AUNTIE EM, AUNTIE EM...IT'S A RECESSION!

Does the possibility of a recession have you skeered stiff? Here's a tip: You can be the deer...or you can be the headlights. Seriously, I don't know if we'll actually see two consecutive quarters of negative GDP growth, but regardless of whether we officially have a recession or not there are a few things that you should be thinking about.

One thing in particular to consider is hiring talent. For those of you that have a need or have been considering hiring some staffers, now may be a good time. In down periods, the big corporate monsters tend to downsize to control costs in a ridiculous effort to create shareholder value (the "ridiculous" comment was my subjective opinion...actually this entire blog is my subjective opinion now that I think about it). This may present an opportunity for you to pick-up some talent that may not have been so readily available in recent past. This talent may be in the form of a new employee or it may be a new partner.

Here's an example: We were recently working with an entrepreneur who had started a fitness club. He had built a nice business and was ready to expand and open a second location. He needed some additional capital and had updated his business plan to approach a bank for an SBA loan. During this time he was contacted by a friend and former colleague to have lunch. While at lunch his friend told him that he was recently laid-off due to a slowing economy and he was taking some time to re-evaluate his career. To make a long story short, the two ended up discussing the fitness club expansion and wound up partnering on location number two. The friend had cash and loved the idea of ending his tenure working for the "man." (Oddly enough, the fitness industry is generally sheltered from mild recessions)

Another example came to us a few weeks ago when a client told me he was just able to lure a top web-designer from her corporate position. She made the leap even though the pay was less because the idea caught her attention and her current company was in trouble.

My point: Use the current state of the economy as leverage in any way that you can. During recessionary times it's increasingly important to keep an open mind and utilize that entrepreneurial creativity to its max!

By the way, on our next Cafe Cast, we will be interviewing David Hansen with Plummer and Hansen. He is an expert on small business HR practices and we'll be discussing "People as an Asset."

What else can an entrepreneur do to capitalize on the doom and gloom of a recession?

THE IMPORTANCE OF BUSINESS HOURS

It is very important for an entrepreneur to establish standard hours of operation. Many start-ups are run out of the founder's house (garage) at first and may not have offices or a store front. For this particular group, having discpilined business hours is vital. Credibility is hard to drum-up, especially if a potential customer is calling you in the middle of the day and you're catching "z's" cause you were up until 4am setting up your merchant account, filing for an LLC, and reading start-up blogs. Now, I realize that oftentimes we entrepreneurs have things to do that require us to be out of the office. So, the key is to leverage technology and other methods to create a virtual presence during those times.

Tips to ensuring an appropriate presence:

• Use a live answering service. These are reasonably priced now-a-days and it raises your credibility to customers, potential partners, and investors.


• Upgrade your voicemail. There are services that will send you an email message (to your handheld if necessary) when you just received a voicemail on your work-line.


• Set your autoresponder on your email when you are out of the office. When a customer emails you they get a quick reply stating something like, "We are currently out of the office and on-sight with a client. We will reply to you by 8am tomorrow morning."


• Hire a temp, cousin, sister, etc. to reply to customers with quick answers, if possible. For example, we have a client who trained his niece on how to answer "frequently asked questions." She was trustworthy and did a great job. The customer thought she was a project manager.


• or DON'T EVER LEAVE!

What other tips could we add here?

BARTERING, OLD WEST STYLE!

One of the 5 Deadly Sins that Entrepreneurs make is to try to do it alone. We make this mistake for many reasons, but mostly because we're cash strapped and trying to save every nickel. There are several ways to get some help without using capital. One of them is the old fashioned bartering system. I know many entrepreneurs who have mastered this skill.

Let me give you an example:

We know an entrepreneur who has just opened a fitness franchise with the goal of opening several in the next few years. He has created a budget in his business plan and is doing his best to stick to it to ensure he has a solid amount of working capital. He also knows the importance of managing his accounting books. So, he worked out a deal with a CPA firm to offer them free memberships in exchange for monthly book-keeping services.

We also know another entrepreneur who sells unique sporting goods products. She has worked out deals with several vendors, including attorneys, to exchange their services for products.

Action Plan:

• Make a list (yes, pencil and paper) of the services you need for your start-up.
• Start communicating to your network that you have a need for these services, and begin acquiring some trusted vendor contacts.
• Now it's time to use those schmoozing skills that every entrepreneur must have.
• Develop a relationship with each vendor so that you know what their business and personal needs are.
• Create value for your vendors by connecting them with potential customers that you may know.
• If you have a product or service that they might use then don't hesitate to ask. I love the saying..."don't ask, don't get."

I bet you can work out some great win/win exchanges that will save you cash!

CONSUMER CONFIDENCE BAD? NICHE YOUR WAY TO SUCCESS!

Today's consumer confidence index sank to silly levels, which essentially means that people aren't buyin' diddly squat. Crude oil at 100 smackers doesn't paint a rosy picture either. So, what does an entrepreneur do? Work on your blocking and tackling that's what. "Business fundamentals" is the name of the game in this recessionary economy, and leading your efforts should be the concept of choosing your customers. Recently, I interviewed a marketing specialist, Melani Ward, on our Start-It-Up Cafe Cast. She outlined the importance of focusing on a very specific type of customer, including some of these elements:

• age
• gender
• income level
• location
• behaviors
• interests
• hobbies
• careers
• etc.

Basically, she is encouraging entrepreneurs to drill down and get crystal clear on who your customer is, what they do, where they hang out, and so on. The more you can hone-in on your customer the more clear your marketing message will be. With today's abysmal economy, the consumer is on high alert and getting your product to pass the "wallet test" is increasingly challenging. By choosing your customer you will not only improve on your key messaging but you will also be able to deliver superior value to that person. Don't try to be all things to all people or you risk being lost in the noise.

Action plan: Whip out the pencil and paper. (By the way, if you read a few of my posts you will probably begin to notice the power of pencil and paper.) Jot down some characteristics of your customer. Be detailed! For example, there is new battle being waged in the coffee wars between Starbucks and Dunkin Donuts. Both are crystal clear on who their customer is and what type of value he or she is looking for. Make a list that really describes the individual that has a need for your product or service. What is the problem they have that you can solve?

BUSINESS PLAN, SCHMIZZNESS PLAN!

"Badges!" "We don't need no stinkin badges!" Business plan...we don't need no stinkin...

I've had countless people ask me if they need a business plan to start their business. My answer is, no. You don't need a business plan to start your business, especially if you have the following:

• a high tolerance for pain
• a strong desire to fix something ten times when it could have only taken one or two iterations
• a love for winging-it
• a belief that starting a business is too easy and you would like to make it more of a challenge
• a passion for working with partners, vendors, and employees that all have their own idea of who the customer and competition is

(Oops, was that overly sarcastic?)

Oftentimes an entrepreneur's argument for not having a plan is their market, industry, and customer behaviors change and shift too fast. They state that creativity, vision, and innovation are what drive a new start-up. Agreed, however, a solid dose of logic, rationale, and methodology wouldn't hurt either. A business plan should house all of the above. A recent blog by Matt Winn highlights the need for both both types of focus.

I won't ramble about all of the reasons why you should have a plan. You can access Susan Wu's thoughts on business plans to see some reason's why. However, I will give you a quick "in the trenches" example of how they can help:

Recently, we were working with an entrepreneur who was selling her product direct to customers on the internet, as well as at trade and event shows. We convinced her that it was time to move her idea from Business 1.0 to Business 2.0. We started with following the process of writing a simplified business plan, which inspired her to think through many tough questions. After researching, questioning, and "penciling out" some numbers in a spreadsheet, she realized that she needed to improve her inventory turns (velocity) to really maximize her profits. This prompted her to consider the larger distrubution vehicle of selling her product through existing retailers. She initially didn't think this was a good idea because the margins were smaller, but after working through her plan she realized the volume more than made up for the smaller margins. In her case, the business plan removed a ton of dangerous guesswork.

My point: have a business plan.

3.5 REASONS FOR USING CONTRACTORS TO HELP LAUNCH YOUR BUSINESS

In a recent post, I highlighted 5 deadly sins that entrepreneurs make, and one in particular was titled "Don't Go-It Alone!" . I know this is a tough one because start-ups are almost always cash-strapped, and the thought of hiring an employee just doesn't make sense, yet.

Generally, it makes more sense to bring in a contractor/consultant when you don’t have enough steady work to justify a permanent position.

Here are the top three reasons to hire contractors instead of employees:

• You have specific task that requires a specific skill-set: Even though you would never admit it, as an entrepreneur you may not have a specific skill and you don't have time to learn it. Here is an example: You bring in an person to assemble a piece of machinery that you purchased to produce inventory. Or, you need an IT expert to set up a new server and an office network.


• The task is short-term: The specific job at hand will take a few weeks or months to complete. Here is an example: You need extra techies on hand for the launch of your website.


• The workload fluctuates: The flow of work is not consistent enough to warrant creating a permanent staff position. Examples: You need an accountant who can put in 180 hours a month during tax season but only 50 hours in June, or you bring in a landscaper to plant in front of your shop every spring, but there’s very little for her to do in fall and winter.

Now, you might be thinking that these are obvious. However, here is Reason number .5 ...

• I've made the mistake of having multiple tasks to accomplish such as launching a new website, merchandising the front of a store, managing taxes, building equipment, etc. So, what did I do? I hired an employee to help me. Bad idea, because the employee wasn't very good at anything except the taxes, so everything else was mediocre...at best. Additionally, I started with a motivated employee and turned them into a demotivated employee. Why, because people generally don't like to work in a position where they are only good at 10% of it.
  

To wrap up: I suggest using independent contractors as frequently as you can until you feel that your business is ready for employees. My rule of thumb is if a person can spend at least 60% of their time doing work they enjoy, then go ahead and hire'em. Otherwise, bring on the contractors!

(By the way, take a few minutes discussing contractors with your legal counsel. It's worth the 5 minute phone call to be sure you can use them legally)

YOU MUST PASS THE WALLET TEST...THE REST IS JUST BACKGROUND MUSIC

I love working with entrepreneurs. Rarely do you find an individual with more drive, committment, desire to succeed, and passion to change the world than an entrepreneur. Their ideas make our world a better place (for the most part). However, ideas are just the beginning. Ideas without the other key elements of the start-up system will eventually dissolve and leave very little behind except empty entrepreneur bank accounts.

The main element toward validating your idea is what I term the "wallet test." You can have a spectacular business plan with charts, graphs, laser light show with fog machine, and in-depth financial projections, but until someone actually takes money out of their wallet and puts it into yours in exchange for your product or service, all you have is an idea.

So, "Joe, what is your point?" My point is that customers don't BUY new ideas from start-ups; the new ideas have to be SOLD to them. Be sure that along with the myriad of other activities that you have to perform to get your business up and running that you remember to be generating demand. Many entrepreneurs make the mistake of waiting until everything is perfect to begin selling. Don't wait! Talk to everyone about your idea and how your new product will create value for people. (Incidentally, I have a free business report about creating value for customers at http://www.startupsmart.net/. It's in the big yellow box...you can't miss it. And, I'll know if you go get it or not because I use Google Analytics)

I hope this is making sense. I'm wrestling with the keyboard today. Perhaps it's time to make myself a blended salad.

DON'T FORGET...IT'S ABOUT THE EXECUTION - THOUGHTS ON NDA's

Listen up, fellow entrepreneurs! You should all have Non-Disclosure Agreements (known as NDAs) ready and waiting to be used, at the right time. However, don't lead in to any discussion about your start-up idea by whipping out one. I've witnessed new business owners who do this and they immediately put a barrier between themselves and their audience, every time.

In my experienced opinion (yes, that was my legal disclaimer that I am not an attorney), use NDAs only when your discussions with vendors, partners, and investors are advanced. Investors won't sign them until you are down the road, and even then they better not be lengthy with numerous clauses included.

• Since one of your main roles as an entrepreneur is to create a buzz about your concept, then you should learn to use a tool called a slide deck to help you present your business to others. The slide deck is a great lead-in when first courting others about your start-up. It is informative enough that you get your concept across without feeling like you just gave out the recipe. This is a great option instead of handing out copies of your 600 page, leather-bound business plan. What? You don't have such a document??


• If you're concerned about someone stealing your idea or it being compromised in some fashion, then find a way to pitch your business without revealing the "secret sauce." You want people to get excited about the idea and tell everyone they know. Don't you?


• At the end of the day, it's about EXECUTION! If your only barrier-to-entry is to keep others from stealing your idea, then your business is not sustainable anyway and you're in real trouble. Most business plans are full of great ideas, but a good business plan is useless unless the entrepreneur and team can implement it.
  

So, the lesson here is to have your NDA, but use it only sparingly. A good example of when to ask for a signature is when investors are in the due diligence process, not when your Uncle Bob is reading the Executive Summary.

THE FOUR E's (and 1 P) OF ENTREPRENEURIAL LEADERSHIP

Although Jack Welch, the former CEO of GE, ran a multi-billion dollar enterprise his 4 E's and 1 P philosophy is very relevant for most entrepreneurs that are looking to create a sustainable business.

As an entrepreneur, you are now the top tomato, head honcho, and chief shipping officer, as well as approximately 10 other roles that we don't have to list because you know what they are. However, a role that is often overlooked is the role of LEADER. You are now responsible for engaging and aligning other individuals with your vision and mantra. The following 4 E's and 1 P will help you think about the things you need to do as the leader of your start-up.

Energy - Individuals with energy love to "go, go, go." These people possess boundless energy and get up every day ready to attack the job at hand. High energy people move at 95 miles-per-hour in a 55 mile-per-hour world.

Energizers - know how to spark others to perform. They outline a vision and get people to carry it out. Energizers know how to get people excited about a cause or a crusade. They are selfless in giving others the credit when things go right, but quick to accept responsibility when things go awry.

Edge - Those with edge are competitive types. They know how to make the really difficult decisions, never allowing the degree of difficulty to stand in their way.

Execute - The key to the entire model. Without measurable results, the other "E's" are of little use. Executers recognize that activity and productivity are not the same and are capable of converting energy and edge into action and results.

Passion - (hopefully, there's no need to elaborate here)

What can you do to be sure you are using the 4 E's and the 1 P?

SQUIRRELS HAVE THE ANSWER TO BUSINESS...NEWS AT 11!

There is no such thing as a squirrel-proof bird feeder. Why? Because squirrels spend all day and all night, 7 days a week, 365 days a year focused on how to get into your bird feeder.

What's the key concept to learn from squirrels in this example?

Focus! Squirrels focus their attention and intention. This is a great start-up business lesson. As entrepreneurs, we can learn something from these wise and fuzzy little creatures.

Are you focused? If not, what can you do to re-purpose your actions to ensure you get into the bird feeder?

THE FIVE DEADLY MISTAKES - #5

#5 - Failure to Balance All Sides of the Business

This is an error that I see even the most experienced and sophisticated entrepreneurs make. However, it is also fairly easy to resolve just by being aware of it. By "all sides of the business," I am referring specifically to the Demand Side and the Supply Side.

1. Demand Side: This is the side of the business where demand for your product or service is created. It consists of activities such as sales, marketing, advertising, PR, promotion, etc.


2. Supply Side: This is the side that actually produces the product or service and delivers it to the customer.

Based on your experience in the past you probably have a natural focus on one side or the other. For example, if you've spent 20 years in corporate sales then you may have a natural demand focus, or if you've worked in manufacturing operations then you may have a supply focus. This natural focus will probably manifest itself in your new business. This is where I see entrepreneurs spend too much time either building and tweaking their product without creating demand for it, or they are out creating demand and they wind up throwing the product together at the last minute.

Don't forget, you are now the CEO (in most cases). You will need to ensure the proper balance betweeen these two sides of the business.

Action Plan: One simple way to help alleviate this is to set-up some type of reminder system. Perhaps, once every couple of weeks you book a time with your team (or yourself) to discuss this and ensure you are focusing on both the supply and demand elements of your start-up.

Have you seen this happen with other entrepreneurs? Any input on what you would do to keep the balance?

THE FIVE DEADLY MISTAKES - #4

#4 - Being Overly Attached to Your Initial Idea (it will change)

This is a tough one. Entrepreneurs, including myself, tend to fall so deeply in love with our initial concept, product idea, or target market, that we can wind-up sending the business into a nasty tail spin. Resist this with every fiber of your entrepreneurial being.

What if you find out that your initial idea isn't compelling enough? What if it doesn't solve the complete customer problem that it was intended to solve? Should you throw the baby out with the bath water? Of course not. So, how about an exercise in changing your perspective? How about getting a fresh look at the problem?

Okay, so here's story from the book "Thinkertoys" by Michael Michalko. Back in the 1950s, experts proclaimed the ocean freighter industry was dying. Costs were skyrocketing and delivery times kept getting pushed back later and later.

Executives at the shipping companies kept focusing on ways to cut costs while ships were sailing. They developed ships that went faster and needed fewer crew members to run.
It didn't work. Costs continued to spiral out of control and it still took too long to get the merchandise shipped.

Then one day, a consultant changed the perspective. Rather than ask the question: " In what ways might we make ships more economical while at sea?" executives asked: "In what ways can we reduce costs?"

Ships are big money-sucking machines when they aren't at sea actually doing their job -- shipping merchandise. And when aren't they working? When they're sitting in port being loaded and unloaded.

So, the industry came up with way to preload merchandise on land. Now a ship comes in, the container carrying the cargo rolls off, a new container already loaded with cargo rolls on, and the ship heads back to sea.

That one innovation saved an entire industry. And it happened because shipping executives changed the way they viewed their problem.

Creativity Exercise -- Change your perspective (http://www.theartistsoul.com/)

So, how can you change your perspective and solve your business/marketing problems?
Try what the shipping industry did and change the question.

Instead of looking at a narrow part of the problem ("In what ways can we make ships more economical while at sea?") broaden the question ("In what ways can we reduce costs in general?")

Here's another example:

Maybe your question is "how can I land more clients?" What if you started broadening the question:

* How can I find more customers?
* How can I grow my business?
* How can I make more money from my business?
* How can I make more money period?
* How can I tweak the product to fit the needs of a more focused customer group?

Maybe one of those questions is a better place to look for a solution. Because maybe one of those questions is the "real" question you want to solve, but since you never took a step back to look at the big picture, you've never discovered the right question to ask. And, if you don't ask the right question, your intuition and experience will never give you an answer that actually solves your problem.

For more ideas about using your creativity check out http://www.theartistsoul.com/

Your intitial business idea will change. Your start-up business is dynamic and you must also be dynamic along with it. Mark your calandar to spend at least a few hours per quarter honestly assessing the business and asking "how can it be improved?" Also, use your advisors!

As entrepreneurs, often we let our egos run the show. Don't forget, ultimately, the customer runs the show because they make the choice to pull money out of their wallets and put it into yours.

What else can you do to ensure you don't make this mistake?

THE FIVE DEADLY MISTAKES - #3

#3 - Failure to Address the Competition

Inevitably, and almost without fail, when we are talking with a new entrepreneur he/she will tell us that their new product/service offers something so innovative that they don't have any competition. CALLING ALL ENTREPRENEURS...CALLING ALL ENTREPRENEURS! BE ON THE LOOK OUT FOR A BUSINESS WITHOUT COMPETITION...

I hate to break it to you, but there is no such thing. Even if you're new product or service is very innovative your customers still have a choice to spend money on your offering versus spending it on someone else's. Her's an example:

We work closely with a start-up called TriTowels, LLC. The creator has "invented" a towel that triathletes use when racing in a triathlon. Apparently, triathletes all use a towel of some sort in their race transition area. This towel is used to sort their gear such as running shoes, hat, sunscreen, etc. It is also used to wipe off their sandy, wet feet when they come out of the water after the swim to get on their bikes. Until TriTowels came along a triathlete just used an old beach towel for this purpose. Now, with TriTowels, they can have a unique towel with fun and cool designs on it, as well as quotes from legendary athletes such as Lance Armstrong. There is currently no other product on the market, so one might think they don't have any competition. However, a triathlete still makes the choice to drop the cash on the towel versus using their old beach towel. They could then spend that extra money on some other piece of gear they might need. So, there-in lies the rub. The creator of TriTowels has to constantly create a message to the triathlete community that intices them to want their unique product.

So, whether or not you have direct competition, your business idea still has to pass the "Wallet Test." I encourage entrepreneurs to make a list of several reasons why a customer would take money out of their wallet and buy their product or service. I also recommend they make a similar list of some things the customer could spend money on instead of buying their product or service. In other words, there is ALWAYS competition. The key to creating sustainability is to ensure your idea is compelling enough to get customers to take money out of their wallets.

Ready for Mistake #4? Join the conversation by subscribing to the feed! GET IT DIRECT!

THE FIVE DEADLY MISTAKES - #2

#2 Failing to Assess Your Leadership Skills

Aaaaah...entrepreneurs...the embodiment of passion, creativity, bravery, insanity, and leadership. Wait...leadership? Yes, that's right...leadership. This is an area that is often overlooked and will cause all kinds of problems if not considered. Many entrepreneurs have management and leadership background, and some the extent of their management experience is parenting. However, your new start-up venture will almost certainly require a different kind of leadership approach and new set of skills than your corporate management position. Here's why:

There are several ways to classify the natural life cycles of a business or industry. They go as follows:

• Start-Up (chaos/organized chaos. Figuring out everything)



• Early Development Stage (We have proof-of-concept and are now moving fast with a focus on top-line growth and maybe market share, and definitely CASH-FLOW)



• Harvest (We are focused on EBITA or some variation of Net Profit, which means our operations are focused on optimization of processes)



• Rebirth (Something has changed our industry and customer behavior. We have to focus on change managment and reinventing ourselves)



• Start-Up (Again)
  

Each of these natural cycles requires a different leadership approach, as you can probably imagine. For example, based on your past experience you may have developed a natural leadership style that is perfect for a HARVEST company. This type of leader is probably required to rally their troops around making small tweaks to a system that is known to work. HARVEST leaders generally don't work in environments that are fast-paced (although, they would argue that point, but then again most of them haven't worked in a start-up where they've had to change their business model 5 minutes prior to an investor presentation. Not to mention, living off of mac & cheese and drinking, heaven forbid, tap water, but I digress...) However, a START-UP leader is generally required to rally the troops around a vision of what we think/hope will work. This requires different communication, decision-making, coping, selling, and general management skills than the other cycles.

Here's and exercise that you should do:

Get out a blank sheet of paper, a pen, and a cup-0-coffee. Make a list of all of your personal leadership skills and characteristics. For example: charismatic, able to see the big picture, people-oriented, etc. Now, make a list of all the different skills and characteristics that a leader needs to run your new business. This list may be quite different than the first list, but do not be afraid because now you are SELF-AWARE. Next, flip that piece of paper over and create an action plan of how you can begin to adapt to the leadership needs of your new business. This exercise won't take very long and is worth every second that you put into it. (you can also take a Visionary Leadership Assessment by emailing strategy@startupsmart.net)

Are you ready for Mistake 3#...join the conversation and the RSS feed...GET IT DIRECT!

THE FIVE DEADLY MISTAKES - #1

#1 Don't Go-It Alone!

I would consider myself to be an avid cyclist. I race my bike pretty frequently in the summer months. When friends ask me about cycling and racing they are generally surprised to find out that it's a team sport. A racer needs others from his/her team to help with drafting (sharing the work), strategy & tactics, bringing water, etc.

Starting a business is much the same. Many entrepreneurs make the mistake of trying to do everything themselves when in reality, to be successful, it's a team effort. Even if you're low on cash/capital you still need to use your visionary leadership skills to create interest in your start-up business or idea. Tap into your passion to help communicate your concept to people that can help you, such as friends, family, other entrepreneurs, vendors, etc. Don't make the mistake of trying to "go-it alone." Get creative about rallying the troops and don't be afraid to reign in the ego and admit you need help. Someday you may be able to return the favor as you walk the streets with a wad of cash in your pocket!

Mistake #2...Join the RSS Feed and Get It Direct!

MONKEYS CAN DO IT!

Starting a business is so easy monkeys can do it. Right? Wait...wait...wait! Before you start throwing heavy furniture and contracting Vinnie the Shoe to wack me, allow me to rephrase. The ultimate goal of this conversation (that we shall call The Cafe), is to provide our fellow entrepreneurs with tips, best-practices, experiences, resources, and interactive dialogue to help ensure they are equipped to create a successful and sustainable business.

We have assembled quite the group of experienced entrepreneurs, business executives, consultants, vendors, etc. to consitently provide fresh subject matter targeted towards "all things start-up." LET'S GET STARTED!