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

May 29, 2012

Is Entrepreneurship for Everyone?

Filed under: Entrepreneurship — Tags: , , , , — Mike Van Horn @ 8:44 am

Updated “new and improved” version of this post is here.

Discussion started by Rieva Lesonsky on LinkedIn “Small Biz Nation” group. Here’s my response

I advise small business owners, from solopreneurs to 50 or more employees. Let me mention a few of them:

  • Two art majors started making hand-printed greeting cards for friends. Now they own a print shop with 10 employees. They’ve printed my books.
  • A woman was making pear condiments in her kitchen. Now she sells pallets of her specialty foods to Costco from her warehouse. I have a photo of her driving her forklift.
  • A woman in IT had gluten intolerance, started baking things for herself. She now has a bakery, several retail outlets including in the San Francisco Ferry Building, sells online, and has 30+ employees. She still doesn’t understand her P&L.
  • A Japanese immigrant worked as a busser in a restaurant, and saved his money. The restaurant went bust, he bought it for $1. Twenty years later, he has one of the best restaurants in the Bay Area, and has had a Michelin star.
  • A Hispanic guy got hurt on his construction job, and went on disability. While he was waiting for some job retraining, he started doing gardening for neighbors. He was chastised by the state for accepting money while on state aid. He now has three trucks and two gardening crews working for him.
  • A woman took over her husband’s bookstore when he died of a heart attack. She doesn’t really enjoy the business, but she’s trained somebody else to run it for her, and she has actually hired two more people.
  • A banker took his early-retirement buyout and started a yoga studio, and he just loves doing that.
  • A woman got fired from her sewing job, took a couple of favorite customers and did sewing for them. She now has a sewing workroom with ten employees, and recently bought out her former boss.
  • When my wife, the least entrepreneurial person I know, left her job because her boss was a total ******, she scanned the want ads for a new job for about six months, until she had so many HR consulting clients she had no time for that. Ten years later she keeps her schedule full without any marketing, just by referrals.

None of these people would have scored high on anybody’s entrepreneur test beforehand. I think it’s so dangerous making assumptions about who can or cannot be entrepreneurial. It may be true that not everyone is cut out to be an entrepreneur, but I challenge you to point ’em out ahead of time. I have worked with so many “accidental entrepreneurs” like these folks. “One day I just noticed that I was in business. It was so hard to make a go of it. I had no idea what I was doing. I didn’t know how to run a business, how to hire or manage an employee, how to watch the finances.”

The guy in the article who says entrepreneurship can’t solve the unemployment problem is oblivious to the fact that every one of these people I mentioned created 5 or 10 or 50 other jobs. And that some of those employees will in turn go out on their own—either voluntarily to pursue their passion or kicking and screaming. And that each of these little businesses help support other businesses around them.

My job is to teach these people enough about running a business so that it doesn’t drive them crazy.

Regarding that stat that most small businesses go belly up due to lack of money, I think it’s a myth, and I called this a myth in another post.

 

May 14, 2012

Financing for soap making business

Filed under: Entrepreneurship,Finances — Tags: , , , — Mike Van Horn @ 11:10 pm

My wife needs financial help to restart her handmade soap business, hopefully a grant. We have the building, need to upgrade computer and software, get raw materials, build a web presence. Asked by Scott Coe on LinkedIn.

MVH: My first question: do people and stores want to buy her soaps? If so, can she hand-make some samples? Could she use the samples to make some sales, collect some deposits, then use that money to buy more raw materials and make the soap that was ordered? If she prices properly, she should have enough gross profit to buy the next batch of ingredients and make more soap.

This is customer financing and it’s not that unusual. It requires having buyers who believe in your products. But people may be more willing to do this than to loan or give her money.

This is pure bootstrapping, and you don’t want to do this if you can raise capital in any other way.

You didn’t say how much you need to raise, and that makes a big difference. But if you can’t even afford some raw materials, it seems premature to worry about upgrading your computer and software. Use pencil and paper. Spend no overhead before its time!

Websites can be put up very inexpensively–free here on WordPress, plus hosting for less than $100 per year. It just takes time and gumption. Or spend a few hundred on a virtual assistant to do the initial set up. Most internet and web things are time-intensive, not money-intensive, but hiring a dollop of skill helps a lot.

The more capital you raise, the faster you can grow.

The more you can demonstrate demand, the easier it is to attract capital.

So hit the pavement and make sales.

I’ve never seen anybody get enough money from a grant to launch a viable business. Just enough to go broke.

The likely sources of financing for this venture:

— Your own savings

— 2nd mortgage on your house

— Family, even though it’s very risky even asking them

— A bank loan with a personal guarantee

— A private backer who strongly believes in her skills and concept

A product like this might be a candidate for crowd funding. Google this.

Financing a new restaurant

Filed under: Entrepreneurship,Finances — Tags: , , , — Mike Van Horn @ 10:55 pm

Where can I get financing for my start-up restaurant? Asked on LinkedIn by Tom Leach.

MVH: Restaurants started by inexperienced restaurateurs have one of the highest mortality rates in business. Thus nobody wants to invest in them, not even your mother! Certainly not a bank.

financing fine diningOne of my clients who runs a very successful restaurant, and who now has financiers offering to invest in his new locations, got his start by buying the restaurant where he worked out of bankruptcy for a very small sum. So then he had a restaurant with a location and a lease, all furnishings and equipment and permits, an established clientele, and employees including a chef. Financed totally from his savings built up while working there. He made it work by improving operating efficiency and customer service.

The likely sources of financing for this venture:

— Your own savings

— 2nd mortgage on your house

— Family, even though it’s very risky even asking them

— A private backer who strongly believes in your skills and concept

— A bank loan with a personal guarantee

April 30, 2012

How to Create Jobs

Filed under: Employees and Human Resources,Entrepreneurship — Tags: , — Mike Van Horn @ 11:21 am

Start your own business!

(My response to a question on EIUhow to tackle unemployment–so widespread among young people in many parts of the world.

Perhaps it’s my American bias, but I think that encouraging entrepreneurship is a big part of the answer. The worst policy is to create government jobs or government-funded jobs.

Unleash and nurture the desire of people to launch and grow profit-making and wealth-creating ventures. Every entrepreneur creates a handful of jobs–at the very least, for him- or herself.

It’s easy to start a business, if your government will let you, and if you are willing to risk failure. The government’s role should be to provide infrastructure for ventures of all sizes to get started and grow, so that more succeed, and those that fail can quickly try again.

I advise small business owners. Many started as “corporate castoffs” who were forced to strike out on their own. Many of these are now employers in their own right. And even the solopreneurs are glad they took the leap, and would never want to go back.

Look around you for the things that need to be provided in the marketplace, and find a way to sell it for more than it costs you.

February 28, 2012

How to Reinvent Your Business

Filed under: Entrepreneurship,Innovation,Thrive in tough times — Tags: , , — Mike Van Horn @ 10:16 pm

My advice to a woman whose profession is no longer providing a decent living nor a passionate calling.

Think big, beyond your current profession. Ask how else can you apply your valuable skills.

Think concrete, beyond attractive generalities. Research specific opportunities with the orgs you listed.

Think now, not six months from now. Life is too short to spend another year on the poverty-inducing things you’ve moved past.

Think benefits you provide, beyond particular skills you have. People pay a pittance for skills; they pay well for the ability to produce desired results.

Fill in my Model of Success, pulling together the high demand skills you have. Where is the overlap of what you love doing, what you’re best at, and what big ambitious complex projects demand and will pay for?

Think big projects, where there’s plenty of money for you to get paid well. No more little projects

Think essential roles, big projects where your input is essential and will be well paid, not things where someone can say, Thanks, now go away.

Think lucrative. No more pro bono, or helping those who need you but can’t pay much, at least until you are on sound financial footing yourself.

Think partnering and piggybacking with others, so you’re not trying to create it alone.

Think hard-headed, so you don’t get talked out of good pay for value.

Think high rates, because people don’t value what they don’t pay for.

And never ever subsidize anybody wealthier than you are!

Is Lack of Capital #1 Cause of Business Failure?

Filed under: Entrepreneurship,Finances,Small business myths and dilemmas — Tags: , , , , — Mike Van Horn @ 11:32 am

What things do people believe about small businesses that just aren’t true?

Small Business Growth Myth #1: Lack of capital is the #1 cause of small business failure.

In my experience, lack of capital is a symptom of other problems in the business. This myth is like saying that heart attacks are a leading cause of death, but forgetting that most heart attacks occur to people who haven’t been taking care of themselves for years.

Same with business. Running out of money is often the endpoint of years of bad decisions. For example:

• Not watching the numbers closely. Not having financial statements you can understand, and not getting or reviewing statements in time. You should tell your bookkeeper/accountant exactly what numbers you need to track, when, and how you want them displayed. If they don’t give you what you want, replace them.

• Not controlling costs. Keeping unnecessary payroll and other expenses. Some owners borrow money to avoid laying people off. During tough times, if you’re not ruthless with expenditures, you won’t have the reserves to take advantage of later opportunities.

• Focusing on revenue instead of profitability, therefore not paying attention to the margin of jobs or sales. Taking any work. “I’ll make it up on volume.” “Maybe they’ll grow to be a big customer.” Don’t bet your business on these beliefs. Insist that every job must make a profit. Make sure you have systems that allow you to allocate costs to profit centers, so you can know the profitability of each thing you sell.

• Under-pricing. Many small businesses try to meet the prices of large, well-capitalized competitors, rather than competing on unique services and features that set them apart and command higher prices. Set your prices to include your desired profit margin.

• Not anticipating needed growth capital, so that a growth spurt causes a cash flow squeeze. It’s very difficult to grow relying on current cash flow. People criticize companies like Apple for amassing a huge cash hoard, without realizing that this is necessary to fund growth, innovation, and keeping options open.

• Having the wrong kind of financing. Financing growth with a short-term line of credit that must be paid off each year, rather than with a 5- to 7-year term loan. And how many of us have financed growth on our credit card, thus saddling ourselves with interest payments that eat up the profit needed to repay the loan?

• Not saving during good times, so that you have a fund for tough times. Too many owners would rather spend than save because they don’t want to pay taxes on the profits.

• Not being “bankable.” For example, if you run your business to minimize taxable income, you’ll never get a bank loan. Try telling your banker that you really do have a profitable business, despite what your tax returns show. Take your banker to lunch, and ask what the bank will need from you in order to approve the loan you will need.

• Not refining your business model to stay competitive and to meet the emerging needs of your customers. Just staying the same because it’s the easy thing to do. The old cliché, “Work on your business, not just in your business,” means that you as owner need to keep looking at opportunities, challenges, alliances, and strategies.

• Ineffective marketing. If you don’t keep looking at what works, refining your offering and outreach, and dumping the rest, your business will slowly decline. Where can you get the most bang for your marketing buck? What ineffective things should you drop? How can you leverage your effort?

I’m sure you can think of others. If you address these problems in your business, you’ll never have to use “I ran out of money” as an excuse.

 

February 20, 2012

What Does Sustainability Mean for Business?

Filed under: Entrepreneurship,Profit — Tags: , , — Mike Van Horn @ 11:19 pm

Question from James McErlean on LinkedIn

My response: Great question! Sustainability means using a resource so that it lasts and renews, doesn’t get used up, and doesn’t have a negative impact on its environment.

For a business, this would mean that it is self-sustaining and self-renewing.

It has to make a profit.

It has to provide support for its owners and employees, and contribute to their long-term well-being.

It must generate a surplus to carry it through tough times and to provide a fund for growth.

It must provide a benefit to its community of customers; otherwise it cannot operate profitably.

It must innovate (i.e., “evolve”) in order to stay competitive and keep attracting its customers.

It must be a vehicle for the creative energies of its owners and other key people, so that it will retain their interest.

A business—especially a small business—is a reflection of the skills and passions of the entrepreneur. It is his/her vehicle to provide value to the community of customers. The more it thrives, the more people are benefitted—customers and employees and other stakeholders.

In this way, a successful business does more than just sustain itself and the resources it draws upon. It becomes an increasing source of wealth. A community of such businesses builds a strong multiplier effect throughout the community and economy.

 

February 14, 2012

What’s a Typical Growth Rate?

Filed under: Entrepreneurship,Finances,Overcome growth barriers — Tags: , , , , — Mike Van Horn @ 9:23 am

From a question asked at my plan workshop

MC. “What’s a typical rate of growth?”

MVH. There’s no typical rate.  It is better to ask what growth rate could you handle? Also, what is the right size for you to grow to? How big do you want to grow and why?
Your rate of growth will depend on several factors:
• How you finance–self, bank, investors
• How scalable your business concept is
• Quality of your top people. Your growth team
• Your systems. Can your systems be easily scaled up?
• Ease of bringing in new customers
• Your ability to manage growth or to hire managers who can do so for you
• Outside variables. Economic climate. Amount of competition. Laws and regulations that impact you.

I would be glad to help you assess these things for yourself. This is an issue we work with all the time in our Business Groups.

February 3, 2012

Zuckerberg’s Lessons for Entrepreneurs

Filed under: Entrepreneurship,Innovation — Tags: , , , , — Mike Van Horn @ 1:57 pm

In his IPO letter to potential investors, Zuckerberg stated 5 principles that have guided Facebook. These apply to any entrepreneurial business. I suggest you read these and ask how you can apply them to your own business.

The two that the most small business owners neglect are “Move fast” and “Be bold.” Too often we limit ourselves to growing organically, perhaps for fear of going into debt, and thus move slowly and timidly. Then we watch others pass us by.

Focus on Impact

If we want to have the biggest impact, the best way to do this is to make sure we always focus on solving the most important problems. It sounds simple, but we think most companies do this poorly and waste a lot of time. We expect everyone at Facebook to be good at finding the biggest problems to work on.

Move Fast

Moving fast enables us to build more things and learn faster. However, as most companies grow, they slow down too much because they’re more afraid of making mistakes than they are of losing opportunities by moving too slowly. We have a saying: “Move fast and break things.” The idea is that if you never break anything, you’re probably not moving fast enough.

Be Bold

Building great things means taking risks. This can be scary and prevents most companies from doing the bold things they should. However, in a world that’s changing so quickly, you’re guaranteed to fail if you don’t take any risks. We have another saying: “The riskiest thing is to take no risks.” We encourage everyone to make bold decisions, even if that means being wrong some of the time.

Be Open

We believe that a more open world is a better world because people with more information can make better decisions and have a greater impact. That goes for running our company as well. We work hard to make sure everyone at Facebook has access to as much information as possible about every part of the company so they can make the best decisions and have the greatest impact.

Build Social Value

Once again, Facebook exists to make the world more open and connected, and not just to build a company. We expect everyone at Facebook to focus every day on how to build real value for the world in everything they do.

January 9, 2012

Are There “Meaningless Innovations?”

Filed under: Entrepreneurship,For Coaches & Consultants,Innovation — Tags: , , , , , — Mike Van Horn @ 3:38 pm

My answer to LinkedIn question by Terrell L. McTyer

If you are a small player, say a consultant or other solopreneur, you’d better steer clear of “meaningless innovations,” because they could pull you under.

I’ve done a talk to consultants’ groups called “Innovate or Die,” where I stress how important it is to make sure that your efforts at innovation are well-targeted, and that you know how to market them once created. Not all of us can afford to bet the farm on a potential “disruptive innovation” that turns “meaningless” when nobody buys it.

TMcT: “But don’t you have to take risks to make it big?”

Yes, you have to take risks, but how big and with whose money? Entrepreneurs take PRUDENT risks. Two things:

— There’s a risk/reward calculation. The bigger the potential reward, the greater risk is justified. BUT it’s easy to fool yourself. “This is foolproof. We have no competitors.” I just lost $25k investing in one of these.

— OPM. This is why we have VCs and angels. They can afford to lose your investment. Of course, their price is high.

— There’s an absolute ceiling on risk you should take. Despite the image of the “all in” player, are you going to bet your own house? Your kids’ college funds?

Maybe you will. I know many who have. Some lost, and they started over. Or the wife went back to work. (Why is it that men are more likely to bet the farm than are women entrepreneurs?)

I guess the biggest error is not going for it due to fear of the above. You regret it forever.

The second biggest error is going for it, but NOT going in big and fast. Prudent, organic investment in innovation, then your better capitalized competitors whiz past you, leaving you stunted. This has happened to me.

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