Wyoming Entrepreneur.biz Blog

Guest Blogger: Rod Trahan "Once a Year Is Not Enough, Know What's Happening In Your Game"

Today's guest blogger is Rod Trahan, MBA, Owner, ActionCoach-Streamline Enterprises. Rod coaches entrepreneurs in five key areas; the emphasis on each area depends on individual needs, the type of business, and goals. The key areas are: Sales; Marketing and Advertising; Team Building and Recruitment; Systems and Business Development; and, Customer Service. Visit Rod at: http://www.actioncoach.com/rodtrahan/

Can you imagine how a NBA Basketball game would turn out if during game the visiting teams coaching staff were required to sit outside the arena without any contact with their team until the end of the game?  Do you think that team would be at a disadvantage?  Worse yet, what if the visiting team were not allowed to look at the score-board to determine the score and amount of time left in the game? Who would call the team in and run a special play to inbound the ball, or beat a change up in the defensive style? Who would substitute new players in to take advantage of an opportunity presented by the other team’s defense?  Can you imagine playing the game without knowing who is winning and by how much?

Only visiting your accountant at the end of the business year versus once a quarter and reviewing financials monthly, is like playing the game of business similar to the above basketball game. Your accountant will help you to compile your financials so you do know what the score is in your business game all along the way.  By doing this quarterly and reviewing financials you will know much sooner if something negative is beginning to happen in your business. 

A colleague of mine was visited by the owners of a new winery in California that couldn’t figure out why they were selling so much of their product yet they never had any money left over at the end of each month.  

Turns out they only calculated their break-even in their initial business plan and never revisited it again until their visit with him (12 months later).  Their actual costs differed from their projected costs so they were operating under faulty assumptions. This popular business became one of the 80% of businesses that fail within the first five years.

Wouldn’t you rather find out sooner than later that you were selling your product or service for less than break-even?

Credit Card Debt an Indicator of Business Failure

A new study out by the Kauffman Foundation finds that the use of credit card debt by start-up companies reduces the likelyhood the company will survive the first three years.

The study, The Use of Credit Card Debt by New Firms, indicates that while credit card debt can provide needed short-term financing, over-reliance on credit cards drain liquidity from the business and negatively impact its financial stability.  The study suggests that every $1,000 in credit card debt will increase a firm's chance of closing by 2.2%.  This means that a firm with $10,000 in credit card debt will be 22% more likely to fail!

The full study is available on Kauffman's website at: http://www.kauffman.org/uploadedFiles/kfs_credit_card_debt_report.pdf. 

If you are an entrepreneur, what has been your experience with credit card debt and your business?

I Have No Competition

Many people looking to start a business are encouraged when they think they have no competition. The natural assumption is that being the only game in town is advantageous because, well, you're the only game in town. But sometimes entrepreneurs overlook the fact that they have two types of competition: direct competition and indirect competition.

For example, direct competition for a video arcade would obviously be another video arcade in town. But it's the indirect competition that may be a bigger factor in the arcade's success. An indirect competitor for a video arcade is basically any other form of entertainment on which customers may spend money. For instance, your town may not have a competing arcade, but what about a movie theater? A mini golf course? Roller rink? On the surface, these businesses may seem quite different from an arcade but they're all competing for people's "fun money".

Also, don't overlook home video game systems. Another common misperception is that people will go "out" for much of their entertainment. But movie theaters compete with DVD's, restaurants compete with grocery stores and home-cooked meals, and so on. In tough economic times, consumers will replace their "going out" options with in-home alternatives whenever they can.

Let's look at restaurants a bit more closely. Your town many not have an Italian restaurant, but that certainly doesn't mean an Italian restaurant will have no competition. Indeed, it may draw many customers who enjoy Italian food. But the point is that a lack of direct competitors is never a guarantee that a new business will succeed because there are many other indirect competitors. An Italian restaurant will still compete with Chinese restaurants and McDonald's.

If you're looking to start a business in your town just because there aren't any identical operations, don't make the mistake of thinking you have no competition. It may not always come in the form of direct competition but there are always indirect competitors that are vying for consumers' dollars, too.

Wyoming Business Leadership Institute: April 16-18 in Laramie

The second class of the Wyoming Business Leadership Institute, a collaboration between the UW College of Business and the Wyoming Business Council is scheduled for April 16 - 18 in Laramie.

The three day seminar is aimed at business owners, managers and entrepreneurs and designed to help participants strengthen management and leadership skills, increase company profitability, develop succession planning to ensure company sustainability, and receive customized training geared toward company needs.

Folks that participated in the first class found it to be extremely helpful.  The class costs $950 and the application deadline is April 1.  For more information go to www.wyomingbusinessinstitute.com

Were you one of the previous participants?  If so, let us know what you thought about this program.

Tough Market Conditions Present Opportunities to Build Infrastructure

As a former [read as: reformed] banker, I find that a majority of my friends are either bankers, portfolio managers, or business service providers.  Perhaps that is because of the propensity to see these same individuals at the golf courses and other "social networking" venues I still frequent.  Whatever the case, my current responsibilities as a business counselor and legal specialist with WyomingEntrepreneur.Biz makes for a synergistic partnership with these colleagues.

So on the frequent occasions I have to visit with these "finger-on-the-pulse-of-the-economy" friends of mine, I always ask them, "What should I be telling my business clients to do in this economy"?  The resounding response is: "Grow!"

Now, "Grow!" can mean a lot of different things to different people.  Perhaps my commercial lending compadres are suggesting the time is ripe for a huge expansion loan...but I doubt it.  Maybe my investment friends are suggesting I tell you to go diversify your portfolio...but they always say that, so I doubt these tough economic times warrant any special treatment.  No, I think what "those in the know" are suggesting is that this is a good time to invest in your business.

Investing in your business can also mean many things, but to me that means working on your infrastructure.  We all know that infrastructure is just a big word that means "the nuts and bolts" of your company.  That new record keeping software, that piece of equipment that needs refurbished/replaced, the certification you have put off, even resurfacing the parking lot or a new coat of paint on the office walls...they are all infrastructure.

When business is good you are too dang busy to worry about those small details.  How many times during "peak sales" did you say to yourself, "Ah, I need to take care of {insert problem area here}."  But you never did because you were too busy making money to find time to spend it...I mean, reinvest it in your company.  With the economic slowdown, the slow sales, and the fear of just covering the bills comes a temptation to withdraw and save every penny.  Problem with that is, we KNOW [emphasis added] that things will rebound.  Already $1.5 trillion has been earmarked for something called "economic stimulus" nationwide.  Whatever that really means, it means there will be a lot of money that needs to be spent.  When the "good" times come back, will your business be poised to capitalize?  Or will you be woefully unprepared?

One final thought...if you think that you have your business as prepared for the rebound as it can possibly be - and you have employees - then consider investing in your greatest asset: your staff.  Employee training [training = training, certifications, continuing education, licensing, skills assessment, skills improvement, etc., etc., etc.] is a fairly low-cost, high-return, and easy investment in the people who make your business run.  If you are unsure what training your people need, or how to find the training you know they need, contact your local WyomingEntrepreneur.Biz office for a no-cost consultation to point you in the right direction.

Whether it be in the equipment, the real estate, the business plan, or the people...an investment in your business today [when things are slow and manageable] will lead to rewards when the inevitable bounce-back arrives.

Wyoming Business Survival Day

In this tough economy, Wyoming businesses know they will have to run lean. Wyoming Entrepreneur.Biz can help. Call 1-800-348-5194 to schedule your free consultation with one of our business consultants. Our “Financial Health Check-up” is a good starting point to develop a new outlook for business success. Other Wyoming Enterpreneur.Biz expertise includes market and competitive research; business planning and valuations; internet marketing; HR consulting; management; international trade; accounting; marketing; legal audits; sustainability; government contracting; and more.

Wyoming Entrepreneur.Biz is a business consulting group, consisting of the Wyoming Small Business Development Center (WSBDC), GRO-Biz Procurement Technical Assistance Center, and the Wyoming Market Research Center. Our mission is to help Wyoming entrepreneurs succeed. Counseling and most market research services are free of charge to Wyoming residents.

Don't be a groundhog and keep your head in the burrow. Access the free services available to Wyoming businesses. For more information visit www.wyomingentrepreneur.biz.

I Have No Competition (and other fairy tales)

One of the most common statements that I hear from businesses, especially those that have invented a product, is that they have no competition. Sometimes they're right, but most of the time, folks need to adjust the way they think about their product and the benefits it provides to the consumer.

A consumer will look at your product and try to determine what needs it meets for them. In the case of the zip tie shoelaces, a consumer is going to look at the other methods that she can use to accomplish the same goal. Even though there may not be another zip tie shoelace on the market, there are numerous shoe strings available, from cloth to woven to leather. In addition, some shoes use zippers or Velcro to secure them on the user's feet. These are all competition to the zip tie shoe tie... and your business plan needs to address how your product fits in this competitive landscape.

Investors, like your bank, generally define competition as any service or product that a customer can use to fulfill the same needs that the company fulfills. This can include similar products, substitute products as well as other options, such as homemade alternatives. When you plan for the success of your business, you need to take in to consideration all of the possible competitors.

Once you decide who else provides the same or similar benefit to what your product provides the next step is to carefully and rationally look at the strengths and weaknesses of both your product and the competition. Be honest. Just because you spent hundreds of hours inventing the zip tie shoe lace, do people really think that it's better than a shoe string? Check with consumers (and not family, but people who will give you an honest opinion). Compare pricing, ease of use and make a list of where you excel and where you fall short. An honest look at both your product and the competition will help you understand how viable your invention will be in the marketplace and will help guide you in selling the product to consumers.

Having competition is not necessarily bad. In fact, an investor may view a statement of "I have no competition" with some concern. It may mean that there is no demand for what you are offering. If there are few or no competitors, there may not be a large enough customer base to sustain your company. However, if you have competitors and if you can show that your product or service has significant advantages in design, usability or price, then investors are more like to want to fund you.

A little competition is a good thing...so make sure that you do a good job of understanding yours. Do you have any examples of unexpected competition?

I don't need business liability insurance...right?

For your consideration...

The following comes from an actual exchange between a pre-startup entrepreneur and myself.  It has been redacted to preserve confidentiality.  It's not only good information for all similarly situated aspiring entrepreneurs, but it also demonstrates for us counselors that we shouldn't assume any knowledge is "common" knowledge [of which I am guilty all too often]:

Q:

...My husband and I were unsure what we would need liability insurance for?  It seems to me that the liability we could incur would be if someone’s ad[vertisement] were incorrect.  I have downloaded one of the competitor’s ad registration/contract form [as a sample]...

A:

Many businesses confuse the purpose of business liability insurance with things like disclaimers.  Sadly, any business is subject to a lawsuit, and the cost to defend a lawsuit is always $10,000 or more [just in legal expenses].  I often tell clients, “It’s not the cost of losing a lawsuit that breaks many businesses, it’s the cost of defending them.  Your liability insurance does two things: 1) often times your provider will help with – or entirely provide – a defense to lawsuits, and 2) if you happen to lose for any reason than the insurance covers the judgment.  Without this insurance, many businesses are forced to go bankrupt if faced with any legal judgment against them.

 

Here is a brief list of things that can spawn a lawsuit for any business, regardless of disclaimers:

Libel, slander, traffic accidents while on company business, copyright infringement [unintentional or otherwise], interference with contract, any numbers of tort actions, negligent omissions, and the list goes on…

 

This is just intended to illustrate how many ways you can find yourself in a lawsuit, often times through no fault of your own.  If it happens, the General Business Liability Insurance is your best friend and – often – your only salvation.

-

Can anyone think of other ways to avoid a lawsuit altogether?  Other benefits of the General Business Liability Insurance beyond those mentioned?  I've heard the costs are often comparable to a homeowners insurance policy.  Does that sound right?

 

Thanks- Jeremy