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

August 8, 2011

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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April 14, 2011

How to sharpen your entrepreneurial skills

Filed under: Entrepreneurship — Tags: , , , — Mike Van Horn @ 12:35 am

from a LI question by Lalit Bhojwani

My answer. Join or create a forum where you can match wits with other entrepreneurs.

My business is leading ongoing advisory groups of business owners. Just took eight of them on a three day retreat to a remote spot with no internet or cell connection. We took turns brainstorming on our vision, our opportunities, our challenges, our “elephants in the room.” Friendly and supportive but hard-hitting. People came away with business-changing ideas and plans.

This is a great way to sharpen entrepreneurial skills among people who are already entrepreneurial.

April 5, 2011

Bootstrapping. How did you start your company?

Filed under: Entrepreneurship — Tags: , , — Mike Van Horn @ 2:48 pm

LinkedIn question from Marie-Dolores Anderson. She selected my response as Best Answer!

My answer: I bought my training/consulting company–for something like $1,000–from the guy who wanted out. I worked from home. I did shoe leather marketing. I traded for services, such as printing. People paid me in advance.

As a result, I was profitable from the beginning, and never had significant debt.

This turned out to be a problem, however. Since I relied on organic growth rather than rustling up growth capital, I grew slower, and was eventually overtaken by VC-backed competitors. I still have a good business, but not as large as I had hoped.

So bootstrapping, while often necessary, is limiting. Get past this strategy as rapidly as possible.

April 4, 2011

Can Your Business Run Itself?

Filed under: Entrepreneurship,Growth Management — Tags: , , — Mike Van Horn @ 10:34 am

I.e., can you ever take a vacation?

“If I leave, my business will fall apart!” Does this sound like you? Want to change that? Then ask yourself: What must happen so that you feel comfortable taking a three-week vacation—without your cell phone? “Three week vacation?” asks the owner of a busy store incredulously. “When I look at my floor managers, I fear taking a three-day weekend!”

What’s the #1 requirement for a stress-free vacation? You must have good people in place. The better your people, the longer you can safely be away. Some of us have “long weekend assistants”—that is, we can rely on them if we take off a Friday or Monday—and some of us have “world cruise assistants.” It’s a great feeling to return after a sojourn to Italy and find everything running smoothly. 



Do you say, “The business is me”? If so, then you can never leave. What do you handle in your business that no one else can? This is what limits the length of your absences. Start by listing the tasks and responsibilities that someone would have to handle in your absence. How frequently must these tasks be done? 



More prep = longer trips. How many high-level tasks can your people handle? The more lead-time you have, the more you can do to prepare them. Here are four levels: 



Level 1. Delegate tasks to those already capable of handling them. Takes a few days to do this, and allows you to be gone a few days. 



Level 2. Simplify tasks so that others can more easily do them. This process can take a few weeks. 



Level 3. Train your people to take on more. This may take a month or two. 



Level 4. Hire and groom the person who can run your business in your absence. May take six months to hire and train this person, but then you can be gone for an extended time. 



Perhaps you should start with a short trip. See how your people do when you are gone for a week, and work up to longer trips. Your people gain confidence, and you gain confidence in them. 



No cell phone on the beach. While you are gone, how often should you check in? Again, the more you trust your people to handle whatever comes up, the less you worry about this. DO NOT keep your cell phone with you 24/7. Instead, set specific times when you will check in with them. Be reachable in an emergency, but make sure they understand what constitutes an emergency. 



How did it go? 
When you finally go and then return, de-brief your people: How did they do? What went well? Where did problems arise? What should you do differently next time? Time after time owners report to me, “There were a few glitches, but things went amazingly well.”

“How to Have a Life” lessons for the busy business owner. 

1. Schedule your vacations far in advance. Put them on your calendar, buy the airline tickets, tell people you are going, and start making the work preparations.

2. Hire, train, and retain the best people—those who can free you up. Don’t let mediocre people keep you chained to the office. 
Do this even if you have only one part-timer.

3. This is about more than vacations. Running your business this way is the route to growth, profitability, and ease. 



The booby trap. You return, everything has gone well; your people have stepped up to the challenge and handled things better than you anticipated. But within a week or so, they fall back into the habit of relying on you more than they have to. 



Ah, yes! That’s the topic for another post.

Have a question about how your business can run well in your absence? Post it on my blog.

Can You Afford a $100,000 Manager?

Filed under: Growth Management — Tags: , , — Mike Van Horn @ 10:29 am

“Promote yourself to CEO!” I’m always exhorting the business owners I work with. Too many of us run our companies from a manager’s or supervisor’s perspective. We’re there in the trenches, directing our people, doing lots of little jobs ourselves. We work long hours—sometimes evenings and weekends. We work this hard because we’re growing our businesses, and we know we have to put in the sweat equity.

But this gets old! “I have to wear a nametag so my kids will recognize me!” complained one business owner. We see ourselves heading toward burnout; we can’t possibly work this way indefinitely.

You miss opportunities. With your head down, running the day-to-day operation, you’re not paying attention to the big picture. You miss windows of opportunity that are opening, strategic alliances beckoning, and threats peeking over the horizon. Your company has no chief executive. Your company’s growth and profitability are held back because you neglect being presidential.

But you can’t promote yourself to president unless you have a strong manager in place. Managing the day-to-day operation cannot be ignored. If you don’t have someone in place, you must do it yourself.

Good managers are expensive—and they are overhead! Whether you call it general manager, operations manager or whatever, this person can cost you $80 to $150,000 per year. And as everyone in a professional service firm knows, top managers aren’t usually billable to clients. Their pay is mostly overhead. This fact alone keeps many small business owners from hiring a general manager. You just can’t stand to hire this “non-productive” person. You forget, of course, that this pulls you—whose time is even more valuable—into the top manager’s position and away from being president.
How can you justify spending $100k? Where does this $100,000 come from?

Here’s a story: A growing professional service firm will soon have ten highly paid technicians in the field working with customers. With every new technician hired, the owner’s scheduling and oversight responsibility increases. He’s tearing his hair out, working evenings and weekends, and the job isn’t getting done well.

I asked him, would a good operations manager be able to improve productivity by, say, $10,000 per technician per year? “Heck yes!” was his answer. “By better scheduling, better job selection, billing for all the work done, handling change orders properly, upselling the customers, training to improve skills, etc.” All of a sudden, the $100k salary didn’t sound so daunting.

He got excited. “A good ops manager would enable us to hire another 8 to 10 technicians—almost doubling our revenue. The addition to our bottom line would be much more than double what he costs.

You get to become president. Most important, hiring this manager frees the owner up to focus on business development, handling the most challenging projects, watching overall performance. “If I’m freed up, I can easily bring in that business.”

“I’d be crazy not to hire him.”

You deserve not to work so hard. Your new manager also allows you to take more time off. More time for family, more vacations, more time for your avocation, hobbies, or community service. More time for watching the waves and clouds!

More time or more money? As your business grows and profits, you can choose to pay yourself more. Or you can buy time off by hiring really good help who can run the business in your absence.

Bigger vision. “As soon as my new GM had a firm grasp of the day-to-day, I started seeing ways we could grow, and opportunities appeared that I had been blind to,” said the owner of a small financial services office I work with.

This is the joy of running a successful small business.

February 16, 2011

How to Set Up a Collective Organization

Filed under: Growth Management — Mike Van Horn @ 5:41 pm

Asked by Dasha Bushmakin in LinkedIn

mvh answer. I belonged to an artists’ collective once, years ago. I was the potter. (I have a photo of myself inside a kiln with shoulder length hair.) When times were good, things worked fine. But when a crisis hit, it essentially fell apart; we had no way to make the quick decisions needed. Collective decision making didn’t work well. People argued while we went off the cliff.

The collective of artists needs to be the board of directors: create the vision and basic strategy, spell out the policies. Then turn it over to a real manager–whether one of the members or someone hired from outside–and keep hands off day-to-day decisions. The board sets goals and policy, the manager executes. This way, one competent person responds quickly to whatever arises.

The board gives guidance and feedback in pre-arranged ways, and if the manager doesn’t do the job you want, then replace ’em. This works out best for everybody. The artists get to be artists and not managers (which they probably detest having to do). And the business is run according to their broad wishes.”

February 15, 2011

Tighten Up Your Growth Team

Filed under: Growth Management — Tags: , , , — Mike Van Horn @ 12:21 am

“I do what it takes, even if I must work 70 or 80 hours a week. Why don’t my managers do the same?” (Question from T on “Ask Mike.”)

mvh answer. It’s hard to find someone willing to work as hard as you are to grow your business. It’s not their baby. But maybe working long hours isn’t the key thing.

For you to expand your business, you must be able to entrust your current business to your top people. Your top managers must buy into your vision, hold to your values. They must understand the heart of your business. They must put their heart and talent into it, and be willing to go to the mat for it. When the stuff hits the fan, they must stay there till the fan gets cleaned up.

Their commitment may not equate to the number of hours they work. What really is the most important to you? Here’s what I think is most important:
— Work 110% when they are there. Be there when needed, especially the crunch times. Set days off and vacations around these.
— Excellence and competence in every action. They keep an eye out for the little details that need to be handled.
— Customer satisfaction is #1. And connecting with customers.
— Pay attention to the numbers and to the hours worked by the staff.

Your managers must exemplify these, and also ensure that their subordinates do so as well.

For this to work:
— You must have the right people in each job.
— They must be trained; you must tell them what you expect, and give them feedback and correction.
— You must have measurable performance standards, and they must be held accountable. You must hone your skills at managing managers.
— Their incentives must reward the most important things you want them to do.

If they don’t measure up, you must be willing to replace them.

However, sometimes you have a strong person who is in the wrong job. Could you redefine their job so they can excel? Assign the parts they don’t excel at to someone else.

But don’t let yourself be held back by their limitations. Insist on having people whose excellence will help you reach for the stars.

January 27, 2011

Manager Salaries Raise Overhead

Filed under: Growth Management — Tags: , , , , — Mike Van Horn @ 11:09 am

As we add employees, I must hire managers, and much of their time is not billable. Their salaries become overhead added to all the jobs. So our labor rate is creeping up, and our gross margin shrinking. How can I justify this, especially to myself? (Question from MM on “Ask Mike Van Horn.”)

mvh response. I see several ways to justify this to your bottom line and to yourself:

1. A good manager should pay for herself in several ways:
— Improved billing by your staff, i.e., by making sure all client work is billed for
— Improved staff efficiency via training, improving systems and procedures, better scheduling and coordination, and dividing work by specialties
You need to set targets for increases in staff productivity so you (and your managers) can track to what extent their efforts are paying for themselves.

2. She frees you up. Since you no longer have to be overseeing everything, you have more time for:
— Business development, strategic alliances—the keys to growth.
— Free time! This helps recharge your mental and spiritual energies.

3. To prepare for the eventual sale of your business, you must have a strong management team in place.

If your manager is not doing these things for you, then she is not the right person.

Here’s another way of looking at it. You’re not actually adding a manager, you’re adding a CEO. You’ve always had a manager—you! You’ve been so busy managing, you didn’t adequately fulfill your CEO responsibility. Now you can.

You just weren’t looking at your pay as management overhead. Now that you’ve replaced yourself as manager, you must account for her pay.

The new position is CEO–you—and the overhead increase goes to pay the CEO salary. But this is an essential investment for achieving your growth goals.

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