How to Prepare for the Next Downturn

Times are good, aren’t they? Will they stay good forever? Of course not.

Back in the last downturn, what do you wish you had done to prepare for future tough years? The time to prepare for hard times is during good times. That’s now.

You don’t want to hunker down and miss out on opportunities now for fear of what may lie ahead. So how can you take advantage of profit and growth opportunities now while taking prudent steps for later safety?

  • Control your costs. This is not sexy, but it’s the single most important step. And it’s the opposite of what many business owners do. When cash is rolling in, they go on a spending spree.
  • Run a lean operation. Don’t get lax with routine expenditures. Weed out people who aren’t doing the job you need done. Stay on top of scheduling, and don’t have more on hand than you need for each part of the day or week.
  • Hire top quality people; train them well. Build a growth team, and nurture their loyalty. A strong, loyal growth team will also be a “get through tough times” team.
  • Build habits of productivity and profitability during good times, so they will carry over into tough times. Make sure your incentives require and reward productive, profitable operation.
  • Raise your prices. Don’t lag behind your competition.
  • Keep your customers happy and loyal by performing impeccably, and handling mistakes completely and openly.
  • Make sure everything you sell is profitable. Make sure your systems can tell you what is most and least profitable. Weed out unprofitable products or services that drag down your margin.
  • Build up business savings, made possible by raising prices, controlling costs and boosting profits.
  • Stay on top of opportunities. Innovate in your products, services, marketing, and operations. Don’t get trapped behind the innovation curve by sticking with lower margin offerings.
  • Seek counter-cyclical business niches. What do you sell that will stay strong through a downturn?
  • Grow into profitable niches, so that you have a stronger basis for profitable operation during a downturn. Don’t be caught trying to sustain an unprofitable operation when a downturn hits.

Surprise!  Your preparation for a down cycle looks very similar to growing during good times.

Want a set of questions to help you discover how to make these things happen in your business? Just ask me and I’ll email it to you.

Expand to New Facility?

Our business is growing. When should we move to a new facility? How to get financing?

Our business is growing steadily. When is it right to move into a new facility? How do we find funding?

We are getting close to capacity at the kitchen we rent but we are at a point where we (2 people) might not be able to meet the new volume without a new facility and more employees. The business isn’t grossing that much yet, but won’t unless we can increase output. Asked on MosaicHub by Eric Martin

Mike’s response

How can you increase capacity without increasing overhead?

— Find an “as needed” contract kitchen for the time being. A restaurant I frequent is open for breakfast and lunch, and is going to rent out its kitchen in the evenings for people like you.

— Do a second shift. Hiring a “night crew” is a lot cheaper than opening a new facility. Utilize your existing facility and equipment to the max.

Raise your prices! If you have increasing volume and you’re not yet profitable, you’re not charging enough. Unless you can demonstrate profitable operation, you’ll never be able to raise growth capital.

Get more efficient, and thus boost your labor productivity. I have a bakery client who started tiny, and now she’s at $3 million. It has been very hard for her to make the production more efficient. “We’re an artisan bakery!” she proclaims. But now she’s getting productivity religion, and it’s going straight to the bottom line. And quality is not slipping; if anything, the greater consistency is increasing quality.

Schmooze your bankers. Everybody’s first suggestion for raising money is crowdfunding, but I doubt it could work for you. You want permanent capital–perhaps $50,000 or more. You can’t crowdfund that much. You’d spend a huge amount of time and effort, then probably not make it.

Focus on getting profitable by getting the most from your current facility, get help putting a plan together, impress your banker, and get a legitimate capital loan.

 

 

Are You Having Growing Pains?

What barriers keep you from growing your business to the size and profitability you want? How should you tackle them to grow to the next level? Our free webinar shows you how.

What’s keeping you from growing your business to the size and profitability you want? Has your growth been slowed by things that keep dogging you? How can you smash through those barriers and move to the next level?

Here’s what I hear all the time from owners:

— You’re a solopreneur, and you want to grow beyond what you can handle by yourself.entrepreneurial vision

— You have a handful of employees, but everybody’s reporting to you, driving you to a frazzle.

— You’ve got managers, but you’re still running day-to-day operations, and you’d love to hand this off to a trusted top manager, to free you up to focus on growth—and a vacation!

If you’re nodding your head yes to any of these, check out our free webinar, Smash Through the Top 10 Barriers to Growth, on June 4.

I’m doing it jointly with two other small business experts: attorney Nancy Lewellen and productivity consultant Rosie Aiello.

Here are the details.On that page, scroll down to see the 10 barriers we will cover.

I will focus on three areas:

1. Management style for growth. Make sure you’re not the bottleneck to your company’s growth.

2. Profitability. See how you stack up against the 12 Principles of Profitability.

3. Marketing & Sales. Make sure your Magic Chain of Marketing has no missing links.

This free webinar will be an exciting tune-up for you, to help you quickly discover ways you can overcome your own growth barriers.

Check it out and sign up now while you’re thinking about it.

Call me at 415-491-1896 if you want to find out if it would be right for you.

How to Avoid a Get-Rich-Quick Mentality

A get-rich-quick attitude is a bane to business succees. To avoid it, surround yourself with savvy business owners.

Q. That desire to get rich quick is the bane of small business growth. I want my business to grow gradually and steadily. Asked on Hightable.com by Mbanude Izuchukwu.

A. This is an excellent question, because so many entrepreneurs fail to take your attitude.

I think the best way to do this is to surround yourself with a small group of  savvy business owners to act as an informal group of advisers. Here’s how to do this:

My business is leading such groups here in California. My groups–with no more than ten members–meet each month. You explain to them your business, your plans and goals, and your strategies, and they help in several ways:

— You present your plans to them. Doing this forces you to create plans that make sense, and that aren’t too ambitious.

— By having to explain your goals and strategies to them, they can keep you from making expensive mistakes. Sometimes you are being too bold, as you are concerned about. But sometimes you are being too timid, and you need to think bigger. And they will tell you either way.

— You help them with their problems in turn, and you learn just as much doing that.

— They serve as role models for you. You learn a lot by seeing how they solve their problems.

— If you think your problems are unique with you, they are much harder to overcome. But when you see that many others have dealt with the same problems, they don’t seem as overwhelming.

How do you find or build such a group? I would start with local business organizations, and look for those who have growing businesses, who seem savvy, who are willing to learn from others, and who aren’t competitors. The more diverse kinds of businesses you have, the better. The people must be trustworthy to keep confidential whatever is discussed in the meetings.

A group like this is a very powerful tool for growth, and for avoiding bad mistakes.

Where to Get Help to Grow Your Business

Business owner round tables help you tackle your challenges to growth. Here are guidelines for a successful group.

Q. Who is the best choice to help you grow your business?

I used a business coach to help get my business off the ground. Now I want to grow my business. Who do you think is the best–my business coach, a CPA, a financial advisor, or a business attorney? Or someone else entirely? Asked by Jacquelyn Bell, CPA on “Small Business Owners Group” on LinkedIn.

A. My Answer

Rule #1. As your business grows, don’t be the Lone Ranger! Get some form of outside advice and support. Every exec of a larger company relies on this. Only small biz owners hold on to the mistaken idea that they can go it alone.

You offer several good suggestions, and here’s another: business owner round tables. My company leads ongoing peer advisory groups for owners of growing companies, and I know there are similar groups all over the country.

How the groups work. I’ll use my groups as a model so you can find or build a similar group: Ten owners meet once a month for half a day, under my guidance; members set goals, hold each other accountable, give feedback, and do problem solving.

Benefits. A group of savvy owners holds your feet to the fire the way no consultant can. “No way would I show up for the meeting without doing what I had committed to the group.” The breadth of experience is so great within a group of ten, it’s hard to find an issue that somebody hasn’t dealt with. You find great role models: “If she can do it, surely I can.” You discover that your worst problems are not unique; others have dealt with the same. You learn from others’ problems: “I was advising him, and I realized my finger should be pointing right at myself.”

Guidelines for a business owner round table:
Have a leader. All-volunteer mastermind groups are very tough to keep on track.
— Have people at similar levels of sophistication. I have groups for solopreneurs, and other groups for those with a management structure.
Diversity of business types is a major strength. I’ve led groups where they were all in the same industry, and they all thought the same–nobody to challenge them.
— It’s not a networking group. You don’t want your best customer in the room when you’re describing your toughest challenges. Of course, no competitors.
— Members must agree to be there, on time, till the end. Missing meetings hurts the rest of the group.
— Written agreement of confidentiality.
People need to pay–even if they miss a meeting. Otherwise they don’t respect the commitment.
The leader has to be strong enough to ride herd, yet not dominate the group. The members need to be the resource for each other.
— My groups have ranged between 5 and 10 members. More people and you don’t get heard.
These groups can be long-lasting. I have a number of 5 to 10 year members.

Such a group does not replace specialized professional advisers. You still have your CPA, CFO, attorney, marketing whiz, etc.

But a group of peers helps you with the subtle ways you need to change your management style so that you can keep up with your company’s growth.

Look here for more on how our groups are run.

“Round tables” don’t have to be round! Our groups meet in a board room with a long table, comfortable chairs, and a large coffee pot. And plenty of white boards to take notes on while members discuss their issues.

How to Finance a Second Location

Financing your 2nd location. Checklist of expensive things that small biz owners often overlook.

From a question on LinkedIn by Arthur Goldhaber

Q: What cost items get left out when store owners are figuring out what size loan they need to open a second location?

A: Here are some expensive items that owners often overlook. I have several small business clients that have recently gone through this—a restaurant, a bakery, and another company that moved to a larger facility. They were good at figuring the new operating costs, lease and facilities cost, and tenant improvements, but there were several ways they underestimated the cost of the expansion:

The cost of expanded inventory. Some owners try to purchase expanded inventory out of current cash flow rather than making that part of the new-facilities investment, and they soon go into cash crunch. Their cash reserves won’t carry them through the time between when they must pay for new inventory and when they get cash from selling it.

Hiring and training a top manager for the second facility. Assume the owner currently runs the first location, and has an assistant manager. If the assistant manager is not skilled or experienced enough to step into being manager of the second location, then a new and more expensive manager will have to be hired and groomed for some period of time. That is strictly an overhead cost.

Help for owner. Since the owner will be totally absorbed in getting the new place going, someone must take over many of his or her regular responsibilities. This may require hiring extra people. (But may be combined with hiring the new manager.)

The cost of getting needed approvals, negotiating a lease, designing the new interior, overseeing the tenant improvements. These things take a lot of the owner’s time, but they also may require hiring expensive professionals: engineer, consulting contractor, lawyer, architect.

Cost of changes in location #1. The original store may need an upgrade to bring it in line with the snazzy new place. May need changes in the back office to accommodate admin for two locations. They discover that their old systems are completely inadequate, and need an upgrade: POS, inventory control, employee time tracking, accounting, plus the computers and networking—all integrating multiple locations.

Hiring and training staff for the new location before it opens, and before it has positive cash flow.

“Stuff happens” funds, to cover delays, glitches, cost overruns. For example, “At the last moment, the city required us to upgrade our handicapped access.”

The cost of capital. They may neglect to factor in the cost of borrowing the capital they need, paying interest on the investment until the new location is profitable.

Get the right kind of loan. Some businesses try to finance expansion with their revolving line of credit, which must be repaid every year. This can actually force you out of business! You must get a term loan for 5 to 7 years, which allows you to repay out of the profits of the expanded operation.

Never finance long-term needs with short-term capital!

Don’t use revolving line of credit, credit cards, or vender credit–except for quick turnover items or as a receivables bridge.

Do use term loans (including a personal loan), equipment leasing, funds from second mortgage or your own savings.

 

The good news is, once a company gets its #2 location up and running successfully, #3 and 4 are a lot easier. And since you’ve proven you can do it, it’s easier to attract capital.

Are You Cut Out to Be an Entrepreneur?

Do you have what it takes to succeed in business? Many do who seem to lack strong entrepreneurial skills. Here’s what they do have in common.

Do you have what it takes to succeed in business? Some people think it takes special skills to be a successful entrepreneur. I think it’s a myth. If you question your own entrepreneurial credentials, take a look at some of the people I’ve worked with—from solopreneurs to 50 or more employees:

  • Two art majors started making hand-printed greeting cards for friends. Now they own a print shop with a bunch of employees. They’ve printed my books.
  • A woman was making pear condiments in her kitchen. Soon she was selling 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 a new one 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 a pittance. Twenty years later, he has one of the best restaurants in the Bay Area, and has had a Michelin star.
  • A woman took over her husband’s bookstore when he died of a heart attack. She didn’t really enjoy the business, but she trained somebody else to run it for her, and she actually hired two more people.
  • 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 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. She recently bought out her former boss.
  • A banker took his early-retirement buyout and started a yoga studio, and he just loves doing that.
  • My wife BJ, the least entrepreneurial person I know, left her job when she got passed over for a promotion. 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. But they’ve all done well. 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.

Are you one of these “accidental entrepreneurs?” Your issue is, once you are up and going, how can you make the best of it? Not just to survive in business, but to thrive, and get where you want to go.

What It Takes to Succeed

For these folks to succeed as entrepreneurs and take their business where they wanted it to go, they had to master a handful of basic lessons. Here’s what they have told me. My guess is, these apply to you as well:

Find your natural gift and build your business around it. Not only what business you are in, but what you do in the business. These folks learned to succeed by doing what they were best at—design, product selection and merchandising, working with customers, spotting and negotiating deals, whatever—and handing off all the rest.

Insist on making a profit. Know what things cost, and how profitable each sale is. Don’t spend money unconsciously. If you’re not good at the numbers, hire a strong numbers person and have them give you the financial data you need in a way you can understand and take needed action. If they don’t do this, replace ‘em!

Pay yourself first, and well. If the cash is just not there, tune your business model until it is. Or is this just a hobby for you?

Listen to the market. Let it tell you what to sell, and what to ruthlessly pare back. Let your customers tell you what they want to buy from you, then give it to them.

Learn to sell by being who you are. Let your passion show through. Be there with your prospects and customers. Looked at this way, selling is not a fearful activity.

Don’t be the Lone Ranger. Get past your “only I can do this job” mindset. Bring in top quality people. The better people these owners had on their team, the bigger and more profitable they became, and the easier their job was. And the longer their vacations!

Let go those who don’t measure up. Don’t be held back by the limitations of your people—whether employees, subcontractors, or professional advisors such as accountants.

Stop being a control freak.  When you have good people, trust them to do the job you’ve hired them for. Trust but verify. Watch over things, but don’t jump in and do them yourself.

Get the secret knowledge out of your head. Learn to turn everything into systems, checklists, procedures manuals—even the things that you’re sure only you can do correctly—so that others can do them.

Set a plan, even when the uncertainties are daunting. Stick with it, review it regularly, and revise it as needed. A plan should be just a page or two, and should be dog-eared, coffee stained, and covered with notes.

Save money as you go along. Build up a cushion for tough times and a fund for expansion. Those that did this all along stayed in business throughout this tough downturn.

Take care of yourself. If you burn yourself out, you can’t provide the services you are passionate about. The notion of the 24-7 always-on entrepreneur is a dangerous myth.

Build your business around your life, not your life around your business. You’re in business to get to do what you want. Otherwise you might as well have a j-o-b.

Know when to let go and get out–whether you sell, pass it on, or just lock the door–and head on to the next thing.

You don’t have to be a rocket scientist to master these lessons. But having some help makes it easier.

This is where I come in. I’ve helped these folks grow to the size they want, put a lot more money in their pocket, take long vacations, then come back and find things ran well in their absence.  So give me a call.

 

The Inner Game of Business Growth

Why do some businesses grow rapidly while others struggle for growth and profitability? Here are examples of what holds people back.

Why do some businesses grow rapidly while others struggle for growth and profitability? The difference often lies within the noggin of the owner. You are the biggest asset of your business, and more than likely the biggest bottleneck as well.

How about you? Is the way you run your business a barrier to your growth, profitability, and ease of operation?

Self-defeating management habits, attitudes and beliefs pervade the “crazy makers” I hear from business owners all the time. If you look at yourself, you may notice contradictory attitudes like these:

On the one hand . . . On the other hand . . .

• I can’t get all my work done. . . . I’m not hiring another employee.

• I must learn how to manage my time better. . . . I can’t find the time to make the needed changes in how I use my time.

• We’ve got to stay on budget. . . . I can’t resist making last minute design changes.

Pulled by conflicting attitudes

• We’ve got to watch costs. . . . I can’t be bothered to review the financials.

• Low margins are killing us. . . . I can’t bring myself to raise prices.

• I’ve got to take more time away from the business. . . . I can’t leave my managers alone. I can’t totally trust them.

• I need more skilled employees. . . . I’m afraid I’ll just train my own competition. I’m afraid I won’t have enough work to keep them busy.

• I need more sales. . . . Marketing scares me. I wish customers would just come.

• I get so tangled up in day-to-day operations that I lose sight of my vision. . . . I doubt the value of having a plan.

• I want to ease up and work fewer hours. . . . I can’t change my belief that hard work is necessary.

If you are nodding your head, “Yep, that’s me!” for any of these, you’re not alone. Crazy makers like these bog down many entrepreneurs.

This is the theme of my new ebook, “The Inner Game of Growth,” which shows you how to resolve these crazy makers.

I also offer you a freebie phone session on how to tackle contradictory attitudes like this using two simple tools. Just call me, 415-491-1896.

Is Entrepreneurship for Everyone?

Many “accidental entrepreneurs” go on to run very successful businesses. Here are examples.

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.

 

How to Thrive in Tough Times

14 quick lessons, based on the actions of successful small business owners I work with

14 quick lessons, based on the actions of successful small business owners I work with:

TO SURVIVE NOW

Banish doom and gloom

Keep your customers

Ask “Who’s buying?”

Go for cash flow

Don’t take unprofitable work

Watch your money like a hawk.

Collect money faster

Don’t keep unnecessary labor, but sustain your team

TO THRIVE LATER

Take care of yourself

Don’t stop paying yourself

Focus on running your business

Envision your recovery

Seek new opportunities

Ready your recovery fund

Inspire your team

Snap up resources

 

Details on these in my new ebook “How to Thrive in Tough Times—Lessons from Successful Business Owners.”