Merriam-Webster defines risk as “someone or something that creates or suggests a hazard”. For small business owners, Risk is the Name of the Game. Every decision revolves around risk. It’s exciting and not for the faint of heart. Small business owners need to make “risk” decisions daily. How much risk are they willing to accept to achieve their goals? Small business owners are the daredevils of business. We applaud the successful and frown upon the not-so-successful. Having a business degree, getting business training or having years of experience reduces risk. More knowledge equates to less risk. Business training (in a class or on the job) is important – don’t try to wing it. Seek guidance (not from your neighbor or spouse) from an unbiased 3rd party who will tell you what you need to hear, not what you want to hear.
I often explain the “Risk Game” to business owners who are seeking funding for a new venture. Lenders don’t really want to loan you money if you represent a lot of risk. Conversely, if you represent little risk, banks are shoving money in your pockets. Robert Frost had it right when he said, “A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.” That is because when it begins to rain, your business represents more risk.
Is this fair, well no, but no one said the game was supposed to be fair, so learn the rules and play the Risk Game. Know how to manage risk with your money and how to look like you represent no risk with other people’s money (i.e. the banks). Franchisees gamble big – often with their savings – to start their own businesses. Then, when the business does well, they use the money from lenders to expand instead of going back into their retirement coffers.
Everything is about risk – better put, everything is about managing risk. Know when to accept larger amounts of it and when to look like you are a sure bet.
Tell me what you think … do you agree that managing risk is a vital component of business success?
Several weeks ago, I received a letter from a young man, Sam, who was set to leave the military. He introduced himself and asked if I could meet with him. His goal was to learn more about potentially starting his own business and get connected in the community. I scheduled the appointment thinking I could talk to him about the pros and cons of starting your own small business.
When he arrived for his appointment, I was surprised to see he brought someone with him. Both were in suits and looked professional. He introduced, Jack, his mentor. As I sat down to talk with them, Sam proceeded to tell me that he was now working with Jack who is an investment advisor. He said Jack had approached him about building his own book of clients under his franchise. Jack then proceeded to ask me about my personal investment portfolio. I was very disappointed this meeting was in fact a sales pitch – not a business meeting.
When I stated that I was happy with my financial advisor and his firm, Jack said, “They are alright. One of their guys just came over to us. I guess if you can’t beat them, you join them.” I was taken aback someone who was in sales seemed to have no sales training whatsoever – and he was mentoring someone else! So on the off chance Jack reads this, “If you are speaking with a potential client, do not disrespect their current advisor, it tells the client they were stupid to have picked the competitor”. Jack needs some serious sales training. Instead of trying to tell me his firm was a better choice, show me how his firm was a better choice. Jack did most of the talking and asked if I could introduce them to anyone who might need their services – REALLY? You are asking for a referral? (Wow, I don’t even know you and what I do know, I don’t like!)
The meeting went nowhere very, very quickly and I dismissed Sam and Jack from my office. I felt deceived and insulted when they left. Sam gained the meeting by promoting himself as an innocent soldier ready to take on the world. It was a lie. People know when they are being lied to and it is not a way to build a client base. I have a suspicion that Jack’s client base will not grow exponentially. Sam should be wary about following Jack’s lead and should ask many more questions about client retention and satisfaction prior to investing more time in this new venture.
After the meeting, I emailed my investment advisor, Tim Watson, Strategic Financial Partners and typed one sentence, “Thank You for being such a great person and not being a jerk”. I’m sure he is reading it now and wondering why I sent it. Appreciation can be gained in odd ways.
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Many companies are rushing to provide digital marketing services. Business owners must be smarter than ever when looking for marketing help. They must never lose focus of their goal of improving profitability when contracting with one of these companies. Some of these self-proclaimed digital marketing companies are using this strategy as a means to sell their products. There is nothing wrong with this as long as those products are the best option to grow profit for the small business. The company’s products should be offered in conjunction with other marketing options including competing services. As a business owner, you should ask direct questions about what other products the digital agency will offer that are not tied to them.
Some companies that offer to be your marketing consultants as a means to sell their own products are CenturyLink and the Yellow Pages. CenturyLink, a provider of internet and phone services, has a community services division. They have speakers that attend small business events to speak on Social Media and SEO. As part of attending, you receive a “Free Website Review” to maximize SEO. To their credit, CenturyLink contracts a 3rd party to do the review and provide it to the business owner however as part of the assessment, CenturyLink business services are recommended. If the business owner had worked with an independent marketing consultant, a variety of options may have been offered.
The Yellow Pages has a similar model whereby representatives of the company represent themselves as “marketing consultants”. The problem is that they do not offer the products and services of other companies to the business owner. They do not offer unbiased marketing solutions that will serve the business owner best. Instead they offer their products in an effort to make their goals. Their bottom line takes priority over yours.
The compensation structure of these “marketing consultants” is often revenue goal based which means growing your profit is not of real value to them. What if they were paid on how they grew your online audience, your profit, your revenue or your sales instead? This comp structure would reward them for looking at all available marketing tools to assist in your growth.
Buyer-beware not all “marketing consultants” are created the same.
Increasing profitability is usually the top priority for a small business. When identifying revenue barriers, a good place to start is measuring the strength of your talent pool. This area is often ignored especially by business owners who employ family and friends. Corporate companies track revenue per employee and use industry benchmarks to build healthy organizations. Small businesses do not. This simple ratio (gross revenue divided by number of employees) can quickly identify a revenue opportunity.
Getting rid of poor performers is not only good business practice, it is essential to growing revenue. Your team will only be as strong as its weakest link. Yep, age-old adage but a true one. So what will happen? You will improve profitability and revenues – really.
Yesterday, I walked into a family owned take out restaurant. The teen cashier was on her cell phone. She took my order while talking to someone about her boyfriend. I learned intimate details about this girl who did not have a care in the world that I was within earshot. After taking my order, she tried to process my debit card. She was unable to do so because someone had taken the cordless phone off the cradle. Without the phone in the cradle, the credit card machine does not work. Teen cashier had me wait while she asked everyone in the kitchen if they knew the location of the phone. Finally she found it in her 86-year old grandmother’s purse. Grandma was working in the kitchen but had forgotten she put the phone in her purse. (Seriously, I couldn’t make this stuff up). There was never any mention of upgrading my order, appreciating my business or asking me to come back. I doubt I will ever go there again unless I have a compelling urge to learn more about teen dating.
The food at this place is good. The prices are reasonable and have some elasticity to be increased. The location is acceptable. If the owner dealt with the low productivity of the teen clerk (probably her daughter) and grandma she could provide better customer service. An elevated level of service would increase revenues through repeat business and increased pricing. Employees have a direct impact on profit.
Every employee is an asset to the organization – or at least should be. If someone is identified as not bringing true value you have two options. Develop and coach the employee to better performance. If they are motivated, they will respond well. The second option is to part ways, humanely. Firing someone harshly will only lead to negative backlash – especially if they are family. Don’t let the familial tie keep you from making the right decision. Separate personal and business decisions. Track your results – use a profit baseline or revenue-per-employee ratio as you begin the process of setting higher expectations.
Lastly, remember that as the business owner, you are also an asset (or liability) to your company. What have you done to improve your skill set; to learn new developments in your industry; to cater to your most loyal clients; to actively get feedback – especially negative feedback from your clients? This is hard work with high revenue payoffs.
The term “Getting Ahead” seems to have become synonymous with the term “WINNING-AT-ALL-COSTS”. This attitude leaves Leadership in the dust. How many true leaders are leading countries, Fortune 100 companies, non-profits, entertainment media, sports organizations and government entities?
Think about whom you consider true leaders. The people who come to my mind are not famous or even wealthy people – they are people who had the courage to do what was right, regardless of the circumstances. People strive to be leaders yet when faced with the opportunity to define them as such – choose the wrong path. Too often executives will do the wrong thing because they are afraid of failure.
The true issue is how failure is defined. Many times, failure is defined for us based on corporate or organizational culture. Entrepreneurs and small business owners don’t buy into that, they know how to fail – in fact, the most successful ones, have failed many times in their career. Their definition of failure is different. They accept failure as a path to growth. That’s what makes them different and ultimately more successful.
Corporate America rewards profit increase and has no tolerance for failure. How that increase is gained is really of no concern as long as stockholders are happy. It can be argued the housing bubble of the early 2000’s can be attributed to management of profits driven by a complete lack of leadership. Grocery store clerks were buying $300,000 homes and no one raised any questions. Where were the consumer protection agencies? Where were the corporate governance boards? Where were the company leaders responsible for ethical conduct?
In one of my favorite videos, Seth Godin, discusses the difference between Leadership and Management. “Leadership means embracing the failure of your people if it leads to growth. Leadership means not knowing what is going to happen tomorrow just knowing it’s going to take you where you want to go and that’s REALLY hard.” – Seth Godin http://vimeo.com/20290657
Last week’s suspension of National Football League General Manager, Mickey Loomis
; Head Coach, Sean Payton
and Assistant Head Coach, Joe Vitt
of the New Orleans Saints
is a clear example of an organization lacking true leadership. The New Orleans Saints won the Super Bowl
in 2009. They have great athletes and a great story to tell in the aftermath of hurricane Katrina
. Yet despite having been warned in 2010 to investigate and cease their bounty program, top management allowed the unethical behavior to continue. They were faced with the opportunity to define themselves as great leaders and could have made the right decision. They didn’t make it. Instead they chose to look the other way while bonuses were paid for injuries to professional athletes. “Managing
” a team to a Superbowl win is not the same as “Leading” them to a win. Now the organization has another opportunity to take the right leadership path by taking responsibility for their failures. I suspect, this time they will.
Leadership is about standing up to do the right thing – even if you are standing alone.
One of the most pressing issues for a small business owner is pricing. A weak and uninformed decision in this area can result in lasting damage to a company. Over pricing a product/service can depress the response. Under-pricing will make it harder for to sell the product/service at a higher price later. There is a simple strategy here – knowledge. The key is knowledge: market knowledge, product/service knowledge and personal knowledge.
Market knowledge is an understanding of what competitors in the market place are charging for similar products/services. Do they charge by each service or the complete job? Do they offer incentives? Who are their biggest clients? Do they really offer a good value? The answers to these questions highlight opportunity areas for a new business. What can your business offer the competitors can’t? Internet research saves time and can get you much of the pricing information needed. Websites, fan pages and twitter follows are good informational resources.
Networking with competitors is also a smart idea when you can find willing owners. There is much to be gained by assuming a “we all play in the same sandbox” approach. A direct call, Meet Ups, Linked In groups, coffee chats and volunteer groups are just a few ways new business owners can network with peers. Strong ties to the local Chambers of Commerce make sense also. The Chamber leadership can provide insight into the community history of your industry and can connect you with others.
Product knowledge is a key driver in a pricing strategy but don’t assume you already know everything about your product/service. Talk to as many people as you can about your product/service to gain true insight into how the market perceives its value. Ask current customers (no matter how large or small the client list ) for direct feedback – what is good, bad and ugly. Customer surveys are one of the best ways to gain insight on how customers value your product/service. Don’t forget to ask for a recommendation if they value your product highly.
Product knowledge also includes a clear picture of what it costs in materials and hours to produce your product/service. Cover these costs in your pricing. If you have done your homework, you will know if you can streamline the process any place along the continuum to improve profit.
Lastly, do a personal knowledge assessment. “Know Thyself”. Are you comfortable asking for what you are worth? Do you need coaching in the sales process? Under cutting prices for fear of negotiation will negatively affect profitability. Low profitability will affect the ability to deliver. A smart approach to initial pricing will help build a solid foundation. Once the initial price is set, a more advanced varied pricing model can be built.
Small business owners be vigilant in your pursuit of a scalable organization. Ted Wright, CEO at Fizz, @fizz_womm, discussed the idea of scalability in his recent presentation in Colorado Springs. Scalability is the organizational capacity to take on more work while maintaining or improving the profit margin. There are two common ways to improve scalability; increased employee productivity and increased business from current customers. Interestingly, small businesses EXPECT continuous improvement in these areas yet don’t really do much to ensure they get results (assuming revenue per employee and revenue per customer are key performance indicators on the management dashboard).
Improved employee productivity seems like a business 101 concept yet many businesses do not invest in their employees. Training and development of employees improves morale which improves productivity. Untapped skills and interests will remain unnoticed if employees do not have an environment where growth is rewarded. Motivated employees improve productivity through stability, streamlined processes and elimination of communication barriers. They stay longer which means an increased knowledge base that contributes to consistent, reliable customer service. Yes, you know this – but are you really focusing on it? Take a quick assessment of the amount of training your staff has received in the past six months. Have you followed up? Gained new ideas or product improvements as a result? If the answers are no, then it might be time to talk with your employees and develop a professional development plan.
Motivated employees will grow relationships with customers. A client base is a valuable source of new business because they already know and use your services/products. The amount of repeat or referral business from your clients is an indicator of how well their interactions with your employees are going. Customers who are happy with a company will be more willing to tell their network of contacts and/or increase their orders. The best customer connections happen on the client’s terms. Businesses must know client preferred methods of communication (including social media) and meet them there. Effort will be rewarded.
Time is always an issue and both require attention. Think about postponing the next sales campaign to focus on employee and customer relationships. You might have more profit opportunity in these areas than in the campaign. Scalability is a key to success. Revisiting some of the basics could lead you to increased profits.
Many managers avoid dealing with tough business issues because they don’t want to endure the period between starting to implement the solution and getting the results. Of course, procrastinating only makes it worse. Avoiding to deal with a problem employee/client because you don’t deal with confrontation well is only negatively affecting your bottom line. I’ve seen coaches, business owners and parents avoid dealing with serious issues because confrontation makes them uncomfortable.
Family dealing with medical issues are an example of classic avoidance. Many times family members are afraid to confront medical personnel about the care of the loved one. Why are people afraid? Because we want people to like us. However that is not the mind-set that will move us forward – in anything. Daymond John of Shark Tank states, “Everything we want exists outside of our comfort zone.”
Stepping out of your comfort zone will produce different results than what you have been getting. If your company needs transformational change then why are you holding back from stepping outside your comfort zone? You already know better things await yet you are paralyzed to make a change.
Some tips to help you address uncomfortable situations:
- Keep in mind why you need to address the issue: Improve morale. Improve profitability.
- Remember that just beyond this situation lies your goal. There is no other path than though this issue.
- Run through a few possible outcome scenarios prior to addressing the issue.
- Focus on the goal and courage will come.
- Be ok with not being liked. Change is not easy and most people will resist it. Remember that stepping outside of your comfort zone expands the borders of your current one
Now resolve to tackle your most difficult issue.