The Ugly Truth About Small Business

Why We are Entrepreneurs

In a word, passion. We have passion for what we do. There are many other reasons after passion. The overriding factor is that we love what we do. Education level doesn’t matter. Funding doesn’t matter. The fact that we entrepreneurs see a need, enjoy doing something, or want to do something and the only way to get it done is through a business of our own.

We don’t fit the corporate world. I jokingly say that I am unemployable right now. In fact, that is not far from the truth. Janet Walsh, our BusinessTVChannel.com People Skills expert, watches her corporate clients refuse to hire people who have been “out on their own” for many years. They don’t usually fit into the corporate mold.

Look at the problems that many business owners had when they sold their businesses and asked to stay on for a period of time. We entrepreneurs chafe at being told what to do.

In other cases, we don’t fit in working for our competitors. We don’t like their ethics, they way they treat customers, or even more basic, you get tired of not being recognized for your accomplishments.

When you start your own business you are boss and can mold the company in a way that you see fit. You are rewarded and penalized on your efforts.

As a result, many of you learned your lessons working for someone else and have changed the way you manage people. Others of you who thought that owning your own business would be easy because, “I was making $20 per hour and the boss was charging $100 per hour”, had a rude awakening when you started.

Entrepreneurs become entrepreneurs because we have a passion for what we are doing. Some times we are forced into business. Sometimes we make a conscious decision to be in business. We put up with the stress, the terror, the darkness because we are trying to make a difference in the world, each in our own way.

Why did I write this? it is time to start thinking about what we plan to accomplish in 2007. Knowing why we are in business is a critical factor in shaping our goals, hopes, and aspirations for 2007.

What Do You Do When You "Hit the Wall"?

Many of you know that I am a runner.  Most of you don’t know that I took the summer off to let my knee heal (I stepped in a hole and twisted it). Yesterday I ran my first half marathon in my long climb back into shape. I figured “it’s only 13 miles.” I’ve been back in training but had not run this distance yet. I figured, “No Brainer.”  For the first 8 miles was doing great. Then I hit the wall.  I ran out of energy.  This surprised me since normally I wouldn’t hit the wall that early in a marathon. I realized that I wasn’t in as good a shape as I thought. However, I slogged through it and finished the half marathon.

It reminded me of what happens in business when we “Hit the wall.” Everything we try to do for a certain period of time isn’t working. One disaster after another happens. We get tired of the fight.  We have to maintain a great disposition and attitude for our employees…even when we feel distracted, frustrated, and stressed out.

What gets you through?  Mental energy.  Mental energy gets you through when you hit the wall running.  Mental energy gets you through when you hit the wall in business.   

How do you develop this?  Here are some things I use:

1. Write in a journal.  I use one of the marble composition books that we used as kids.  I write three good things that happened every day.  I admit, when I’ve “hit the wall” sometimes it’s tough to come up with three good things.

2. Remember why you are in business.  There had to be something that got you into it.  What was it? Why do you enjoy it?  And, if you really don’t want to do this, then get out. Life is too short not to do something that you enjoy.

Like never firing someone when you are angry, the decision to stop running your business is not a decision to make when you’ve hit the wall.

Remember the excitement that you had when you started. If you’re honest, you also had some fear…could you actually do it?  Could you support yourself, your family, and your

employees’ families? The fear and excitement kept you going. It can keep you going when you “Hit the wall.”

3. Talk to others.  And, you want to talk with people who won’t have a “pity party” with you.  I’ve seen it happen.  In an association meeting, all the owners are grumbling and

complaining.  Find someone who will not complain with you but force you to look at what one thing you can do every day to help you go around the wall.

4. Know that “The Wall” is temporary.  You can get through it. You can go around it.  You can accomplish the goals that you set out to accomplish.

Think about it. It’s all about your frame of mind.

Looking for Funding?

A new twist on an old theme.

In the past, if you were looking for funding you would write your business plan, send it to lawyers, accountants, angels and venture capitalists hoping to catch someone's attention.  Or, you presented your plan at one of the several venture capital forums around the country. This took a lot of time and travel.

Now, the Internet has given us a way to be seen by angel investors and venture capitalists around the globe at the same time.  Beginning Monday, October 16, 2006 you have the opportunity to present your company's business plan live on BusinessTVChannel.com.  You reach interested parties throughout the world...through a live broadcast.  If someone misses it live, he can watch it on demand at a time convenient to him...even at 3 AM!

Check it out at 2 PM Monday, October 16, 2006. Go to www.businesstvchannel.com and click on "World Capital Link".  Signal Mountain Networks, Inc. will be presenting its business plan.  They are a profitable company looking for $2,000,000 Series A funding.

The format? Ten minutes for the live presentation, in a format accepted by venture capitalists, then 10 minutes of questions live from the Internet viewing audience. If you are interested in submitting a business plan, email Jennifer Colter at jenniferc@businesstvchannel.com.

In the interest of full disclosure, BusinessTVChannel.com, my company, will be broadcasting the programs.

See you on Monday, October 16th!

Drip Marketing

Your marketing activities should be consistent throughout the year. Even when you are busy, you still need to keep a baseline of activities to ensure that you will have work for the slower times of the year. Don’t get trapped into a “sell-produce” curve. This is the situation where you are selling until you find work to do. Then you are so busy doing the work that you stop selling. Once the work is over, then you start selling again. You haven’t done the activities necessary to keep a steady flow of work coming into the company.

Drip marketing can help you avoid the sell-produce curve. Drip marketing is a consistent level of marketing that you perform each month. (Like a drip coming out of a faucet…except in this case you don’t want to fix the drip!) There will be months where the activity is higher and months where it is lower. However, you are consistently doing something each month to keep your name in front of your clients and potential clients.

Drip marketing requires planning and execution. Part of your drip marketing plan will be aimed at your current clients. Keeping your company’s name in front of them is important because they are familiar with your company, you’ve already solved a problem for them, and you want them to remember to recommend you to a friend or neighbor when that person has a similar problem, or to call you again if they have another problem.

Next decide who you want to target. Which potential clients would you like as customers? Include them in your drip marketing campaign. You might decide to target specific neighborhoods, specific ages of houses or swap customer lists with a non-competitive company that targets the same type of clients you do. Mailing lists are available to purchase names and addresses of your chosen target market.

One of the keys to drip marketing is consistency of message. This means come up with a slogan or phrase that you use everywhere. The slogan or phrase ties all of the different activities that you do together. Obviously it should be printed on everything that a client or potential client sees including your letter head, your invoices, your business cards, your traditional advertisements, and your trucks.

With drip marketing the key is to do SOMETHING every month. Traditional forms of marketing (print media, broadcast media, billboards, and yellow pages) can all be part of the plan. Relying totally on these methods of advertising can get very expensive if you use them exclusively every month. However, they can be part of an effective drip marketing campaign.

Include personal forms of marketing along with traditional advertising. This way you know that your message at least reached your client base and potential client base. Part of the plan should be an e-mail marketing program. Sending informational e-mails once a month will help tie your clients to your company in a non-intrusive way. And, if they are informational and SHORT, people will start looking forward to them.

Another, non-expensive marketing idea is to give out at least 500 business cards per year. You can put them in your bills, give them out when you go to restaurants, etc. I was recently with a customer who, at the end of the meal, put a business card in with the paid bill. He simply said to the waiter, “I put a business card in here which I would appreciate your giving to your manager. We are in the plumbing and air conditioning business and he might need our services sometime.” He does this whenever he goes out to eat to spread the word about his company.

Newsletters are another drip marketing idea. These take more planning. Most let you write some of it (i.e. a letter from the president). However, if you are not comfortable writing anything they will take care of it all. Newsletters at most should be sent out quarterly. If you do other activities you might want to send them out only twice per year.

My favorite drip marketing technique is postcards. They don’t have to be fancy. Just use a brightly colored paper with a message and a reason to call you printed on one side. If you consistently send out a postcard once per month with your slogan after the message, people will get used to seeing them and within a few months they will begin tying the message to your company and remember them.

Use drip marketing to avoid the sell produce curve. It takes planning. However, you will see a consistent growth in your customer base when you execute the plan.

Retain Your Internal Customers

It is critically important that your internal customers, i.e. your employees, enjoy what they do and are happy most of the time. Their attitude speaks louder than words to your external customers, i.e. those who write your paychecks. No one wants to talk with a grouch. They will talk with a person who seems pleasant.

One of the most overlooked actions is to ensure that you hire the right attitude. One of my clients had a series of employees who didn’t belong at his company. In my opinion they were dysfunctional on a personal level. They weren’t happy. They weren’t doing their jobs and their personal problems followed them to work every day and consumed much of their time. They left…at the beginning of a long, busy summer. However, it was much better that they were gone since they weren’t taking care of the external customers well either. This caused problems initially. However, in the long term, the company was much better off with the “bad apples” gone.

The key is to hire the right internal customers. You can train from a technical standpoint. However, you can’t train attitudes and work ethic. Where do you find these people? Find people who take good care of you in places you go. I’ve watched more than one waitress become a great employee of a contractor.

Let’s assume that you’ve hired the right attitude. How do you ensure that they stay happy and motivated? Many contractors mistakenly look for "motivation tricks" or "sales tricks" that will make the people do what we want them to do.

Most "tricks" don't last for long. All lasting motivation is self motivation. That is why you must hire the right attitude and work ethic. Employees must want to do a good job and follow the rules. Otherwise, they won't stay. As a manager once told me, the good employees will leave and you’ll have to kick out the bad ones.

Each person you come in contact with is different. We have different ways of communicating, different personal needs, different ways that we look at the world.

Here are some specific things that you can do:

Ask questions and really listen to the answers. If you don't understand the answer, ask another question. Many times it is the third or fourth question that really gets to the heart of the matter. You as an owner should be doing more listening rather than talking in most cases.

Observe. Actions always speak louder than words. What an employee does is often more important than what he or she says. Even though someone says something, if their actions belie what they said, they are likely not to do what they say. If you see an employee doing something that is not consistent with company policy ask why. Don’t accuse. Just ask questions based on your observations.

Be willing to change your communications style. Sometimes to get an employee’s attention you must be standing over them; i.e. the employee is sitting in a chair looking up at you. For other employees, if you stood over them, they would be so intimidated that they wouldn’t communicate. With some employees you can be direct. With others you must be indirect to get to the bottom of a situation.

To create an environment where others will be motivated to do the things you need them to do, you have to be a chameleon. You must change the way that you speak, ask questions, and communicate to fit their style. This doesn't mean to be unethical or do things that are illegal. There is nothing wrong with becoming an actor if it means that you achieve the goals that you want and you keep your employees and customers happy in the process.

Once an employee feels that the communication channels are open, he is more likely to offer suggestions which can help improve his job and the company operations. You’ll have contented employees and a better bottom line.

Critical Survival Strategies

You have to keep an eye on critical activities to survive in business. Most of the time you probably complain that there are not enough hours in a day to do everything that you have to do. One of the business owners that I work with has a great saying...what is the least amount of things that I have to do today before I leave for home. He writes them down and does them all...before he goes home. Sometimes that lets him go home early (although rarely in the busy times) and sometimes he stays late to accomplish everything that has to get done. However, it gives him the peace of mind that he is doing what he has to accomplish every day.

After taking care of the customer, the most important thing that you have to do is bill for your work. If you collect COD, that’s easy. You bill and collect for their work immediately. However, many companies must bill. If possible, bill on the date that the work is finished. If you don't bill, you don't have a chance of getting your money. And, the longer you wait to bill the more likely a customer is to "forget" about how long the technician was there, what he did, etc. and question your bill.

After billing, the next critical area is collections. Take the time to call customers who have not paid within 30 days. If you don't become the squeaky wheel then you will be put at the bottom of the list for payment. Sometimes when it gets busy we don't take the time to do this very important thing because cash flow is usually good and it hides that fact that some customers are not paying when their bills are due.

Next, watch inventory control. Inventory is a bet. Make sure that you are betting right.

Finally, realize that everyone has a tendency to get grouchy during the busy times. Field labor is tired because they have to work over time. The office has more paper work to do. The telephones ring non-stop. The best thing that you can do as an owner is to keep your good humor, remind your employees that it won't be busy forever, and ask them not to complain the next time it is slow.

Apples to Apples

There may be times that you receive your financial statements when you look at them and say, “That can’t be right”. The statements don’t seem to be right. Here are some clues as to where to dig.

One of my favorite sayings is that you have to match apples to apples. That means that you have to have revenues matching expenses. (If you don’t, I call it “apples to oranges”). If you put revenues in one month and expenses in another month, then you are fooling yourself. The month with the revenues and no expenses will be a great month and the month that has the expenses and no revenues will be a bad month in terms of your financial statements. So, watch the work at the end of the month. If you have the expenses in one month you need to have the revenues which offset those expenses in the same month.

The easiest way to check is to look at your gross margin. If the gross margin is not consistent from month to month, you have a problem. If you know that you have revenues and expenses in the same month, then you dig deeper and solve minor problems before they become major crises. Here are some things that could be happening:

1. Inconsistent pricing on jobs. One job you bid a 45% gross margin. The next job you bid a 30% gross margin. The third you bid a 20% gross margin because you want the job and you think that it will lead to others…it may or may not.

2. You miss job estimates. This means that you bid 12 hours on a job and it takes 16. Or, on the positive side, you bid 12 hours on the job and it takes 8. Either way, your gross margin will be affected based on your bid price.

3. There are a lot of callbacks or warranty expenses. You have additional expense with no revenues against those expenses. In the case of warranty, you may recover part of the expense when you submit warranty claims. In the case of callbacks, you have a very little chance of recovering the expenses. This decreases your gross margin.

4. You have situations where the customer pays regular prices and you are paying your employees overtime because you are behind. This means that you can be busier and make less money.

5. You get a large stocking order and expense it. When you order materials for future use it is inventory until you use it. You need a revenue to offset the materials expense.

6. You have outright theft. Employees don’t charge customers for parts they use. Or the parts disappear. Hopefully, this is not the case in your company.

How Do You Know if Your Employees are Productive?

I use a ratio called percentage compensation to determine the productivity of your company. Percentage compensation means that for every dollar of sales revenues how much do you pay for payroll and payroll taxes? In other words, if your percentage compensation is 30%, for every dollar you take in the door, 30 cents is spent on payroll and payroll taxes.

I look at this from month to month. Unfortunately in busier months the ratio tends to increase. You can be busy and earn less profit. The percentage compensation ratio often tells you this. Many times when you are busier your labor expenses are a higher percentage of sales rather than a lower percentage.Why? Because you may be charging a customer regular rates and paying your labor force overtime rates. Or, they get tired and slow down.

Percentage compensation is calculated on a monthly basis as:

Total payroll plus payroll taxes divided by sales.

Include everyone’s payroll: field, sales, office, and owner’s.

Include payroll taxes. Do not include health insurance, workman’s compensation, bonuses, etc.

If your company is departmentalized you can calculate this ratio by department.

Here are the rules of thumb for construction companies:

New construction: less than 20%

Replacement: 25% to 30%

Service: less than 38%

For other industries, check to see what the norm is for your industry.

If your percentage compensation is not in line, then you need to increase productivity. The first place to look is on the time sheets for the people who produce your products and services. How many hours are you paying your employees?

How many hours are you billing customers for?If this number is less than 75%, then start here.

Do You Need a To Do List?

Last week I was having a discussion with one of my clients who insisted that he didn’t need a to do list. I let it slide at that time. Then, on the airplane, I realized that, from my opinion, he was wrong. Here’s why he needs one as does his managers:

The only way that you can be sure that everyone is on the same page and is clear about what is expected of them is to write down those expectations and agree to them. That's a list. Whether you call it a to do list, a goals list, or some other name, it's a written agreement of the activities that have to take place to move that department/company forward.

You can tell whether someone is doing what is expected by checking off the items on that list. Does it have to be the minutae? No. However, expectations, milestones, meeting action items, etc. must be written and agreed to. This is step one in management.It's how you hold everyone (including yourself) accountable.

The easy part of to do lists is writing the list. The hard part is making sure that everything on the list gets done. As the business owner you are responsible for oversight. That means consistently reviewing the action items and making sure that the people you have assigned the activities do are actually implementing them.

Sometimes you’ll get frustrated at the seemingly lack of progress. Other times completion of the tasks will go very fast. Still other times when the behavior changes for a few days or weeks with the employees’ expectations that this is something new and won’t last for long. They will bear the changes until you forget to ask for something, get too busy to check, and things will slowly return to the way they were.

So, from my perspective you need a list. The list holds yourself accountable. It holds your managers and the people who work for the managers accountable too. It’s uncomfortable to be held accountable. However, it is necessary if you are going to operate a successful company with successful managers.

What do you think?

Above and Beyond

This story is personal. In 1985 I bought the third Mazda RX-7 in Atlanta. I loved that car and named it Flash…you can imagine why. Flash learned most of the state of Georgia. I was consulting all over the state at that time and drove everywhere. I was going to keep that car forever. About 1,000 miles after I put a new engine in it, Flash sacrificed its life for my daughter, Kate, and me. We got hit at an intersection. Kate and I walked away. The car was totaled.

I got another RX-7. However, this one was not maintained as well as Flash and within 2 years it was no longer safe to drive. I knew the RX-8’s were coming out and unfortunately this RX-7 died before I could get an RX-8. So, I got a Mustang. Not bad. But I longed for my RX-7.

On Saturday night, I got one of the most pleasant shocks of my life. It was my husband’s 65th birthday celebration. When we walked out of the restaurant there was Flash! The same white car…although this is Flash II. Charlie Shazin, Mazda business owner extraordinare, my daughter, and my husband plotted for the past 7 months. Charlie rebuilt a Mazda RX-7 for me. (Charlie had taken care of Flash and knows Mazda’s inside and out).

The story is incredible. What they went through finding parts and an engine for a 20-year old car. They moved mountains. All of Charlie’s mechanics were into this project and helped. Kate was the last one to drive the car before they pulled it apart and it went to paint. She said it was in bad shape….not any more!

They searched high and low for a radio (I have weird requirements these days – tape and CD player). They found a guy to hand paint the pin stripe the same way it was on the original Flash. This was customer service above and beyond by people who were passionate about what they were doing. And, it showed.

Flash II looks like Flash with the exception of the radio (there were no CD’s in the 80’s) and the interior. Gray instead of maroon. Those maroon interiors disintegrated. I know because I had replaced the interior of Flash once.

And yes, I took it out yesterday afternoon for a drive. I couldn’t go too fast…there were too many cops on the road. However, I did find out that Flash II moves as fast or faster than Flash. I’ve got the car I love back!

The reason that I am telling you this story is that this is an example of passionate work by passionate people and it shows. We need to show our customers that we are passionate about their needs and go above and beyond their expectations.

Why not start with something that one of my clients’ air conditioning installation crews do…sign their work? Every system is signed by the people who work on it. They are proud of their installation and are willing to sign their name to it.

What can you do to go above and beyond?