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

December 19, 2011

How to Start a Business

Filed under: Entrepreneurship — Tags: , , — Mike Van Horn @ 5:22 pm

My answer to a question by Brent Russell

Anybody can start a business. It’s pretty easy. Having a profitable business? That’s harder!

First, have something that someone else wants to buy.
Sell it to them for more than it costs you.
Sell enough of it so that the surplus between cost and revenue (i.e., the Gross Profit) is enough to:
— cover your other business costs, like marketing and admin, and
— make you a living.

After you’re sure you’ve got this part down, then start the business officially. Get your business license, tax ID, insurance, rent an office, etc. But spend no overhead before you have to.

When to hire help. To justify hiring, the employee must help the business bring in enough additional revenue so that his/her wages (including payroll taxes) are covered by the Gross Profit from the additional sales. Your employee can do this in several ways:
— Sell more of your products or services
— Do billable work for your customers
— Free you up from admin stuff so that you can sell more
— Bring an essential skill to the team so that everybody’s productivity is raised

Where to get start up or growth capital. First, where you won’t get it from: VCs, bank loan, the government.

Most small business start up capital comes from
— your savings
— personal loan, or 2nd mortgage
— family or friends (very risky)
— initial contract that pays some money up front (very savvy if possible)
— charge it on your credit card (very stupid)

Where your initial sales come from. Knowing you have potential sales out there is the reason to start a business. So if you don’t know the answer to this question, you shouldn’t be starting a business.


November 26, 2011

Business Growth Myth #3. “I can’t find and keep good people”

I hear this from both solopreneurs and owners with a handful of employees:
“I can’t find good people to hire.”
“I’ll train a good person; then they quit and become my competitor.”
“I had an employee. It didn’t work out. I’m not hiring anybody else.”
“My work is so unique, only I can do it. Too much trouble trying to train someone else to do it.”
“I can’t rely on my managers to make good decisions.”

What I see. If you fail to get needed help, if you opt to go it alone, if you have people who only follow orders and take no initiative, this guarantees you remain a small operation. This may be what you want, but if you want to grow, you’ve got to overcome this attitude. You must learn to ask:

“What is the highest skilled person I could bring in to free me up to focus on growing the company?”

My recommendations. (From our “Finding and Keeping Good People” and “Employer Assertiveness” ebooks)

— Make sure you hire the right people. If you have trouble interviewing and selecting quality people, get help from someone skilled at this.

— Start with a job description that answers the question just above. Look for, not just work skills and experience, but personal qualities and attitudes as well. For many jobs, the latter are more important.

— Help your people do the job you hired them for: training, clear direction, trust, feedback, systems and tools, acknowledgment.

— Be firm, fair, and consistent with your people. Employees leave because they don’t like their boss!

— It someone is not working out, let them go. Hire slow, fire fast!

— For every job that you think only you can do, look for the pieces that you could hand off to others.

This is a major theme in my “Top 3 Barriers to Small Business Growth—and how to overcome them” program.


October 8, 2011

Business Growth Dilemma #1–Doing Paid Work and Developing New Work

Filed under: Growth Management,Overcome growth barriers — Tags: , , — Mike Van Horn @ 4:32 pm

When we’ve got lots of work, we don’t have time to market. Then the work ends, and we have to start marketing to find another big project.

This is a classic entrepreneur’s dilemma, and it can lead to the dreaded boom and bust cycle. However, a mistaken assumption lies beneath this—that we don’t have time to do both customer work and business development.

When I question owners about where they spend their time, I usually discover a third category of activity—“minutiae” —that takes an inordinate amount of their time. Yet these routine admin tasks are the easiest to hand off to someone else. Once we do this, then we often have time for doing the work and the business development.

Some people enjoy one and resist the other. Love doing the work, hate doing the marketing. Or vice versa. So, you bury yourself in the work so that you can plausibly claim that you have no time for marketing.

What is your strength? Where do you make the biggest contribution to your company’s success? Could you arrange your business so that you could focus on your strength, and hand other things off to someone else? If you are best at bringing in the business, then hire someone to do a substantial part of the paid work for you. If you are best at working with customers, then hire someone to do business development for you. This should make your business grow and prosper, because you focus on the activity you are best at. And in either case, hire someone to handle admin and routine for you.

How can you afford to hire this extra person if you have a small business? Let’s assume you have a viable business with growth potential. So if you find a way to hire this needed help, it can pay off for you.

To figure this out, answer a few questions like these:
— What is the highest-skilled person you could bring in to give you the support you need to boost your company’s growth? What’s their job description? What personal qualities must they have?
— What’s their learning curve? How long would it take for this new hire to pull their own weight? The more experienced the person, the shorter their learning curve.
— What’s the upfront cost and payback period of hiring the expertise you need for growth? I.e., how much will you have to invest before profit from the new business generated covers the cost of this person?
— Are you willing to risk this investment in your business growth?
— How would you need to change the way you run your business to best take advantage of their skills? What habitual ways of running things would you have to change?

These are the questions we tackle in our program, “Top 3 Barriers to Business Growth—and How to Overcome Them.” Ask me about it.

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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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.

August 13, 2010

Neglecting HR Costs CEO $1,000,000+

Here’s a story with a moral. A business owner was driving her red Beemer convertible along a beautiful stretch of straight road, when a four-way stop intersection came into view.  Her passenger saw the rapidly approaching sign and said, “Do you see the stop sign?  Are you going to stop?”  She replied, “ I see it.  I understand the law.  But there is no other car coming from any direction within my view.  I think I won’t stop.” And they continued on.

A bit later a second business owner, alone in his Lexus, came along and drove right through the intersection.  Unfortunately, a CHP car was hidden behind a boulder, stopped him, and said, “Sir, you ran that stop sign.”  The owner replied,  “What stop sign?”

This illustrates the plights of two CEOs that have made the news recently.

1. A civil suit for discrimination was filed in a California court against Lucasfilm by a woman who had received a job offer, then before her start date informed the company she was pregnant. She claimed that in response to this news the company representative who had hired her kept pushing back her start date, finally withdrawing the job offer, just because she was pregnant.

As you know from your Unlawful Harassment training (ahem), discrimination against a person who is pregnant is sexual discrimination and unlawful harassment under both federal and state law. And can any businessperson honestly say that he or she has not heard of unlawful retaliation – and that withdrawing a job offer after a prospective employee tells you she is pregnant sure quacks like the retaliation duck?

George Lucas, head of the company, was called to testify in the suit and basically said “Huh?” when asked how this could happen.  He indicated that he really did not get involved in hiring decisions on that level, had had no interaction with the claimant, and left all those matters to his staff.  His testimony didn’t do the Lucasfilm case much good, and the woman was awarded a judgment of over $120,000 and her high-profile attorney will be pursuing recovery of legal fees over the million dollar mark.

Based on what was reported, I presume that Lucas illustrates a dangerous mindset.  Why was some project manager, aided by a “personal assistant” of Lucas, in charge of hiring at such a high-visibility company?  Had that person been trained in lawful interviewing, job offers, discrimination law?  Why was the process not in the hands of a well-trained HR professional? Did Lucas permit a culture of disregarding HR in deference to operational or financial pressures?  As head of the company, Lucas is responsible for everything that happens even if he never lays eyes on an applicant.  It seems like an expensive lesson that should have been learned much sooner, and should have become part of the organization’s culture early on.

2. The second incident involved the head of Joie de Vivre properties, Chip Conley.  In addition to being an astute and visionary businessperson, he is somewhat of a free spirit.  He posted some less-than-conventional  (although not risqué or objectionable) photos of himself at Burning Man on his Facebook page.  His HR Director gave the opinion that the photos were “a cause for concern” and advised they be removed.  Conley listened, considered the opinion, and then decided the pictures stayed posted as per his philosophy of life and business.  So far, no ill effects have emerged from the decision; but if they had, it would have still been an informed decision and a considered risk taken.  It seems clear that Conley expected his HR person to be his trusted advisor and partner in ensuring the safety and prosperity of his operations –and therefore to speak freely about possible hazards to that safety, advise how to address them, and to have the serious and respectful attention of the CEO when such matters are brought up.

Now for a short quiz:  Based on the two drivers described in my story, which one was Lucas and which was Conley?  Which are you?

B.J. Van Horn is Senior Professional in Human Resources at The Business Group. She helps CEOs and other top execs avoid such expensive lessons.

October 5, 2009

How Can Small Business Compete for Top Talent with Large Corporations

(From question in Small Business Forum)

Let me count the ways!

Small companies have many advantages in attracting top people. Here are a few. (I work with owner-run firms from 5 to 100 employees.)

— Shorter commute. One 50-person client just hired a COO for $120k who’d received a $150k offer from a corporation in the city. He opted for a local 10-minute bike commute over the hour+ daily grind each way. He figured the extra two hours a day added to his life was worth $30 grand a year.

— More opportunity. Another client hired a GM away from a much larger competitor. The guy saw that he’d reached the top where he was, and in the new job, he’d get to lead a major growth push. Big fish in a smaller pond.

— Less travel. Many professionals in their 40s and 50s switch to smaller, local firms because they’re tired of constant travel they’ve had in their corporate jobs.

— Flexibility. “Yes, we can bend your schedule around your kids’ soccer games.”

— More diverse opportunity. They see they’ll get to take on a much greater variety of projects and responsibilities.

— Get to work directly with the principals. Small companies may be headed by much more innovative and leading-edge people, and it’s a great opportunity to work with them.

— Less corporate bureaucracy and politics.

— Un-retired. Here’s a big growing trend: Senior people retire from the corporation, then go to work for smaller companies. They trade less money for lower stress and flexible hours. The oldest guy working with us is in his mid 70s.

Attracting top people is a marketing job. You must look at your company through their eyes, see what you offer that will attract them, and how you can make yourself more attractive. It’s about much more than just offering more money.

However, many small business owners discover that the people they’ve lured away from large organizations aren’t a good fit. These people may be accustomed to narrower duties, superiors telling them what to do (thus uncomfortable taking initiative), having a lot of support staff (thus not resourceful at getting things done). But by far the worst quality is exhibiting “employee mentality” rather than the “entrepreneur mentality” needed in a small, dynamic firm. And I’m talking about top-level managers!

So it’s essential to make sure that the “corporate escapees” you hire are comfortable in your small business culture.

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