11 Questions for the Wise Men – (Reprint 2)

11 Questions entrepreneurs ask – Yet more Agony Ant reprints from my Fairfax business column… answers at bottom

Q1:  I’ve been in business quite a while selling the same product for the last 5 years and pretty well.  I have built up good reserves in the business and I’ve had an idea for a cool new product.  But it’s a totally different product for a different group of customers which scares me.  What can you suggest I do before jumping in?

 Q2: Everyone keeps talking about sustainability and business. What things do I need to consider to make my business sustainable?

Q3: I took on a sales person on quite a high wage that is simply not performing. How do I get rid of her now because it seems so hard to fire people?

Q4: How do I recover  lost customers or should I just focus on finding new ones?When you lose a customer it is always worth asking them why?

Q5: What do I need to consider if I want to set up a business from home?

Q6: Cash flow is pretty tight but I want to develop a cool new idea and the bank won’t lend me the money. What should I do now?

Q7: I want to set up an e-commerce website but it seems really expensive. What should I look at when weighing up who to go to?

Q8: I only have a handful of staff but think I should be doing performance reviews, at least annually. Or shouldn’t I bother given how big the company is?

Q9: What are the ten key steps to business survival?

Q10: I keep getting hassled by people wanting me to buy advertising  for my company. I have a small marketing budget but how much is appropriate and how do you decide where to spend it?

Q11: I have a world-first product that only has a limited market in New Zealand. I want to start exporting or get into licence agreements offshore but I’m worried about protecting my IP yet it’s really expensive to get patents in lots of countries. What should I do?

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Some Answers

Q1:  I’ve been in business quite a while selling the same product for the last 5 years and pretty well.  I have built up good reserves in the business and I’ve had an idea for a cool new product.  But it’s a totally different product for a different group of customers which scares me.  What can you suggest I do before jumping in?

A: Take the time to research what the market demand for the product is, and how you will make money from it. Engage the target customer set, find out what is important to them and what they will pay for. Focus your product development on features that they will pay for, rather than just “cool” stuff.  Then take the time to develop a full business product plan for the product line, most importantly how much of this cool stuff you need to sell to break even.

Do not be afraid  of starting the selling process now, see if you can sign up some orders subject to a delayed delivery. This will be the first test to determine, whether you are creating a business or a hobby.

I word of warning f there is no commonality in customer set or channels to market, you made need to consider whether this is a completely different business. Perhaps its time to put a manager in to manage your stable business and you focus on this new venture. Use dividends from the good one to fund the new one.

 Q2: Everyone keeps talking about sustainability and business. What things do I need to consider to make my business sustainable?

From a green point of view I believe the concept of green thinking is great as it forces people to be creative in their thinking. Coming up with new ways to solve business problems. But a green business also needs financial sustainability.

Sustainability for me starts with ensuring your business model is robust and can weather storms that come your way. As part of this you need to establish an advisory board that will challenge you, and ensure you have adequately anticipated possible risks and have plans to counter them should they eventuate.

Remember in many cases you are selling in a market full of other green products, you still need to differentiate your product and service. Green by itself is not a sustainable  business.

Q3: I took on a sales person on quite a high wage that is simply not performing. How do I get rid of her now because it seems so hard to fire people?

No matter how difficult the employment laws are you cannot afford for this situation to carry on. Fix or cure quick as you can. I cannot think of anything more important than fixing this sort of problem!

Sales people are the easiest employees to manage out of your business using the  performance management system required by law,  as their direct outputs such as Sales revenue are easily measured. If you have not set targets to date, set them now and manage to them.

No matter what other process you do, start a performance management process now with some open and frank discussions about their performance. Remember to Document conversations , collect  a dossier file in case you end up in court.

Stand back and look at the bigger picture and see what other are not working in your business, it may be time to restructure the business.  During this review process you may uncover other problems.

If you end up in a PG (personal grievance) situation , often it is better to not fight for the truth and what is right. Seek some outside advice, often outsourced HR departments like www.bluedot.co.nz can provide good affordable advice.  Also there are specialist employment lawyers if things are likely to go pear-shaped.

Q4: How do I recover  lost customers or should I just focus on finding new ones?When you lose a customer it is always worth asking them why?

This is a tough call to make, but you will learn from it. Often we have the wrong impression of why?
Some times they can be recovered, other times it may pay to learn and move on. Also remember not all customers are created equal, are these your most profitable long-term customers or are they influencers in the market. If not just move on.

Q5: What do I need to consider if I want to set up a business from home?

Lots of people start or build businesses working from their house.  First do some basic financial modelling and work out whether you are going to make money from this venture. Include paying yourself a market rate for remuneration in your calculation so you are going in eyes open.  There are no quick bucks to be made in business, overnight success usually take 5 – 7 years, check in that you are ready for the marathon.

If it’s going to be a home office, a must for me is making sure you have a separate place in the house that is for the business, set your set up with all the basic IT services etc.

You also need to consider whether you are going to bring clients to your office and how that will work. Depending on the business it may not be so good to have screaming kids running around the house, dog barking etc.  Or your desk set up in the lounge.

You need to create the empression of being a real business. At the very least register a domain name, do not use a plain name@gmail.com or xtra email address, you look like an amateur. For $40 you can register a domain name (www.freeparking.co.nz) and use google apps (for Free) for  100 email accounts, calendar etc.

 Set up an accounting system from day one – these days Xero has the market sorted.  If you are going to be on the road a lot investigate setting up good mobile services email, calendar etc  oh did I say I was a gadget man! Gadget or not, reading emails on a phone while waiting for a meeting at café or bus stop save precious time.

Q6: Cash flow is pretty tight but I want to develop a cool new idea and the bank won’t lend me the money. What should I do now?

How about considering outside investment, contact us at www.Escalator.co.nz. They run NZTE fully funded training workshops in all main centres.

Never forget the number one source of capital is sales, so if you have an existing product sell more of it to fund the new product.

Get creative with other finance tools. Look at your current debtor management . Can you get prepayment from your customers or simply get them to pay on time?  Do you own your own commercial building, perhaps sell it and lease it back.  Invoice factoring (selling your invoices) is another often forgotten or little known about tool.

Q7: I want to set up an e-commerce website but it seems really expensive. What should I look at when weighing up who to go to?

Always challenge IT companies for a cheaper solution, too many of them over engineer solutions.
Look at using systems already available. Look for potential partners that may want to resell your product on line.
Work on a system that will get you started, and if you need to throw it out down the track,  if volume increases, so what?  You will have the cashflow to fund it.

I would always ask to see reference sites and talk to their business owners.  Get a fixed price, software projects are notorious for running over budget. If the e-commerce is going to be a major part of your business I would suggest hiring specialist talent in, even if just to keep an eye on any contractor. To many web businesses have gone bust, making  contract software development houses rich. Consider getting them in as equity partners, rather than parting direct cash – that way they have some skin in the game.

Q8: I only have a handful of staff but think I should be doing performance reviews, at least annually. Or shouldn’t I bother given how big the company is?

I have not meet a business yet that is not dependant on quality motivated staff for success. Always go out of your way to spend time with your staff.  Most people (staff and managers alike) find it difficult to talk about those buggy things. Formal reviews provide an opportunity to have some conversations that for many do not naturally occur on a day to day basis. I would suggest as a minimum of having a one – one conversation at least every six months – how’s things going for you, what’s working what’s not?  These need to be two way conversations and not just about pay.

Q9: What are the ten key steps to business survival?

  1. Have clarity in how you add value to your clients – focus on that. Leverage your point of difference
  2. Identify your target beachhead market – the people who you can make the most money from, in the easiest possible way.
  3. Ensure your business model is robust and sustainable – i.e you make money
  4. Create a one page business plan.
  5. Employee the smartest people you can afford, ideally smarter than you,  always hire based on values and personality first – skills second.
  6. Define your culture and brand identity and stick to it – NO this is not a logo!
  7. Adapt fast and act on failure – including firing non performing staff, killing projects that will not deliver a return to the business.
  8. Set up an independent advisory group that will challenge the thinking from day one
  9. Engage your clients and have fun – perhaps explore Social Media Marketing
  10. Have a goal and exit plan from day one.

 

Q10: I keep getting hassled by people wanting me to buy advertising  for my company. I have a small marketing budget but how much is appropriate and how do you decide where to spend it?

 If your money is limited save it for anything that puts you directly in front of your target customers, that you can make the most money the easiest possible way.

Usually this is phone bills, bus fares, airplane tickets and cheapest possible hotels in town.  Define you target customers –  a list of less than 100 and go talk to them.

Create maximum presence for least money. Create a one page website with your contact details, employ a graphic artist to make it look professional. Create a profile on www.linkedin.com and use it to get introductions to your contacts – contacts.

Remember it’s your money – say no to anyone who pesters you.  Ask them to quantify the financial gain your business will make as result of any marketing spend – 90% will have no answer.

Q11: I have a world-first product that only has a limited market in New Zealand. I want to start exporting or get into licence agreements offshore but I’m worried about protecting my IP yet it’s really expensive to get patents in lots of countries. What should I do?

First learn to talk about your product without giving away the secret sauce. This is best done by describing the impact the product will have on the users business. Too many NZ inventors fall into two camps: Either they say nothing – it’s a big secret, or are so excited about their product they always tell their audiences about the technology and give away too much information.

Explore other avenues to protect your product trade secret etc. Make sure you get good advice from commercially oriented IP specialists and commercial lawyers.  Do not get sucked into the “patent” everything , every where  one size fits all syndrome.  At very least invest in a Freedom to operate search to make sure you are not infringing some else’s patent.  Be careful many businesses fail because they have invested all their start-up capital with professional service providers and do not have enough money to get their product to market.

The NZTE web site has some great templates for Agents and Distributor’s agreements. Seek professional advice from someone who has experience in offshore agreements. I would recommend SimmondsStewart.co.nz  , remember to include clauses that cover the situation when it all turns to pooh!

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Wise Man – Fairfax Agony Aunt Column – Reprint 1

I write a regular column “agony aunt” column for Fairfax business media that appears in the business section of a number of their papers around the country.
In response to numerous requests, here is the first of a series of blog posts with back issue Q&A’s that have appeared in the “Two Wise Men” column.

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 Q:  I want to go into business with a close friend of mine but other people tell me this could be a recipe for disaster.

What are the pitfalls and what can I do to overcome them?

Many commentators say working with Friends and family are a recipe for disaster I have seen both great successes and failures using friends and family.  My tips:

  • Try before you buy: Make sure you can spend a decent amount of time planning the venture, this way you will get to see how they operate as a colleague rather than a friend. Plan a early review point so you both have an option of bailing out before it’s too late. Some people make great friends but are not great employees or business partners.
  • Get clarity: Define your roles clearly and separate out your roles as employee, director and shareholder. Be clear on expectations and commitment. Set up regular review points.
  • Only one boss: As hard as it is –  one of you need to be CEO. Write up a short form job descriptions for both of you.
  • Prepare for the worst: Spend the time and money and establish a shareholders agreement (SHAG). In particular include in the SHAG how you will handle the situation when one of you wants to leave the business and how you will value the share holding if one person wants to buy out the other. Or worst how you will handle the ex-wife from hell as a shareholder when a marriage ends.
  • Appoint referee’s before you need them: Establish an advisory group as soon as possible. This will enable you to manage any issues along the way.
  • This is a marathon: If they are not going to be shareholders, do not abuse the relationship. Make sure the partners and family are on board – instant success is going to be about 5+ years away – check every one is on board for the complete ride.

Q: I made a business plan when I started up my business but I would like to know how often I should update it and whether I have covered off everything I should have in it?

There are different reasons and types of business plans; each have there use and life span.

1) Full Business Plan: – Justify strategic change or major investment.

This full Monty business plan should only be undertaken at key milestones during the life of your company, for example before you commence the business (i.e give up your day job), or before you seek significant investment from any party or undertake any major risk – liability.

These 60 – 100+ page beasts only have the life span of one major decision, beyond that they are too cumbersome for most SME’s. They present the danger of holding the business ransom to a plan that is no longer appropriate or accurate. They form great reference documents but have down sides.

2) Plan for Execution and Leadership – daily use, reviewed monthly, challenged six monthly.

I am a fan of short business plans max 10 pages, always summarised in a single page diagram or short bullet list (5 points max). These plans can easily be communicated and acted on, allowing the complete team to gain clarity about the task at hand and what they can do to achieve a common goal. 

Execution business plans should be referenced frequently and challenged 6 monthly for a growing company. The great thing about a ten page plan is people are OK about tossing it out. Allocate at least half a day for your key staff to review the plan every six months, preferably with someone from outside the business to bring new ideas and challenge.

I generally use a variant of the Balanced Score Card model making sure the business in focused on the four core areas: Finance, Customers, Process and Staff. The less objectives the higher chance you will achieve them. Be warned if you have more than 10 strategic initiatives you will never achieve any of them.  When you review your business plan also review your customer value proposition or pitch, making sure that your business is focused on something that adds value to your clients.

You should review progress against your business plan formerly on a monthly basis. If you are focused on activities outside the business plan then either change the plan or change your behaviour. Good business plans are simple and help speed up daily decisions for all of your staff.  I am also a fan of customer focused mantra’s eg “ We make the car go faster”.

Want more on business plans – attend a GMC Business Plan Workshop