Lessons I Learned Today 6/18/09 – Potholes in the Highway to Heaven

This is a digest and recap of highlights, quotes, and comments from articles and discussions posted on this date on the Applied Entrepreneurship, LinkedIn group site.

 

*Have You Created an Impossible Business? by C.J. Hayden

“It’s easy to think that any business can be successful if you work hard enough, but there are many situations where this just isn’t so. Consultants, coaches, and other service professionals often start a business believing that all they need to do is charge a “reasonable” fee and sell “enough” of their time. But unless you do the math to prove or disprove your assumptions, you may be creating a business that can never succeed. Here’s what can happen.”

“If earning a decent living as a self-employed professional sometimes seems impossible to you, start asking how it could be possible. What can you change about how you are marketing yourself, how much you are charging, and how you are packaging your services? While it could be that success will come if you just work a little harder, it’s more likely that you first need to start working a little differently.”

The articles give two examples of entrepreneurs whose businesses were “remodeled” to be more profitable.

 

*Four Reasons Why Small Businesses Succeed (or Fail) by Robert A. Normand

“No society in the world is better or more prolific at creating new businesses than the United States capitalistic system but often we are so busy commercializing ideas and starting new ventures that we don’t take the time to learn basic, successful management principles that have been developed by our larger companies.”

“As a result of inadequate management, many small businesses fail in the early years. They fail not because of a weakness in the product or service concept they have, but because the business was not properly managed in the back office.”

Once a business has emerged or grown to a certain level, management techniques must change or the business will run into trouble. For many small businesses this level is $1-3 million in annual sales or 5-15 employees. Sometimes the critical point is smaller and sometimes it is larger, however, when it occurs, the owner or manager of a small business must evolve, morph or otherwise change from a manager of things to a manager of people and from a technical expert to a strategic thinker.

What do successful businesses have that troubled businesses don’t?

  • Invariably they have a positive attitude towards their business and life in general.
  • They are committed to their effort.
  • They are patient.
  • They are persistent.
  • They have developed a business blueprint called a Strategic Business Plan that clearly describes their business concept, their mission and their philosophy of business.
  • They have developed an Organizational Structure that functions as a well-oiled machine.
  • They have developed Operational Support Systems.

 

 *10 Business Plan Gaffes You Don’t Want To Make by Benjamin Tomkins

 “Done right business plans aren’t something you use to lure investors and then stick in the bottom of your desk drawer. Rather, they become living documents that guide your business, keep you on course, and — yes — adapt as your businesses changes. But too often, business plans are rife with problems. Expert Tim Berry breaks down the top 10.”

  1. Straightjacket Plans – Do only what you need, and not one thing more than that.
  2. Pollyanna Profits – Plans projecting making 50% on sales three years later aren’t showing me how good the business is, but rather that the planners don’t know the business. 
  3. Vertigo – Detailing parts of the business you’re in love with but glossing over other parts you don’t really don’t know
  4. Potholes – A plan that leaves a big hole, such as based on strength of management team but no description of how that strength fits this business. 
  5. What’s The Story? – Business plans should tell stories. What better way to explain a business than to tell a story of how this person had that problem and found this solution? Make it come alive, make it real. 
  6. Hockey Sticks – Good plans have good reasons, documented reasons, for growth rates turning up. 
  7. All Those Cs – Do me a favor: if there’s just two or three or four of you, don’t give yourselves the titles CEO, COO, CFO, and CTO.
  8. Lowball Pricing – I like business plan that uses segmentation and differentiation to price for quality. 
  9. Working For Free – Investors don’t want people working for free; they want businesses that can afford to pay their people fairly.
  10. Dead Scrolls – Make it concrete and specific, and then follow it up. Review the plan, check the changing assumptions, and expect to revise.

 

* The Case of the Screwed Screw Maker by Jason Voiovich

“What is Titan to do? Are the others infringing? Perhaps. Are they causing confusion in the market? Certainly. Is the confusion hurting the reputation of the Titan brands? Probably. Will Titan be able to get them to stop? Doubtful.”

“At first, its tempting to think Titan has a legal problem (and they very well might), and to come up with legal remedies (which they could), but that’s really not the central issue. The issue with the Titan brand portfolio is really a failure of marketing strategy. Specifically, a three-part failure:”

  1. “Underfunded brand development effort – A properly promoted brand would be able to garner market share fast enough to create a stranglehold in the marketplace, locking competitors into a minority share and decidedly sub-dominant position.”
  2. “Failing to employ the “Kleenex®” brand strategy – They could have adopted the king-of-the-hill brand position, naming their product directly after its function – composite deck fastening. Instead, the company employed a strategy focusing on the key benefit”
  3. “Weak channel marketing –  The fact you can easily buy another brand of screw at all is a failure of channel marketing.”

 

*How a $0.04 text message ruined $500 million in reputation building by Jason Voiovich

“On Monday, May 12, 2008, a 7.9 magnitude earthquake hit southwestern China’s Sichuan province. Many smaller villages were, literally, wiped off the map. Much of the provincial capital Chengdu was reduced to rubble. 10,000 people were dead within an hour. At least 60,000 lost their lives as of this writing. 200,000 have been forced to flee a tenuously perched lake created from massive landslides. Millions of others have been left homeless.”

“The real reputation management story here, however, is the domestic corporate response in China.”

“Multi-national corporations (McDonald’s, Samsung, Nokia, KFC, and many others) responded as well. They donated money and supplies just as quickly, to the tune of $500 million. At the time, everyone in the corporate community seemed focused on meeting the challenges of the disaster.”

“Then simple text messages began appearing on Chinese phones. Essentially, they accused these multi-national corporations of donating too little to earthquake relief efforts. That the “iron roosters” (a symbol in China of the uncaring tightwad) only were interested in exploiting China’s resources, but cared little that its people were suffering”

“The power of the humble text message is undeniable. It can have instant distribution. It can cast a wide net. Most interestingly (and frighteningly to those on the short end of one), text messages can carry surprising credibility.”

A few things to consider:

  1. Authenticity: If you truly are who you say you are, and do what you say you will do, your company’s reputation has the solid foundation it will need to build upon not just during a crisis, but over the long haul.
  2. Relationship building: The crisis event is not the time to build relationships with those stakeholders who can affect your reputation.
  3. Fighting fire with fire: Corporate reputation managers often find themselves remiss to use the same guerrilla tactics their detractors would use – blog posts, text messages, and viral campaigns. A costly strategic mistake

 

*Planning Your Exit by Michael J. Franz

“If you’ve ever given any serious thought to exiting your business, now is the time to start. Exiting is a multi-step process that can take from weeks to years depending on the size of the organization and the reasons for exiting.”

“When it comes to planning, how you exit your business is just as important as how you start it. The goal is to maximize the value of your company before converting it to cash and minimize the amount of time consumed.”

“Getting out of business is a process. The length of time required to complete the process is directly related to the complexity of the business and the circumstances underlying this decision to get out of business. It can range from one week for a home-based sole proprietorship to several years for a corporation forced into involuntary bankruptcy. Disputes and litigation add another dimension to the timeframe”

The getting out of business process typically includes the following:

  • Reach Agreement and Obtain Authorization from Owners to Dissolve Your Business Entity.
  • Designate a Leader & Organize a Team. Authority and roles should be clarified.
  • Engage Professionals & Consultants as Team Members.
  • Prepare a List of Assets and Perform a Physical Inventory.
  • Develop a Schedule for Implementation.
  • Release Announcements & Notices.
  • Implement the Plan.
  • Conclude or Transfer Contract Obligations.
  • Close Operations.
  • Dispose of and Transfer Assets.
  • Prepare Final Financial Statements & Tax Returns.
  • File Articles of Dissolution.
  • Prepare and Issue Special Filings, Notices, Informational Returns, and Taxes.
  • Receive Tax Clearance Notice. File in financial records.
  • Close Bank Account.
  • Store Business Records.

“The process for getting out of business successfully requires the same amount of planning as going into business. While the process should be easier, it is likely to be less enjoyable and more stressful. The best advice for business owners is to think about the future during the early stages of getting into business.”

 

*The Purpose Driven Business by John Jantsch

“What’s the purpose of a business? Or, perhaps more specifically, what’s the purpose of your business? Do you ever think about that throughout the course of the day? Or, does it only haunt you at night or when you are trying to clear a jam in the copier?”

“I would have to say that the real purpose of a business is to give the owner of that business more life, more freedom.”

“Has anyone come to realize that your business can rob you of your life it you are willing to let it?”

“The answer to this puzzle comes down to two things – focus and connection. ”

“Focus involves a discovery, or at least rediscovery, of what you want most out of your life. That knowledge then must become the focus of your thoughts and the basis for your business decision-making.”

“Connection is the systematic application of your purpose in life to the day-to-day function of your business.”

“Find what you want out of life, find what you are willing to leave behind in order to get it and then connect that purpose every single day with what you do and you just may actually catch a glimpse of the magic that owning a small business can bring.”

 

What I Think

I think more entrepreneurs should consider John Jantsch’s thought, in his article posted on this date, The Purpose Driven Business: “The real purpose of a business is to give the owner of that business more life, more freedom.”

That thought should sometimes be considered in conjunction with the comment by C.J. Hayden in his article, Have You Created an Impossible Business? That thought is: “It’s easy to think that any business can be successful if you work hard enough, but there are many situations where this just isn’t so.”

Way too many entrepreneurs ruin their lives struggling to reach a dream, and not necessarily because that dream is impossible, nor because they don’t work diligently toward their goal. In many cases, it is because they simply fell into one of the “traps” described by Benjamin Tomkins in his article, 10 Business Plan Gaffes You Don’t Want To Make. Tomkins describes many common errors entrepreneurs make with their business at the business plan stage. Banks and investors are certainly accustomed to seeing the “hockey stick” financial projections, where the entrepreneur simply boosts the estimated profits, shortens the time to the ROI, and clearly underestimates the expenses, all without any basis in research or reality.

Perhaps the most “sinister” of these errors is made by entrepreneurs who diligently work on the business plan in good faith, not to raise capital or to persuade others to join “the cause,” but for themselves. In some of these cases, the business plan will never really be reviewed by anyone else, or at least not by the proverbial “trained professional.” What is “sinister” about this is that if the business plan contains one or more serious “potholes,” as described by Tompkins, the entrepreneur may never realize it until it is too late. “Too late” may be after a substantial amount of the entrepreneur’s money has been invested in the business, possibly accompanied by money from friends and family. “Too late” may also be after a lifetime of toiling to accomplish something, which might have been possible if another direction had been taken, or strategy used, but the entrepreneur cannot or will not see it.

In such cases, the entrepreneur may be doomed to a fate much like that of Sisyphus. If you’re not up on your Greek mythology, although there are several interpretations, Sisyphus was a deceitful Greek king, known for his cruelty, trickery, and hubris. Hubris, a crime under ancient Greek law, might generally be described as overwhelming pride rising to the level of arrogance, often resulting in actions which intentionally or unintentionally shamed or humiliated others.

The hubris of Sisyphus was so great that he thought he was as clever as Zeus, chairman of the board of “Mount Olympus, Inc.” Perhaps because of this, Zeus thought up a particularly fitting punishment. Sisyphus was required to roll a huge rock up a steep hill, but each time he did so, before he could reach the top of the hill, the rock would always roll back down to the bottom, forcing him to begin again. Sisyphus was doomed to do this for eternity, also becoming the first perpetual motion machine. Too bad the United States Patent Office had not yet been invented.

The point of this follows nicely with a fortune cookie witticism I’ve kept under the glass atop my desk for many years. As the saying goes, “many people spend their lives trying to climb the ladder of success, only to find it is leaning against the wrong tree.”

If the real purpose of business is to give the owner more life and freedom, then getting trapping in a dead-end business may be worse than not quitting your day job. Just because you start a business shouldn’t mean you can’t get out of it. Many entrepreneurs, however, become so myopic (I won’t digress again into the Greek background for this word) about their business that they can’t see their way out of the trap they’ve put themselves in. These days, the danger of digging a bigger hole is easy to do, and entrepreneurs are, as I write this, undoubtedly finding ways to borrow more money they won’t ever be able to repay, even if the economy does turn around in the next year, or two, or three.

The mythological story of Sisyphus is the antithesis of the lesson entrepreneurs should be following. Leaving room for escape should be an essential part of any business plan. A good failure plan can be just as valuable as the succession plan, which Michael J. Franz’s article discusses. Thinking the path to the goal will be without bumps, is a silly as thinking you can travel down any unknown road without encountering a pothole. If your hubris is so great that you ignore this warning, I only hope you don’t run into one big enough to fall into. If you do run into “The Big One,” you might just have to introduce yourself to Sisyphus. Don’t think he’s ignoring you, however, he’s just really busy.

 

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If you enjoyed my impression of these articles, why don’t you read them for yourself and see what you and I missed or hit? Join the Applied Entrepreneurship group on LinkedIn. Membership is free and I try to post about ten articles a day there. We have some great discussions going and if you are an entrepreneur, we hope you will join us.

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Posted in Applied Entrepreneurship, business, Business life cycle, entrepreneur, Financing a business, Growing a business, Innovation, Perseverance, Personal happiness, Planning for a business, Starting a business, Succession Planning, Thinking about a new business
One comment on “Lessons I Learned Today 6/18/09 – Potholes in the Highway to Heaven
  1. This is a good tip especially to those new to the blogosphere.
    Short but very accurate information… Thanks for sharing this one.
    A must read post!

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