Wednesday, December 12, 2018

7 Practices Reduce Risk In Even The Smallest Business

shop-micro-businessIn the last few years, I’ve heard more and more about a new type of small business, called a “micro-business” (or micro-enterprise). These are usually characterized as owner-operated, with five employees or less, and less than $250,000 in sales. With the low cost of e-commence entry, and powerful Internet technologies, they require minimal capital to start, perhaps as little as $500.

I see the potential for these to become big business in this entrepreneurial economy. According to the Voice of Microenterprise (AEO) website, if one in three micro-enterprises in the United States hired an additional employee, the US would soon be at full employment. These businesses are usually run out of the home, and cover the gamut from consulting services to e-commerce.

Dal LaMagna, in his humorous classic “Raising Eyebrows: A Failed Entrepreneur Finally Gets It Right,” leads with the foundational principle of micro-businesses, which is to start small. This allowed him to learn enough from all his early mistakes to hit it big ($10 million revenue) with a global beauty tools company called Tweezerman. He and I offer seven key additional practices to reduce the risk:

  1. Tailor the business to you. Do you love antiquing? Fishing? Cars? Cooking? Now, think about what pursuing this passion might mean for your lifestyle. Think how you want to spend your day; where you want to live; whether you want to work with people or alone; in the morning or at night, and so on. Eliminate any aspect of your business that doesn't create your preferred lifestyle -- and will work against you.

  2. Be frugal. Don't spend money you don't have. Don't invest in anything you don't need. If this means baking cupcakes in the local church basement and delivering your signature pastries by bicycle to local stores -- two dozen at a time -- do it. Take the money you make and put it right back into the business.

  3. Record every expense. From the dollar you gave to the homeless guy on the way to meet a prospective client, to the new tie you bought to look professional, write down every single penny. The key to launching a micro-business is to keep expenses under control and fully accounted for.

  4. Keep a monthly profit-loss. For the first two years of your business, complete a monthly profit-loss statement. This helps you stay on top of where your business is going, where it could do better, and why it fluctuates.

  5. Find free stuff. Many items needed to start and run your small business are available for free or next to nothing. Be creative. Use freecycle.com; ask friends if they have an old computer or printer; or visit a thrift shop for office furniture or office supplies.

  6. Write down agreements. With a very small business, your clients sometimes make the assumption that they don't have to sign an agreement. Wrong. Get in the habit of thinking like a company founder and get promises in writing. And while you're at it, keep your side of agreements.

  7. Keep it simple. When Dal first started Tweezerman, he did nothing but focus on tweezers and selling them to cosmetic counters, one store at a time, which he did very well. If you can do one thing well, don't dilute your efforts until you have been turning a large profit over a consistent stretch of time.

My net recommendation is that if you consider yourself a do-it-yourself entrepreneur, preferring to do things yourself rather than forking over money to consultants, then definitely the micro-business approach is for you. The down side is that your business will probably grow slowly and more organically.

If you prefer to rely on others for most things, or want to get there fast, the investor approach may be the best answer, but the price is higher in time, dollars, and control. It’s your choice, but remember that the wrong choice probably won’t get you there at all.

Marty Zwilling

0

Share/Bookmark

Monday, December 10, 2018

8 Ways To Prepare Yourself For Business Crises Ahead

financial-crisis-aheadMost entrepreneurs see their new venture as a fun adventure, until the pressures of a cash flow crisis, or a manufacturing quality problem, or a major customer satisfaction problem hits. Even with all my years of experience mentoring in business, I can’t predict how you will prepare for and react to pressure situations. I wish I could, since these often make or break your business future.

Over the years, I have found some key things that you can do to prepare yourself, how a proper mindset can mitigate the pain, and put you back in control. Here are the top approaches I recommend, and the entrepreneur mindsets that I see in survivors:

  1. Evaluate new competitive threats as new opportunities. New competitors can steal your market, or they can open up new markets. Entrepreneurs who react with fear and anger are in major jeopardy of losing their health, since competitors are a constant in the startup world. Use them positively to tune your solution and expand your opportunities.

  2. Use business model pressures as drivers for innovation. There is a natural human tendency to fight the need for change, and the pressure to change causes pain. True entrepreneurs love change – that’s why they are starting a new venture. They use pressures, like shrinking margins, as drivers for their next innovation in manufacturing.

  3. Incorporate fun and humor into pressure relationships. If your team is feeling over-whelmed by the pressures of customer demands, it may be time for an off-site fun event to get them recharged and fully motivated. Fun and humor will also offset the tension in dealing with tough customer issues, resulting in higher satisfaction, loyalty, and referrals.

  4. Take control of the situation by breaking task into chunks. When the challenge ahead looms large, it’s easy to let anxiety get the best of you, and you are afraid to start. Every big task can be broken into milestones, allowing you to enjoy small successes. That’s why I suggest a business plan before you start, with a timeline and deliverables.

  5. Work from your strengths – don’t worry about weaknesses. Most entrepreneurs start with passion and confidence, but many succumb to their weaknesses when pressures set in. Lead with your strengths and in-depth skills, and don’t be afraid to ask for help from advisors or partners to fill in the gaps. Confidence alone will overcome many challenges.

  6. Turn every failure into a positive learning opportunity. When pressures mount and things go wrong, don’t start looking for excuses, or someone else to blame. Make every failure a lesson learned, and project that mindset to your team. Thomas Edison counted many learning opportunities, bouncing back after 1000 failures on the light bulb alone.

  7. Prepare for challenges rather than hope for the best. The best entrepreneurs always have a plan, with alternatives, and continually research their industry and competitors. Others strike out blindly, assume it will be an easy win, and quickly feel the stress and pressure, with minimal insight on how to respond. Be over-prepared, and enlist advisors.

  8. Stay physically fit and balance work with play. Pressure situations will happen in every business, so stay at your best both physically and mentally to respond. Don’t let the “normal” workload wear you down – keep a balanced focus on work, and find other activities, including sleep and entertainment, to keep up your motivation and stamina.

Based on my own experience as a business executive and advising small business owners, I’m convinced that anyone can learn from these techniques to handle the pressures of a new venture or existing business, no matter what their background. It won’t happen by default, and it does take effort and initiative on your part.

You too can then thrive on the challenges and pressures of your business, rather than let these pressures destroy you. Most entrepreneurs I know can’t stand the boredom of “business as usual,” as that threatens their sense contribution and self-worth. Be one of the best, whose motto proudly is “when the going gets tough, the tough get going.”

Marty Zwilling

*** First published on CayenneConsulting on 11/27/2018 ***

0

Share/Bookmark

Sunday, December 9, 2018

8 Guiding Principles For Pursuing A Winning Venture

human-future-technologyEvery entrepreneur has an idea for transforming a market with innovative new technology, or transforming society with a new process. But unfortunately, most of these ideas fail at the execution level, or are not truly innovative. Entrepreneurs who have been really transformative, like Steve Jobs and Walt Disney, seemed to know how to deal with all the right elements.

Jeffrey A. Harris, in his classic book “Transformative Entrepreneurs,” provides examples of key elements of transformative ideas and leadership abilities that separate the winners from the losers. I found his observations, like the following, to be inspirational for those of us chasing an entrepreneurial dream:

  1. It’s all about the people. Ideas have to be implemented well to change a market, or the world. Good implementation requires a plan, and a great plan and great operational decisions come from great people. That’s why investors look for entrepreneurs who have true grit, dogged persistence, and a disdain for the status quo.

  2. Seek innovation that begets invention. It doesn’t always work the other way around. According to an MIT study a while back, only about 10% of patents granted in the United States have any meaningful commercial importance and less than one percent are of seminal importance. True business titans deliver both invention and innovation.

  3. Find enough venturesome capital. Nearly all new businesses aspiring to reach meaningful scale require some sort of outside funding to finance a competitive growth trajectory. The objective must be to get sufficient capital, with experienced and motivated counsel, to make the venture succeed.

  4. Create a formidable and durable business model. Your business model is your value proposition. “Free” sounds like a great model, but it doesn’t imply value. Look for customer-focused value creation. Make your business model your competitive differentiation, like Fred Smith with Federal Express, or Ingvar Kamprad with IKEA.

  5. Grab the next-mover advantage. First-movers have an initial advantage, but this position is fraught with risk, and often comes with a high price. Herb Kelleher, who started Southwest Airlines, wasn’t the first in the airline business, but he saw the need for low-cost short hauls, with exemplary customer service, and transformed the industry.

  6. Failure is an option. Building a business from a raw start is hard, risky work. That means that the process of innovation is not always pretty and rarely successful. The best entrepreneurs always regroup after a failure, learn from prior mistakes, persevere, and launch a new venture with considerably improved odds of success.

  7. Government matters. Government policies, initiatives, and leadership set the stage for economic growth, and provide resources for improving living standards, and enabling technological advantage. Transformative entrepreneurs pay attention and capitalize on these cues, rather than ignore or fight them.

  8. Innovate or die. In a world connected through a broadband Internet and mushrooming social networks, information flows quickly and relatively seamlessly, expediting the pace at which new innovations gain traction and speed. Standing still is tantamount to giving up. It is not an option.

These elements and the people stories in the Harris book highlight just how difficult it is to build a truly transformative business, yet at the same time illustrate that it can be done, and has been done many times, with no correlation to geographic, ethnic, age, or sexual boundaries.

In fact, I’m convinced that it needs to happen more often, with all the challenges we have in our modern world. So it’s up to each of you to assess your activities, and your potential, to be transformative. The investors I hear from want to see more innovation, and fewer “me too” startups. Can your idea generate some excitement to really change the world?

Marty Zwilling

0

Share/Bookmark

Saturday, December 8, 2018

5 Lessons For New Venture Founders From Great Chefs

Emeril LagasseI realized a while back that creating a new company for the first time is a lot like whipping up a great dinner entrée for the first time – you need a recipe, even though it may look simple. You know the basic ingredients, and you can visualize the results you want. Yet you may not be so sure where to start, and how to put it all together.

In all cases, don’t skip the basic training. Any startup coach or business advisor will tell you that, on your way to being a great chef, you don't start your journey by inventing the ultimate entre. First you work in the kitchen for a while, learning some tools of the trade, experiment with a few recipes, and test on willing clients. Finally you create and document your recipe (business plan).

There are two parts to every recipe – the specific ingredients, and the instruction steps for putting the ingredients together. For a new business, you can provide unique ingredients, but the preparation steps in your business plan must follow a tried and true recipe for startup success:

  1. Identify a market with a real need. This means find some hungry people who would love a good dinner, and be willing to pay for it. If you can’t identify customer interest, it doesn’t matter how good your product is. (not a solution looking for a problem)

  2. Be sure you have a great team. You need a good cook, good marketing, and first-class service. Domain knowledge and experience is a huge success factor. All the investment money in the world won’t make your company succeed, if you have the wrong team. (investors invest in people, not ideas)

  3. Effective and timely go-to-market. Don’t be afraid to test your ultimate entrée on customers. Make them “feel the love.” Be adaptable to cultural tastes, trends in the market, and economic realities. But don’t practice too long. If your startup is over a year old, and your business isn’t yet ready, you have a problem. (time-to-market is critical)

  4. Viable financial model. Have you set the right price for your entrée, and correctly included all costs? Have you projected sales and marketing costs, cash flow, and capital requirements? Show return on investment, growth rates, and market penetration. (validate your business model)

  5. Continuous improvement. Don’t stand still. Emeril Lagasse is always ready to “kick it up a notch!” Companies and cooks who rest on their laurels don’t last. Develop metrics with which to measure yourself and use these to incrementally expand and improve your offering as fast as the market and capital will allow. (scale up the business)

If you are already a chef, and you have your own money, you can skip the instructions. You can vary the ingredients, change the formula, or add an extra pinch of salt, and your pasta salad will still be great. If it’s your first time, don’t try to get creative on the “how to” side just yet.

If you are already a celebrity chef like Emeril, meaning you have a record of success using your creativity despite the odds, you don’t even need your own money, and you only need to scratch your business plan on the back of a napkin to get funded.

For the rest of us, the business plan must be the complete recipe, combining ingredients with process. If you don’t have one, your chances of success are low, even if you are an experienced chef. Now you know why professionals and experienced investors are quick to toss an incomplete plan.

Follow the “how to” instructions above for combining the ingredients, combined with you own “special sauce” (competitive edge), and I’m sure you will deliver a tasty dish, on time and with a profit. You can look forward to being a celebrity chef later. For now, get cooking!

Marty Zwilling

0

Share/Bookmark

Friday, December 7, 2018

Why Team Management By Fear Is Bad For Any Business

businessman-afraidDespite the ease of communication through social media, new tools, the popularity of fearless independence and #MeToo, I still see many business organizations that are less than productive due to fear. Yet in my work as an advisor to senior executives, I find that many fail to see reality in their own organizations, and have no idea whether they are part of the problem or the solution.

I finally found some real guidance on this challenge in a new book, “The Fearless Organization,” by Amy C. Edmondson from the Harvard Business School. She presents a wealth of case studies on the pain and business losses from this type of leadership and culture, and provides some practical guidance on how to change it to a more psychologically safe and productive workplace.

If you are one of those leaders or team members who really wants to change things, here are some key indicators of the problems that I have seen, and some pragmatic guidance on how to get things moving in the right direction:

  1. Team members fail to speak up for fear of retribution. Hearing too much silence in your organization is a dangerous sign. This reticence to speak up, for fear of being embarrassed, intimidated, or penalized, can lead to widespread frustration, anxiety, depression, or even physical harm to others. Team members just don’t feel protected.

    Changing this culture has to start from the top. You as a team leader or executive have to openly invite participation from every team member, and respond positively in tone and actions when people actually do speak up. Show humility and appreciation for all input.

  2. People show excessive confidence in authority. In some organizations, especially medical and highly technical ones, authority and reverence are well understood and tightly linked to one’s place in a strict hierarchy. Deference to the leaders can become the default mode of operation, suppressing valuable input, to the detriment of everyone.

    The solution here is to hire and surround yourself with people who bring strong complementary skills to the table, as well as high confidence and self-esteem. In my experience, leaders who hire helpers rather than real help are breeding this problem.

  3. A culture of silence where leaders fail to listen. Often employees learn to stay silent when they see that voicing concerns or ideas is futile. In fact, they usually give up not just their voice but also their entire psychological engagement with your company. Evidence of not listening includes interrupting feedback, being defensive, or no evident follow up.

    You can reverse this culture by asking for opinions or updates at the end of meetings – then pause and ask again, so they know you are sincere. Also, you must be available and approachable. Mingle with employees. Ask questions, listen to responses. Be conscious of your eye contact, facial expression and tone of voice.

  4. Impossible stretch goals are never challenged. Performance goals set without team member input, and without support and feedback, are a sure sign of managing by fear. Most people feel that unattainable targets led to the serious problems at both Wells Fargo and Volkswagen a couple of years ago. Both are still struggling to change their culture.

    The solution is to communicate what you want - early and often - once is not enough for people to take you seriously. Then ask for input, listen to the evidence, and provide feedback based on what you hear. Be fair and consistent, with no excuses or emotion.

  5. You only hear the good news from team members. How many times have you chopped people off at the knees for being the bearer of bad news? Team members learn quickly, and the message spreads, that problems must be buried, and people are berated or penalized for surfacing tough issues. It’s fair to ask for solutions, in a positive way.

    Actually, the best approach is to ask the hard questions to get to the heart of a problem in a non-threatening fashion. Hard discussions can be the most productive, as well as more satisfying to team members, if they feel they are being heard and can make a difference.

Psychological safety is a workplace state in which people feel confident expressing themselves and comfortable calling attention to problems without humiliation or retribution, where colleagues trust and respect one another. In today’s complex world of constant change, collaboration in a fearless organization is the only way to survive and thrive, and only you can build it.

Marty Zwilling

*** First published on Inc.com on 11/23/2018 ***

0

Share/Bookmark

Wednesday, December 5, 2018

10 Business Constants Flourish In This Age Of Change

meeting-relationshipIn this age of constant change, I usually find myself writing about what has changed. Yet I find that periodically it pays to reflect on what hasn’t changed in business, probably won’t change in the foreseeable future, and is still critical to our success in our professional career, as well as the success of our business. Here is my list of the basics that some people in business tend to forget:

  1. Showing up consistently must still be priority one. I’m not talking about clocking in to work and physically putting in your time. I’m talking about being present mentally and engaged, with a full focus on the business work at hand, and contributing to the team. According to recent Gallup data, only 32 percent of employees are fully engaged today.

  2. Customers and peers still expect follow-up and timeliness. I still expect people in every business I call to answer the phone, or at least return the call in a timely fashion. Today there are many more ways to make contact, including email, social media, and web site queries, yet a common complaint I still hear is that no one ever responds.

  3. No one wants to hear that you are too busy for them. Every smart professional and business owner needs to reflect regularly on what they have really accomplished in a given day or week. Results of consequence should never include how many meetings you attended, or hours spent at work. Businesses grow based on customers served.

  4. Number and quality of relationships is still critical. Business connections and networking are still the source of major new clients, new job opportunities, and most promotions. Relationship building does not happen without effort, and the right people won’t find you automatically. It takes initiative on your part, just like it always has.

  5. It’s good for your business to find a work-life balance. Successful business people find a way to escape the pressures of work on a regular basis – through family, a hobby, sports, or other recreation. Every human body needs time to rejuvenate, for maximum productivity and creativity at work. Take some time to get totally away from the grind.

  6. Your job in business goes well beyond any job description. There is no simple formula for delighting customers, and anticipating the next business challenge. Your ability to satisfy the needs of customers and peers in any role can never be fully defined by a job description. Yet declaring that something is not your job will not impress anyone.

  7. It’s not how many things you start, it’s how many you finish. Crossing the finish line ahead of competitors is what gets you paid, and the only way your business will thrive. Investors in new businesses look for traction and results, not ideas. People who proclaim to be thinkers, rather than doers, rarely get funded, and rarely succeed in business.

  8. Customers and peers want to follow leaders, not processes. Even very detailed business processes can’t cover all the important cases. The best businesses people have always been the ones who are skilled and empowered to push the limits, and manage tough situations without excuses. These will lead your business to success.

  9. Managing cash flow is still a major key to business operation. According to financial experts, 80% of small business failures today are caused by poor cash flow, and that hasn’t changed for a long time. Cash is king when it comes to the financial management of a growing company. Entrepreneurs need to manage cash flow daily and personally.

  10. Honesty and integrity in business still pay big dividends. A couple of the most important factors in any business and career continue to be honesty and integrity, which breed trust. It is very difficult to have long-term success if your customers and your peers don’t trust you or don’t think you’re honest. I don’t believe that will ever change.

Thus it’s still critical to spend as much time at work focusing on the things that don’t change, as you do on the things that must change. More importantly, these things that don’t change can be your anchor for stability and enjoyment, leading to real satisfaction as well as success. What more could anyone want from work?

Marty Zwilling

*** First published on CayenneConsulting on 11/19/2018 ***

0

Share/Bookmark

Monday, December 3, 2018

Interpersonal Skills Are Still Key to Team Engagement

team-engagement-relationshipsOver my career in large businesses as well as small ones, it seems that more and more people are feeling unhappy and unfulfilled in their job. I’m convinced that technology is making this problem worse, rather than better, since it often causes to a sense of isolation working remotely, or even in the same office. Isolation leads to a lack of relationship or connection with others.

For example, while social media exchanges are now quick and simple, they miss all the body language and emotion that many believe constitute more than fifty percent of human relations and communication. The result is that even highly engaged workers can get results without a sense of fulfillment or satisfaction. This leads to a spiral downhill in productivity and happiness.

Your challenge as an entrepreneur and business leader is to discover ways to improve the fulfillment of your team, without turning back the clock on technology. I found these issues outlined well in a new book, “Back to Human,” by Dan Schawbel. I like his research and experience on what it takes to improve connection and fulfillment in this age of isolation at work.

Here are some key actions for improved fulfillment that we both believe every leader and executive needs to adopt:

  1. Build stronger team connections to make work fun. Lack of connection makes work feel like a chore and creates the silos that minimize creativity and innovation. The first step to fulfillment is insuring that you have face-to-face conversations and joint social activities, so that you get to know one another better outside of social media and email.

    The more you and other team members understand others’ unique situations, life goals, passions, fears, and obstacles, the more you can help everyone feel more fulfilled, and the more they will help your business.

  2. Show how your work contributes to shared values. Make it evident that values from you and your team drive your business goals, rather than goals driving values. Fulfillment is a function of doing the right thing. Define and enforce a high bar for ethical behavior, product quality, employee communication, social responsibilities and customer service.

    You have to engage the hearts and minds of your team members. To foster team fulfillment, breed optimism, promote resilience, and renew faith and confidence, real leaders look opportunities to reward adherence to values as well as results.

  3. Define and foster a higher purpose for the business. In my experience, both you and your team will have the most satisfaction and fulfillment if you can combine a strong sense of purpose with a quantifiable business opportunity. In other words, profit and a focus on repeatable processes need to be offset by social and environmental benefits.

    In every business, the first higher purpose should be a focus on your customer needs, rather than internal challenges. Without customers, there is no business, and no higher purpose can be satisfied. Beyond that, seek active team participation in outside efforts.

  4. Create and support a culture of trust in your team. Be open to sharing personal information and summaries of conversations you’ve had with senior executives. Provide the opportunity and encouragement for all team members to do the same. This will demonstrate team member authenticity and help build trust. Be the openness role model.

    Listen to what your team members are saying, without interrupting. This shows respect and will help you better give them the feedback they need for fulfillment and trust. It also demonstrates that you are willing to engage with their ideas, thoughts, and feelings.

  5. Focus on accomplishments rather than time at work. To improve team members’ sense of fulfillment, you have to make sure things get finished, and results are measured. Set goals and make sure they are attainable. Smaller goals can lead to bigger ones, which will give you different levels of achievement at different times.

    Your job is to remove obstacles that get in the way of employees’ fulfillment. One often-overlooked obstacle to a team’s success is having a teammate who isn’t performing well or has a bad attitude. Don’t keep them around and let them poison the rest of the team.

Sometimes tech devices trick you into thinking that they are helping you and your team to stay better connected. But technically connected and unhappy or unfulfilled team members won’t lead to success for you or them. We are all still humans, so personal relationships and the interpersonal skills of the team are still essential. Don’t forget that critical side of your business.

Marty Zwilling

*** First published on Inc.com on 11/19/2018 ***

0

Share/Bookmark

Sunday, December 2, 2018

How To Maximize The Level Of Your Business Contacts

President Barack Obama talks with Facebook CEO Mark Zuckerberg before a dinner with Technology Business Leaders in Woodside, California, Feb. 17, 2011.
 (Official White House Photo by Pete Souza)
This official White House photograph is being made available only for publication by news organizations and/or for personal use printing by the subject(s) of the photograph. The photograph may not be manipulated in any way and may not be used in commercial or political materials, advertisements, emails, products, promotions that in any way suggests approval or endorsement of the President, the First Family, or the White House.In the world of entrepreneurs and startups, high level relationships are everything. You can’t start a business alone. You need partners, team members, investors, vendors, and customers. But people don’t realize that all relationships are not the same. There are people you only recognize on the street, business friends, and then close friends whom you can always count on to help.

Tommy Spaulding, in his classic book, “It’s Not Just Who You Know,” categorizes relationships into five levels, like floors of a building, and identifies the attributes of relationships at the different levels. More importantly, he talks about the actions required to build a network of contacts at the highest level. He also defines the five floors of relationships as follows:

  1. Meet and greet relationships (first floor). This is where most business relationships start and remain. You need something specific from the other person – a loan, or product order, or help solving a problem. After you get what you want, you move on, with no giving or commitment.

  2. Limited information sharing (second floor). But it’s very basic information, the type you dispense out of social obligation or because it’s a job requirement, not because you’re offering some insight into who we are. Many people call these “close” friends, but in reality there is no trust, feeling, or giving going on at this level.

  3. Emotional comfort level that goes beyond facts (third floor). You feel safe enough to voice opinions, discuss perspectives and share feelings in making decisions. In business, positional authority remains the primary guiding force at this level, and most business relationships stay at this level or below.

  4. Real same-page connection (fourth floor). This level allows for conflict and resolution with no hard feelings. Here you get the introduction of “netgiving” as well as networking. Friends to the end talk about what’s important to them and aren’t afraid to discuss private matters.

  5. Sharing the other person’s state of mind (top floor). They become confidants, advisers, and cheerleaders who understand each other’s needs and drives. Vulnerability, authenticity, trust, and loyalty are off the charts. It’s a relationship based more on giving than on getting. There’s only room for a few relationships at this level.

It’s often said, “it’s not what you know, it’s who you know.” In business, there is another dimension, the level of your relationship, and the level of trust and giving established. Of course, relationships seldom fit neatly into a given level. They’re far too dynamic, and may even move up and down floors like an elevator.

I recommend that you use the top floor as the reference point to think about your own business relationships. How many do you have at the top level, and what are you doing to actively develop more? Are your “close” business friends actually at the top floor, or merely at the second floor? Can you count on them for a real help or a big favor?

Tommy insists that building meaningful relationships, without sacrificing integrity or treating other people as a means to an end, will always help you achieve your goals and move beyond them, personally and professionally. These relationships must be based more on giving than on getting. That kind of giving gives you more than you could possibly imagine.

All relationships require hard work, patience, understanding, as well as tactics and strategies designed to make them blossom, just as you have tactics and strategies for marketing, selling, advertising, production, distribution, and customer service. Thus strong relationships are the basis for all the other keys to business success.

Marty Zwilling

0

Share/Bookmark

Saturday, December 1, 2018

8 Keys To Convincing A Bank To Fund Your New Venture

Garda_armored_carA common question I get is “How do I get a bank loan to fund my startup?” The default answer is that it probably won’t happen, because most banks just don’t make bank loans to startups. The failure rate is just too high, and startups typically don’t have the assets or revenue stream to back up the loan. That’s why angel and equity investors are so sought after by entrepreneurs.

In my experience, some startup founders do overcome these odds, but you need to be realistic and do your homework. Here are some tips and rules of thumb to improve your odds and help you understand when a bank loan or line of credit is possible, and how to get it:

  1. Write a good business plan first. Approaching a banker without a business plan, and asking for money, is a sure way to be rejected and leave a bad first impression. Pay particular attention to the financials, and have a CPA friend review for reasonableness before presenting.

  2. Clean up your credit rating before you apply. Good credit ratings, both personal and business, are essential to getting a loan or line of credit. This is just common sense, since every loan has a repayment schedule, and your credit score reflects your track record of paying bills on time.

  3. Pick a business domain that is squeaky clean. Certain business sectors have historical high failure rates and are routinely avoided by banks and investors. These include food service, retail, consulting, work at home, and telemarketing. Also, don’t expect enthusiasm for your gambling site, porn site, gaming, or debt collection business.

  4. Show a significant personal investment. Most loan programs, and most investors, want to see that you have “skin in the game’ before helping you. If you have nothing at risk, your own level of commitment is suspect. As a general rule, your investment should be at least 20 percent of the total projected loan requirement.

  5. Demonstrate an ability to repay from revenues, not collateral. Bankers will insist that you have collateral to back the loan, like equipment, or even your home. They actually prefer to see that you have a revenue stream to repay the loan, since they don’t want to own another home. The more conservative ask for two years of positive cash flow.

  6. Demonstrate experience in starting a business, ideally in this domain. Bankers, like investors, fund people rather than ideas. Your idea alone will not get you a loan, but your experience running businesses may get you a loan, even if not intimately related to the current proposal.

  7. Conduct meetings at your site, not at the bank. You have an advantage if you can get them on your turf, and even get several key employees to tag-team the presentation. If you are a startup operating out of your garage or basement, you are likely too early in the cycle to get banks interested.

  8. Eliminate your salary from the use of funds. Most startup founders don’t take a salary for the first year or two, since most investors as well as bankers won’t give you money so that you can pay yourself. The most positive use of funds is to buy raw materials to build product for existing customer orders. In fact, customer orders are great collateral.

Even if you can’t meet all these criteria, it’s definitely worthwhile to utilize the free services of the Small Business Administration (SBA) and SCORE in the US to get their help in preparing for the loan option. They have contacts with the more “startup friendly” banks in your area, like Silicon Valley Bank, and might even be able to arrange a “loan guarantee” if you meet these criteria.

In all cases, the loan option should be investigated before looking for an angel investor, since the “cost” of a loan is usually considered less than giving up a large share of your company equity and control to angel or venture capital investors. I’m told that 21 companies on the Inc 500 list started with bank loans, so you can do it too.

Marty Zwilling

0

Share/Bookmark