The coronavirus crisis has caused a plethora of financial issues that businesses must now face. All of my clients are dealing with dilemmas concerning customers, credit, future sales, financing, planning cash flow, forecasting, etc. when it comes resolving financial stress.
For the most part, we still live in a world with an old system of small business financing. Most financing (including institutions like banks and the SBA) is based on antiquated businesses, such as manufacturing and retailing, where financing was handled mostly through asset loans, guaranteeing debt via family assets, and personal savings.
However, things are very different today. Most new businesses are service or technology-based, and require much less investment.
Many clients start the financing process by asking the age-old question, “How do I raise money?” That’s an outdated way to start and I believe it’s a mindset that needs to be changed in order to be more successful. For example, traditional style advisors often recommend raising as much money as possible. In contrast, I suggest minimizing to reduce costs and risk, keep equity, and avoid excessive financing charges.
Some of the biggest changes that need to take place involve utilizing alternative techniques to minimize financing needs and marketing opportunities to accelerate growth. I recommend a more comprehensive and flexible approach to the process which focuses on key issues like: How much money do you need? How and when will you pay it back? Why should someone invest or partner with you?
Additionally, we live in an environment with low interest and inflation rates, and lots of capital to invest. The rest of this article will discuss financing suggestions that take into consideration new trends and current events. For example, the government has instituted $2 trillion of relief programs for salary, unemployment, and investment that must be considered.
Operational Financial Resources
The simplest source of funds is to reduce the need for funds through regular business tactics. This can be accomplished with strategies such as outsourcing, contracting services, utilizing sharing resources, and testing. While not all of these strategies may be appropriate for every business, consider the ones that have most potential to save cash:
Plan and manage inventory to maximize return: focus on the 80-20% rule that states: 80% of your sales will come from 20% of your products. Additionally, manage inventory and services for seasonal and market changes.
Consider direct shipping from your facilities or organizations like Amazon.
Minimize investment through strategies like renting or sharing. For example, warehouses, cooking facilities, and manufacturing can all be outsourced. One caution: doing things in your home will frequently result in long-term, operational, and legal issues.
If asked, suppliers are often willing to help a business with things like financing, holding inventory, reducing production times, and direct shipping.
Use services for internet management, warehousing, and programming.
Understand and minimize complexity. For example, there’s a big difference between selling a shoe (with various sizes, colors, widths, and styles) versus selling food products (which have a few ingredients that can made into a number of items.)
Analyze why you are really spending and what you will get from it.
If the business is profitable and growing, you can frequently finance the growth with working capital from profits. This also means giving up less equity.
Expanding Marketing Efforts
Don’t wait for business to come to you, but consider the rule: you have to spend money to make money. Analytics, internet marketing, and outsourcing programs provide numerous opportunities to grow and make money faster:
A website and a simple marketing statement provide basic information for potential customers. These can be inexpensive through programming tools like WordPress.
Amazon is the fastest growing retailer in the country and controls about 30-50% of most internet sales. It is easy to set up and relatively inexpensive.
Paid search through organizations like Google and Facebook are underestimated. These options can be inexpensive and fast, and the results can be measured.
There is nothing as productive as Networking, Networking, Networking!
These tactics must be tested and measured. Kill or modify the ones that fail and expand the ones that succeed.
Non-traditional Sources of Capital
Crowdfunding was initially used by “social entrepreneurs” to fund their projects, films, books, and social ventures. It’s becoming more popular as it allows small investors to back your business through organizations like Kickstarter.
While credit card interest can accrue (at a high rate) if not paid off right away, some credit cards do offer a 30-day free program, or zero interest (for sometimes up to 18 months) with a new account.
Bartering, alliances, and exchanges are viable methods to get both excellent services and save cash.
Community based lenders (such as non-profit, independently financed, or private organizations) often make loans to small businesses or entrepreneurs who do not qualify for traditional commercial bank loans.
Traditional Sources of Capital
Equity from yourself, friends, and family. This is the amount of money you can put into the business on your own, and you don’t have to pay it back until you see profits. It may include sweat equity or contributed assets. It also provides other investors with more confidence in your commitment.
Outside equity has the same properties except it involves giving up at least some of your own equity in the company. It can come from a variety of places such as partners, venture capitalists, private equity dealers, private offerings, and private investors.
Traditional banks and loan institutions are focused on reducing risk and making certain they get paid back. These are usually asset-based loans or are combined with equity contributions.
Raising capital is a two-way street that requires honesty, understanding, and communication. Understand your needs and the risks involved in order to find the right type of investors.
Don’t overestimate your potential or what is needed to meet your goals.
Develop plans, measure results, and satisfy investor requirements.
Significant changes are occurring in financing. There will be more risk, more volatility, more uncertainty, and more focus on profit and cash flow. Thankfully, there are numerous tactics to manage these shifts. As these changes progress, consider including more alternative methods—especially cost reduction, analyzing goals and strategies, and focusing on the dynamics of the financing rather than just how much money you can raise.
Dr. Bert Shlensky has an MBA and a PhD from the Sloan School of Management at MIT. He is the President of the New York-based consulting firm The Startup Connection, where he uses his 30 years of high-level business experience to guide his clients toward maximum sales and profit. For a free consultation, please visit www.startupconnections.net.
Seems
a bit like an oxymoron, no? Well, that’s exactly what analytics have become
these days: an oxymoron. A real conundrum. On one hand, data helps us predict
change and plan for the future. On the other, that data can be wrong or
misleading and, therefore, really screw things up. So, I say, take it all in,
but then let (most of) it go.
There’s an ongoing debate regarding the roles of data and entrepreneurship. In particular, the increased availability of analytics data and tools is making planning, scheduling, and analysis much simpler and more accurate. Amazon is one of the best examples of using analytics to improve logistics (i.e. more one-day shipping).
In contrast, the argument stands that these tools are less effective than originally expected. The most significant instances are incorrect data, method, and change. If the data is wrong, access to more data does not improve analysis. Mistakes like Boeing, Afghanistan, WE WORK, G.E. and retail stores represent diverse examples where people simply focused on wrong information. The existence and use of the phrase “alternative facts” supports the unnerving idea that it’s easier to make up lies than it is to refute those lies. That alone does not bode well for analytics and data.
Data can also be misleading when a dramatic change occurs.
Disrupters like E-Commerce, ride share apps, and food delivery dramatically
affected markets and parameters. Consequently, significant shifts in culture,
politics, and buying habits also make economic forecasting much less reliable.
Additionally, analysis is dependent on using the right
tools and methods. Many assumptions and approaches may not be appropriate. For
example, investment advisors frequently tout their individual excellence while
changes in the overall market are usually the largest factor in investment
success. Mathematics shows that the more history one has on a topic, the more
accurate the analysis. However, if parameters change, history may become
irrelevant.
This is why we take it all in. Think on it. Absorb it. Let
it all sit for a bit. And then throw most of it out the window.
You should absolutely consider what they teach on the first
day of a statistics course (Validity, Reliability, and Accuracy) rather than
ignore it.
A recap in case you need a refresher:
Validity is simply focusing on whether
your methods are valid. While sampling, correlation, and other tools can improve
performance, the analysis must be valid. For example, many of us predict that
our team will win. However, the odds in most professional leagues are that
about 3% of approximately 30 teams will actually win.
Reliability is the repeatability
of results. Differing results in political polls or verifying results of
medical tests are examples of reliability issues.
Accuracy is just the correctness of
the measurement process. The most violated rule of accuracy is that you are
only as accurate as your least accurate number. There is a famous story about a
museum guard answering a child’s question about how old a dinosaur was. He said
280 million years plus 39 years and 20 days. When asked where the number came
from, he said, ”When I started, they told me it was about 280 million years
old. I have been here 39 years and 20 days.” While this number certainly seems precise, it probably isn’t very accurate.
I would add a fourth factor to this list, which is probably
the most important: Bias. On one hand, bias is a complex mathematical
term correlated with sampling, randomness, analysis, and other things. On the
other, it is how our culture, background, gender, age, and preconceptions etc.
affect our attitudes and decisions. For example, many studies have shown that
we form an opinion about a presentation within 90 seconds of it starting. I
highly recommend that, in dealing with bias, you manage its existence rather
than trying to deny it.
Finally, tools as well as methods of reporting are
dramatically changing. A colleague of mine recently challenged my website saying
it was “too dependent on PowerPoint and Excel.” While these are both great
tools and are the most dominant analytical and presentational methodologies,
they can have many limitations: The information can be old, longitudinal
analytics is frequently lacking, they are not interactive, they are not visual
enough, and they can be very boring and/or misleading. Nothing is worse than being
forced to sit through a PowerPoint presentation that is too long and loaded
with endless Excel sheets.
In summary, analytical tools offer great potential for success, but they need to be utilized properly and in conjunction with intuition to be effective. So, gather all that data and pay close attention to it, but don’t be afraid to toss it all out.
Too many cooks spoil the broth. A child, looked after by
seven nannies, is a child with one eye… Phrase it however you want, but when many
manage one thing, some things are missed or turn out wrong. The camel analogy
specifically criticizes committees and group decision making, implying that
incompetence results when too many people are involved on a project. Therefore,
the camel’s humps reflect bad planning and inept design when the original concept
was a horse.
These proverbs speak to a number of current issues
regarding decision making, innovation, and performance. It’s worth asking: How
disciplined, organized, programmed, and/or fact-based should decisions be? Or are
we heading in the direction of unstructured, flexible, creative, and innovative
planning?
Unfortunately, we tend to rely on preset parameters or
stick to old habits rather than pursuing the most effective process. So, let’s
explore some topics that can help you decide what the best plan of action might
be for any given scenario:
Camel (Committee)
Versus (Horse) Individualism
The simple answer is it depends. If you have a thriving
company with ample market and internal capabilities, diversifying can be an
exciting option. In particular, vertical and horizontal integrations can assist
in achieving better use of your resources. Similarly, if you have operations or
marketing capabilities, cooperation can be highly productive in better
utilizing those resources.
In contrast, the less resources, knowledge, or experience
you have with cooperation, the less you should do it. Diversification does not
work effectively in business cultures that have no synergy. Similarly,
cooperation frequently fails when it is done to solve or cover up weaknesses. The
K-Mart and Sears merger is one of the best examples of failed diversification
which was executed with poor management and a prayer that two losers would make
a winner.
Innovation Versus Discipline
I believe innovation and discipline can coexist. You
simply need to focus on improving autonomy at all levels as you simultaneously
increase discipline. For example, Google, among other big corporations, are
developing artificial intelligence (AI) programs to write and develop artistic
works like music and art. They argue that this technology will greatly enhance
an artist’s ability to create. Others disagree, saying that it will just
replace artists. My own experience in the knitting industry showed me that
automation greatly enhances an artist’s potential and reduces mundane tasks. I
believe that similar improvements are evident in areas like digital photography
and animation.
George Bernard Shaw said, “The reasonable man adapts himself to the
world; the unreasonable one persists in trying to adapt the world to himself.
Therefore, all progress depends on the unreasonable man.” Similarly, Steve Jobs
quipped that if he asked customers what they wanted; it would be obsolete
before he got it on the shelves. So, it remains that innovation is a
necessity, but if it’s unmonitored, you may end up with that pesky camel…
Focus Versus
Diversification
Some businesses
try to randomly pursue diverse options by simply throwing s**t at the wall and
seeing what sticks. Others complete so much research and planning that, in the
process, aspects like goals, probabilities, and outcomes are overshadowed or
forgotten. Business owners need to identify priorities and focus. From there,
test and adopt or change as opportunities or issues arise. It’s important to
remember that many plans are based on wrong assumptions or are poorly executed
and, therefore, do not succeed or are unable to adjust to change.
For example, I
was working with a client who was trying to execute over 15 different
educational programs and was stressed out, over budget, and not managing
effectively. We simply cut out the least effective programs which saved money
and, as a result, were able to allot additional attention and resources to the
more effective ones. Focusing your strategy can be accomplished with a few
simple efforts:
Measure, Estimate, Prioritize, and Adapt.
Follow the 80-20 rule.
Make
mistakes and learn from them.
Be open to change and feedback.
Experience and
Expertise
In his book “Outliers,” Malcolm Gladwell became famous for stating
that, “10,000 hours of practice are required to become a world-class expert.” I
am not sure it is 10,000 hours, but my experience indicates that experience and expertise are probably the
most important factors in achieving success. That doesn’t mean you need expertise
in everything, but it does mean you need at least a hook in the field you are
pursuing. And if you know you are lacking expertise in a critical area, I
suggest hiring someone to help.
For example, right-brain creatives typically don’t like
financial analysis so it’s usually a good idea for them to hire an accountant.
In the last couple of weeks, I have had clients with seemingly great ideas and
passion who overestimated their gross margins by 10-20%. They simply didn’t do
the detailed financial work and didn’t understand that those numbers could make
a huge difference between profit and loss.
This argument is in no way intended to ignore the
importance of passion, commitment, innovation, testing, and even mistake making.
I’m just saying that both individuals and organizations need to realistically
assess the risk of failure and the reward of success. Expertise and experience
are critical for accurately evaluating opportunities and new innovations.
Risk Evaluation
Are all of the features of a decision understood?
Do you know the probability of reward, the amount of the reward, and the value
of the reward? For example, what are the goals of your efforts? My clients are
usually small businesses who need to make a profit and earn a living. Thus,
they frequently pursue less risk.
In contrast, venture capital firms are
frequently pursuing growth and worry whether the enterprise will be large
enough to generate large returns. Therefore, they expect a certain amount of
loss as well as some lost investments in order to generate large growth and
profits in other areas.
Analytics Versus
Intuition
The increased use of analytics over
intuition has been significant in improving the understanding and results of
decision-making. This shift was greatly influenced by the growth and confidence
in behavioral economics fostered by authors like Daniel Hahnemann, Richard
Thaler, and Michael Lewis. While there are no quick and simple resolutions,
there are a few simple rules to improve the decision process using both
analytics and intuition.
Analytics is simply the increased
use of research, models, probability, risk, numbers, and analysis to improve
decision-making. In some cases, it has proved to be a valuable tool to
understand and improve decisions or simply validate prior intuition—particularly
where there is plenty of stability and historical data. For example, I have helped
several of my clients improve their businesses by focus on the 20 percent of customers
or products, which we know, statistically, accounts for 80 percent of their sales.
Here are some simple
guidelines to help manage decision making dilemmas:
Understand goals,
tasks, and complexity. For example, the more uncertainty and unclear
information, the more you need to rely on intuition.
Integrate the proper
role of expertise. If you have complex tasks that require diverse resources,
incorporate collaboration. If you have standout experts with extensive
experience rely on their abilities. For example, I am always fascinated how
surgeons and lawyers delegate tasks to paralegals and surgical nurses.
Test, measure, and
adapt. Gather information, confirm ideas, adapt and improve winning ideas.
Incorporate risk to
evaluate the potential and results of success.
Don’t be afraid to
follow your passion, commitment, and instincts.
Take a break. We are
frequently too consumed and stressed with our tasks. We don’t take time to
incorporate efforts like training, casual lunches, social events, new ideas,
reading, and informal meetings into our routines.
The goal is really to find a balance between group decision making and individual efforts so you don’t wind up with a camel when you wanted a horse. Recognize when analytics, facts, and research can improve your decisions. And don’t be afraid to follow your intuition when traditional answers don’t seem correct. Taking probabilities, risk, and values into consideration, you should be able to find some harmony between the two ends of the spectrum.
Now, before anyone gets up on a soapbox with an opinion
about whether or not stereotyping is “politically correct,” let’s just take a
step back. Of course there are bad stereotypes—ones that cultivate hate,
encourage inequality, and perpetuate racism. This article is not about those. That type of stereotyping is
ignorant, misinformed, and detrimental to society as a whole, in addition to
being harmful to your business.
The stereotyping
we’re dissecting today relates to trends and analytics. The bottom line is: negative
and harmful stereotyping stems from ignorance, assumptions, fear, and
misunderstanding, while a healthy stereotype comes from research data and an
analytical point of view.
A large part of marketing revolves around segmenting and focusing on selected consumer groups. The “stereotype” that older people are less likely to utilize technology is a helpful bit of information (supported by research) that may influence your marketing strategy, especially if your target audience is over the age of sixty (of course, there are always exceptions to the rule, but you can see where I’m going with this…) This demographic is also more interested in things like adult diapers, medical services, and reverse mortgages. They may not even understand things like streaming services, apps, or YouTube. These may sound like generalizations, but these particular stereotypes, when supported by data, are useful to your marketing strategy.
When You Stereotype
Others
Stereotypes, traditionally, have been used to divide people.
They create an “us and them” mindset. However, I argue that stereotypes can be
used for good if they come from an attempt to unite people and find
commonality. For example, a
recent study showed that teachers were more effective with students who shared common
demographics like sex and race. Educators can use that information to find the
best academic fit when they are seeking employment.
Another
positive way to utilize stereotypes is to find ways to relate to others. In
business particularly, creating rapport with investors, customers, co-workers,
or vendors is an important element to success. Finding common ground—whether that’s
background, hometown, religion, etc.—may help you connect with others. We infer
things based off of what we know about others. So, you might ask a person from
Chicago if they’re a White Sox or Cubs fan. The assumption that he or she is,
perhaps, a fan of a particular sports team based off their hometown isn’t
offensive in any way and it may spark a conversation about rival teams.
A
common stereotype, that I find beneficial, is considering the implications of
whether someone is “right brained” or “left brained.” In particular is someone
more creative or intuitive (right brain) or rational and analytical (left
brain). Factors like fact, logic, emotion, and passion can vary depending on
the audience and situation. These two types generally excel at very different tasks
and have specific ways in which they work best.
When Others Stereotype You
You can
argue all you want, but looks matter. Studies have shown that it takes just 30
seconds for someone to form an opinion about another person upon first meeting
them. We’ve all heard it before, but how we choose to present ourselves makes a
difference. And like it or not, people will make assumptions and stereotype you
based off what you wear and how you look. It may work for or against you, but
the key is knowing that it will happen and working to present yourself in the
way you’d like to be perceived.
When it comes to business, I suggest knowing your goals,
understanding your consumer’s needs, and keeping your audience’s perceptions in
mind. Perceptions are imperative.
This includes perceptions of you, your product/service, your brand, your
marketing, etc. Whether you’re selling a product, developing a relationship, or
impressing an audience, you need to consider how your and your message come
across, what assumptions people will make, and the impression you want them to
walk away with. You can’t control what people think, but you have the power to
influence their inferences.
Have you ever been a victim or beneficiary of
stereotyping? What stereotypes have been applied to you? Were they offensive?
Have you ever judged a book by its cover and been wrong?
I’d especially love to hear how stereotypes have helped you develop more effective messaging. Contact me today, and let me know your thoughts.
Dr. Bert Shlensky, President of The Startup Connection, directs all small business clients toward maximum sales and profit thanks to his 40 years of high-quality experience. Though technological, social, and online integration, he can help launch your business to the next level.
Henry David Thoreau said it best: “Simplicity, simplicity, simplicity!” Despite the universal acknowledgement that his words are both wise and sound, we continue to flip him the bird with our actions. Keep It Simple, Stupid.
It genuinely applies to all areas of life:
Don’t overcomplicate things! Especially when it comes to proposals and sales
pitches, we frequently forget the tried-and-true advice: “Features Tell,
Benefits Sell.” Repeatedly, this adage has been proven over the centuries. So
by now, you would think it’s so obvious that everyone practices
it. However, this is NOT the case at all.
Why do so many of us still try to sell based
on the features of our products and services rather than their benefits???
Sales techniques require careful thought and
analysis. It seems trivial and self-evident to state that selling is a process
that involves a buyer, a seller, and a transaction. So, why do many of
us frequently forget that simple formula? There are countless books,
articles, tapes, and training efforts on sales techniques, but it boils down to
meeting the needs of the client.
I recently experienced two vastly different
proposal approaches that perfectly demonstrate my point.
One: I needed a new estate lawyer. The first
person I considered hiring started our meeting by explaining that he did not
charge for the initial meeting because he wanted to clearly understand my needs
and explain how and at what price he could meet them. He then listened and gave
a great presentation on how he would handle my needs. I hired him without
seeking alternatives because he understood what I wanted and showed me how he
would deliver that. Many professionals including accountants, investment
advisors, and even real estate brokers have similar approaches.
Two: I was seeking a marketing consultant. I
placed an ad on Craig’s List and received many responses from people who were
seemingly qualified. However, many showed traits that excluded them from
further consideration:
They wanted to sell
packaged services without any understanding of client needs and goals.
Frequently, they didn’t even read the introductory material that was sent to
them.
They provided little
information on why or how their efforts would be successful or
beneficial to me. One actually wrote that there was no long-term pay off for
their services.
They highlighted their
product’s presumed strengths rather than focusing on how it would meet my
needs.
The juxtaposition of these experiences shed
light on some simple strategies that may help you improve your own
approach:
Listen. Take the time to understand what the client needs and wants. Do you both understand the difference between the two and how to balance them? For example, is the budget only big enough to execute the programs necessary for success? Or are there excess funds that will allow for add-ons? (Also, avoid pitches that ask for a budget and then offer low bids just to secure business. Saving money doesn’t help if goals aren’t met.)
Know your strengths. What skills and
programs do you have to answer client needs? Creative, technical, and
programming needs/skills are quite different. What do you bring to the table and
how will those unique qualities ensure the client’s success?
Set trackable goals. How will you measure
results and progress? You need an end goal so that you can show results. What
is the startup period? Are you trying to improve sales, communication, or branding?
Tangible progress is key.
Be direct, honest and polite. Transparency and manners
go a long way. Additionally, make sure to provide clients with your email
address and phone number on every document. You may think this is trivial or
obvious, but I can’t tell you how many resumes I’ve been sent that lack this
basic information.
Provide proof for your
claims.
Cite examples of relevant success. It both builds your image and gives clients confidence
in hiring you. I automatically reject suppliers who cannot provide references
or quantitative expectations for their program.
Find connection. Consider what may seem
like external variables: Demographics, gender, culture, economy, and geography
may be more important than you think. I am from Chicago and Yankee fans
frequently build an instant rapport with me by trashing my White Sox.
The bottom line: Keep
it simple, short, and to-the-point. Avoid the fluff. No one wants to walk away
feeling confused about what is being offered. Clients want to know what you do,
how you can help them specifically, and at what price. “Simplicity, simplicity,
simplicity!”
When you want to stand out, reach out to Bert for the tools that will build your “sticky” brand. My focus is on understanding and analyzing your dilemmas and challenges, so your company becomes profitable faster.
Call (914) 632-6977 or email me at bshlensky@startupconnection.net. Don’t leave without signing up for our useful free eBook!
Feeling stumped or overwhelmed? Contact Bert at (914) 632-6977 or Email to start the process. Thanks!
