping the pipeline filled. That’s what I can focus on now that she’s handing the operational side.”

“Now that she is coordinating my staff, making sure they are working efficiently, using their time well, and keeping the clients happy, I have the bandwidth to turn my attention to building the strategic relationships in order to expand our service area.”

“She’s expensive. But what choice do I have if I want to grow? I’ve got to be willing to invest in my business—especially right now as the economy is beginning to turn around. I’ve got to be there to take advantage of the opportunities that are happening right now. If I don’t, the others will be passing me by. The key is selecting that person who can do the job—even better than I could—so that she pays for herself many times over.”

I couldn’t say it better myself!

So who is the strong support person you should bring in (or groom) to free you to leap into the emerging opportunities?

August 2, 2011

Are You Too Old to Get Hired?

Filed under: Employees and Human Resources — Tags: , , — Mike Van Horn @ 4:48 pm
My response to BNET post by Suzanne Lucas, the “Evil HR Lady,” on 7.29.11 advising older workers (over 40!) how to get hired, when they likely face tacit age bias.
Here’s another suggestion: Look at job opportunities in smaller companies. I advise owners of small and growing businesses. Few of them are UNDER 40. When hiring for professional-level jobs, they want the best professionals. These owners have often been burned by younger employees, many of whom have poor work habits (e.g., spending too much work time on the iPhone), and an unrealistic viewpoint on job perks and advancement.

Here’s what these owners look for in a candidate. Many older people have a strong edge in these:
— Know the ropes. Good work ethic.
— Professional demeanor and appearance.
— Ability and willingness to master new systems and technologies. Not Facebook and Twitter, but accounting and inventory control.
— Practical experience handling varied situations. Not just book learning.
— Strong customer service personalities. Customers like maturity. So do vendors.
— Used to taking initiative, solving problems, and then telling how they solved it. Not asking how to handle every unfamiliar thing.
— Likely to stick around. Not constantly shopping their resume around.
— Seen as a wise and mature person by other employees, especially subordinates.
— Kids are older or grown. Fewer sudden absences because little Johnny has the sniffles.
— Can see the managerial picture. Good understanding of what the owner is up against. Able to take the viewpoint of the company, rather than acting like a “shop steward.”

Many owners I work with are looking for a strong #2–someone with the capability of taking a leading position in the company, to free the owner up to focus on strategic concerns. One of my clients recently hired a woman in her late 40s to become the ops manager of her 10-person company. They are now negotiating for the manager to buy her out, so my client can retire.

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