2 TYPES OF CHANGE - HOW IT IMPACTS YOU!

Most entrepreneurs love it when things change. That's what makes us entrepreneurs, right? If we didn't love change we would still be working for "the Man" doing our best to keep things status quo. Actually, to be more accurate, entrepreneurs love influencing change or having some level of control over how to react to change when it hits the business or industry.

There are two ways to classify change:

Cyclical Change: Neck ties get wider and then skinnier and then wider again. Hair styles get longer then shorter then longer again. 80's metal hair bands should be cycling back around soon...right? Anyway, I bet you get the idea. Essentially, things come into favor then go out of favor and then come back again.

Structural Change: Here's an example...the IBM Selectric typewriter. Is it coming back? I don't think so. How about the horse? Is the horse going to replace the automobile? I don't think so unless aliens attack us and use their advanced weaponry to render all of our machines inoperable. We've had a structural change that has impacted businesses in the past 15 years. It's called the internet.

My Point: It's important to be thinking how change impacts your start-up. What if you are working on a product or service that will be obsolete in the next few years. Paying attention to the different types of change that may be shaping your industry can improve the sustainability of your business.

Action Plan: Make a list of as many changes as you can in at least the following areas -

• Technology - what technology changes and new innovations will impact your customers, vendors, etc?


• Economic - what economic changes are shaping your industry? For example, how is the weak dollar going to impact your customers, vendors, etc?


• Demographic - what changes are shaping your customers buying habits? For example, if your customers are closing in on retirement then how will this impact their purchasing habits?

WHAT'S YOUR SOLUTION?

In my previous and magically well-written post we discussed the importance of clarifying the "problem" that your customer has that you intend to solve. This can also be stated as the customer pain that you are alleviating. This is a very important piece when starting your business. Your business plan should contain a clear description of not only the the problem that your customer has but also the solution that you are offering.

Gaining some intense clarity around these two important elements of your start-up will ensure that you are not just a solution looking for a problem. If you've spent some time identifying your specific customer's pain then you will have less trouble selling your solution and ultimately have more success in passing the wallet test.

As entrepreneurs we tend to get overly excited and often overly attached to our great ideas. When this happens it is easy to focus on the technical aspects of our product or service without enough focus on what the customer's problem truly is. However, if you think about it, our great ideas aren't really so great if there isn't a customer with a problem or pain that our business can alleviate.

Additionally, investors, partners, and vendors will be much more excited about the size of the problem than with the elegance of your solution.

WHAT'S YOUR PROBLEM?!?!

Actually, this post is less about "your" problem and more about your "customer's" problem. When starting your business, you need to begin by answering some basic blocking and tackling elements...aka...fundamentals.

Today, let's discuss FUNDAMENTAL NUMERO UNO...

THE PROBLEM: You need to clearly identify the problem that your customer has or the pain they have that you can alleviate.

For Instance:

Problem: I'm a coffee drinker but I hate truck stop or convenient store coffee.

Problem: I spend all day dialing phone numbers.

Problem: My weapon doesn't load fast enough.

Problem: I can't carry everything I need when I go out.

Problem: I'm tired of getting out of bed to turn off the TV and lights.

Problem: I'm tired of waiting in line for rides at Disney Land.

Problem: It's a hassle to try to return items I've purchased on the internet.

Problem: I have to go inside the restaurant to get the food.

Action Plan: Yes, whip out the trusty sheet of blank paper and jot down what your customers problem is or the specific pain they have that you can alleviate.

Stay Tuned: In the next post we'll address the "solution" you provide your customer.

6 POWERFUL WAYS TO MANAGE CASH FLOW! (part 2 of 2)

4. Increasing Sales. One would think that increasing sales would lead to increased cash flow. However, if you invoice your customers for a large portion of your sales, when sales increase, your accounts receivable increase, not your cash. At the same time, inventory is depleted and must be replaced. Because receivables usually will not be collected until 30 days after the invoice, a substantial increase in sales can quickly deplete your firm's cash reserves. So, yes, increasing sales can help to improve cash-on-hand. However, this will be dependent on how well you manage your receivables. (additional tip: we have many clients who have used PayPal or Google Checkout to improve their cash position)

5. Managing Payables. A key strategy in managing cash is to shoot for bringing cash into the business as quickly as possible, then hold onto your cash as long as you can by managing your payables. That means, quite simply, take as long as you're allowed-without incurring late fees or interest charges-to pay your company's bills. Remember that a bad credit history can stifle your business, so you need to protect yours. Know which vendors you need to pay first. Better yet, negotiate with some of your vendors to extend to your payment terms. Also, you have to balance this with the necessity to have solid relationships with your vendors. You want to manage your payables but you also want to have a partnership with your vendors.

6. Investing Spare Cash. If your cash flow has become stable and predictable, you can consider investing your excess cash. This is also applicable if you raise a large sum from angel investors or venture capitalists and you will not need to spend it all quickly. You can earn additional interest income, as well as have the necessary cash to dip into during tough times. Can I interest you in some swamp-land in Florida?

Here's a recent audio cast from our Start-It-Up Cafe Cast on managing your books: http://startitupcafecast.blogspot.com/2008/03/get-your-books-in-order.html

6 POWERFUL WAYS TO MANAGE CASH FLOW! (part 1 of 2)

The Importance of Good Cash Management:

Cash flow is the lifeblood of your start-up businesses. Cash comes from sales, collections of account receivables, and the sale of assets as well as loans and credit lines. On the other hand, cash flows out to meet all expenses and debt obligations of the business. The goal of good cash flow management is to have enough cash on hand at those important times such as when it's time to pay employees. This is a simple concept, yet in practice, it eludes even the biggest operations. So long as more money seems to be coming into the business than going out, many entrepreneurs do not give cash management a second thought. This leaves them vulnerable to a quick and painful death.

Learning good cash flow techniques ensures that the company always has enough cash to meet its obligations. Adequate cash helps obtain whatever funds are required from external sources at the right time, in the right form, and on the best possible terms. A shortage of cash flow could result in the loss of valuable trade discounts or, in extreme circumstances, financial embarrassment and bankruptcy.

Your start-up can increase cash-on-hand in a number of ways:

1. Collecting Receivables: Start-ups can improve their cash position simply by making certain that their billing, collections, and payables systems are operating as efficiently as possible. If this means getting help...then get help any way you can. Small businesses do not have the luxury of large accounting and collection departments of big corporations. More so if you are a home-based entrepreneur working alone. First, get your customers to pay you as soon as possible! To the extent possible, adopt the business practice of requiring up-front deposits when making sales. However, if the account payment is a receivable, then make sure that you actively manage its collection by billing promptly, aggressively following-up on overdue invoices, and quickly collecting on overdue accounts. You stand to lose revenues if your collection policies are not aggressive. The longer your customer's balance goes unpaid, the less likely it is that you will receive the full amount. Then you have to consider hitman alternatives starting with limbs. (Did I say that outloud?) (Legal disclaimer: I was joking.)

2. Tightening Credit Requirements: If you think that you offer the best product or service relative to your competitor, you can obtain the best possible credit conditions. I know this is a tough one for start-ups because you just want to close deals. But, be sure to tell your potential customers upfront about your credit terms - before you provide your product or service. To improve your cash flow position, you can be more stringent in your credit terms, requiring more customers to pay cash for their purchases. This will increase the cash-on-hand and allow you to sleep at night. However, there are trade-offs to tightening credit in the short and in the long run. Looser credit allows more customers the opportunity to purchase your products or services. But, this can lead to spending more time chasing down bad-debt. Another way is to get as much information from the client as you can in the form of a "customer agreement." The more information you have about the customer or client, the easier it is to take their first born in the event the person rescinds on the payment.

3. Short-Term Loans and Credit Lines: Loans from various financial institutions are often necessary for covering short-term cash flow problems. Revolving credit lines and equity loans are types of credit used in this situation. Don't be afraid to use them, with care.

AN EASY TIP FOR CONNECTING WITH CUSTOMERS!

Here's a quick and easy tip for enhancing your ability to connect with a customer, investor, or employee. Consider the individual's natural "pace." What this means is that some people are tend to be more fast-paced and some more moderate or slow-paced.




Recognize them by:

Fast-Paced

• they talk fast


• walk fast


• make lots of hand gestures


• think and make decisions fast


• outgoing and direct

Slow-Paced

• they talk more slowly


• move slower


• more reserved


• they think things through thoroughly so it seems they think slowly


• less animated in their gestures

This is an important tip for entrepreneurs as you try to build your business. You will need to try to "match" the pace of the individual that you are communicating with. For example, if you are talking with an important new customer or investor and they seem to be more slow-paced then you should consider slowing your pace down to match theirs. If you don't then you may risk not connecting with them as effectively as you could have. A slower paced individual might be thinking about a concept or sentence that you said 2 minutes earlier and because you're more fast-paced you are too busy yapping to realize. The opposite is true also. If you're more slow-paced, naturally, then consider lifting your pace to match the individual who may be annoyed that you're not rattling off the important key points at mach speed.

Here's a good site for more non-verbal communication tips.

FRONTIER AIRLINES...WHAT THE @#%$!

Some of you may have never even heard of Frontier Airlines. They are a carrier based out of Denver, Colorado. I personally love this little airline that could. However, today they became the 4th carrier in as many weeks to file Bankruptcy protection. Although, on the positive side, they will still be maintaining operations until they can get a grip. Good for me since I am on one of their flights tomorrow morning.

At any rate, this news prompted me to blab about the greatness this airline possesses in a few critical areas. One of these key areas is CUSTOMER EXPERIENCE. This airline simply provides a superior traveling experience. The planes are new and include, leather seats, satellite TV, and a generally acceptable and fun-loving staff. Note: "generally acceptable" equates to superior in this business.

My Point: It's hard to make a best practice case out of a Bankrupt business. However, I'm taking a stab at it anyway. They have done a great job of dialing-in the customer experience. This is an element of any business that we entrepreneurs must continue to focus on and revisit on a regular basis. If nothing else, Frontier Airlines serves as a reminder to me to continuously improve the experience my customers have.

WHY ARE YOU AN ENTREPRENEUR?

A recent report by the U.S. Small Business Administration looked at 685 businesses.


MOTIVATIONS FOR STARTING A BUSINESS: Women are more likely than men to start businesses to achieve a work-family balance. Women also more often listed a desire for self-fulfillment and job satisfaction as reasons for starting a business and wanted to be challenged personally and have self-determination. They also are more likely to start a business to gain the recognition of others. Men are more likely to start a business to make money or build a company.



My Advice: Be sure you are starting a business for reasons that are close to your heart. Whether it's to spend more time with family or to build something using your creativity. Remember building a business and being an entrepreneur is very different than being an investor in a business. They are two different animals!

I was involved with a franchise start-up a few years ago. I had several partners at the time and the business had a very successful launch and is still doing very well today. However, it wasn't the type of business that interested me very much. I believed in the concept but there was no passionate involvement from me. I wound up having disagreements with my partners, which is very normal, but the business became more of an investment for me where I ended up cashing out early. Had I been more emotionally attached to the idea then I probably would have put more effort into making the partnership work.

So, what are the reasons for starting your business?

PUT YOUR SHOES HERE! (A SNAPSHOT OF A WINNING BUSINESS)

I'm on my way to New York City this week. Love that place...not. Actually, NYC is a great place to visit...well...you know the rest.

Anyway, as I was going through the security gate today in Denver, I approached the area where you remove your shoes and place your belongings on the x-ray belt thingy. I grabbed one of those bins to place my laptop and shoes in and there on the bottom was an ADVERTISEMENT. Wow, where else will they think to put an ad? At any rate, the ad was for a company called Zappos.com.

I know this company pretty well and have studied their business model a good bit. This is a company that entered into the over-crowded footwear market and has gone from $0 in sales to $1 billion in just ten years. It's not because they invented some fancy new shoe but rather they simply provide a way to buy shoes that is hassle-free, convenient, and low-cost. Their slogan is "powered by service." If you ever have to call them for any reason then you will experience the difference first-hand. Their customer service team is trained to make your life easier and they have the uncanny ability to befriend you in 2 minutes flat.

My Point: For those entrepreneurs out there that are concerned about too many competitors...don't be! Try positioning your business around delivering a superior type of value. If customers want it fast then be the fastest. If they want customization then spend time fully understanding their needs. If they want innovation then give them the latest and greatest.

A Common Trap: Don't try to be all things to all people. Find out how you can differentiate your product or service and focus your efforts on that. Zappos.com doesn't spend time or money on innovation or bells and whistles. They create an easy to navigate webstore that makes the shoe buying experience hassle free and fast.

5 CRITERIA FOR SETTING GOALS

All to often when I ask entrepreneurs if they have clearly written goals they say "not written, but in my head." Having thought about your personal and professional goals is great but writing them down is even better. Why? Writing them down makes them more tangible and links to the brain visually and kinestetically.

I've been fortunate to know some of the best athletes in the world that live in my hometown of Boulder, Colorado. Boulder is the kind of town where you can throw a rock and hit two or three Olympians at once (not that I've tried this). I've also been fortunate to know quite a successful entrepreneurs, CEOs, and investors. Many of them share a similar phenomenon and that is clarity of their objectives.

Here is a time-tested method for clarifying goals. It's called SMART goals:

• S = Specific: Your personal goals and the goals for your business need to be clear-cut and unambiguous. For example, if your goal is to start a business then you might write down something like this, "I am going to start a my own business in the fast-food industry." To be even more specific try stating, "I am starting my own organic burrito fast-food company."
• M = Measurable: The more specific you are about your business goals the more easily they can be measured. There needs to be some type of measurement or metric involved in goal-setting, or how will you know if you've reached them, or how will your partners and employees know? For example, "I will reach $1000 in organic burrito sales."
• A = Attainable: Goals must be realistic and attainable by you and your employees. The best goals require you to stretch a bit to achieve them, but they aren't extreme. That is, the goals are neither out of reach nor below standard performance. Goals that are set too high or too low become meaningless, and guaranteed you will naturally come to ignore them.
• R = Relevant: You, your partners, and employees have a laundry list of activities that you can choose to perform every single day. You will also have a number of different things that you could choose as goals. However, the essence of business success in choosing what not to do. Pick goals that are relevant to improving your business and that make you different from your competition. For example, if you differentiate by delivering speedy service then set goals that are relevant to that. I'm consistently amazed at the number of organizations and entrepreneurs that set goals that don't differentiate, they set them because they were considered a best-practice. This becomes particularly important if you are pitching your business to an investor. Your objectives/goals should make you distinct.
• T - Timed: Attach an expected date in which you would like to have achieved the goal. For example, "I will generate $1000 in burrito sales by October 1." I heard a smart business person say once that the difference between a goal and a wish is that a goal has an expected date of delivery.

I use the SMART criteria as do most of our clients. We think it's the best way to ensure that you are setting goals that will ultimately put cash in your wallet.

THE ONE THING YOU MUST HAVE!

The pros of starting a business far out weigh the cons. However, to be successful you had better be ready to endure hell and high water because, at times, you will have both.





So, what's the ONE THING you must have?

POISE

EXIT...STAGE LEFT!

When starting a business the first thing you should do is consider your life goals and objectives. As a part of this consideration you need to dial in what you ultimately want from your business. This is referred to as an Exit Strategy.

Here are some possible exits:

• Sell your business to a competitor or another company that wants to enter your space


• Take your company public (IPO)


• Sell your business to another entrepreneur


• Sell your business to your partner


• Sell it to your employees


• Keep it as a lifestyle or cashflow business until you keel over

Give this some thought if you haven't already. Knowing how you want to exit the business will help shape many of the decisions you make early on. For example, it will largely determine how your accountant structures your financial statements and how much EBITA you show. Your exit may also shape what entity you use to set up your business, such as an LLC versus a C-corp. It may also influence operating decisions, such as strategic partners, distribution channels, etc.

Additionally, if you have partners (partner = headache) then it is increasingly important that you have alignmnet on how and when you both want to exit the business.

mmmm...coffee...

Does anyone have a story about how they exited their business?

3 RULES FOR DELIVERING A SUPERIOR CUSTOMER EXPERIENCE!

"80 percent of companies believe they deliver a superior customer experience, but only 8 percent of their customers agree." - Bain & Company


A good friend of mine was recently traveling back home on a United Airlines flight. She was sitting at the gate with her fully-loaded, 100% caffeinated coffee beverage, feeling weak and weary from her week's work. All of a sudden, like a trained ninja, a United rep appeared with a sign that he stuck on the board that read... ... ... ... CANCELLED. He then spun around like a ballerina and stated, "I'm going to lunch now." For those of you that are stunned, like I was, this meant she would not be going home any time soon.


Her story prompted some serious thinking from me. So I sat down with my fully-loaded, 100% caffeinated coffee beverage and began to ponder how this type of customer experience, if not dealt with, could mame, if not kill, a start-up. I have been working with entrepreneurial clients for years using The Three Rules of Market Leaders, which I will post about at some other time. However, I have tweaked them some to fit our current topic more directly.


Here they are:


1. Design your offerings and experiences (aka: value proposition) for the right customers. In other words, choose your customers wisely and narrow your focus down to that group, specifically.


2. Build your operations so that you and your employees focus on activities that deliver those offerings and experiences in a superior way. In other words, don't create a marketing message that states we offer the best service if a customer can't get answers to questions without a hassle. Seems obvious, huh? I thought so too, but isn't United's tagline, "fly the friendly skies?" Apparently, it's not that obvious.


3. Continuously develop your capabilities to please your chosen customers again and again. In other words, learn from your experience, read books (and blogs), talk with your team about how to improve the customer's experience, and "shop" your competition to see what they are doing so that you can position yourself differently.


By the way, if you're writing a business plan then this should all be emphasized in there. I know it seems counterintuitive but investors like focus.


What else can we do to ensure we deliver a superior customer experience?