Monday, 23 December 2013

Billy's Christmas Law: Give yourself a gift this year.

Man does not live by bread alone.
Matthew 4:4
Merry Christmas!  For Christians, this is the season for remembering the birth of Jesus Christ hence this week's quote. So here is my Christmas message for all of you...for what it is worth.
Running a business is all consuming.  Long days and nights, working weekends are all 'a part of the territory;' especially when you are in those early stages. This level of 'workaholism' often becomes habitual.  Many entrepreneurs see high levels of workload and stress as normal, and while the evenings and weekends may no longer be necessary, the work-style (for it is hardly a life-style) remains the same.

There are commercial and personal ramifications from this behaviour. From a commercial perspective, I remain unconvinced that this level of work is effective.  Tired work is ineffective work and often lacks creativity or efficiency.  From a personal perspective, devotion to business may hurt your devotion to your family and even your devotion to yourself. 

So here is my Christmas wish for all of you.  Give yourself the gift of time.  Get away...get some exercise...go to a a book (preferably a non-business book).  In short - get a life away from your business. For those of you who spend time on the road, don’t forget your health…especially diet and exercise.

Make yourself and your family your priority for this year.  Not only might you enjoy your new lifestyle, I believe that your business will benefit greatly.  You will think more clearly, work more efficiently and your employees might even get the sense that you trust them to do things without them.  To put this into more commercial terms...take this year to make an investment in you. 

I wish all of you a Merry Christmas and a Happy New Year.  I hope you are prosperous in all the ways that matter for you and for your family, and that 2014 is a year for growth and development both for the enterprise and for the entrepreneur.

Monday, 16 December 2013

Billy's Tenth Law: Don't Buy the Porsche too soon

 Never confuse a tail wind with good management.

Jeff Immelt, CEO General Electric have started your business, survived the first year, did alright in the second year, and thrived in the third year. Congratulations, but beware...the fourth year is often one of the danger years in business development. (Watch for the seven year business cycle, coming up in this blog in early 2014.) 

Sometimes success breeds success, but sometimes success breeds complacency or even arrogance.  I have heard this story, or variations on the theme, dozens of times.  It usually goes like this. 

I started my business on a shoestring, and through hard work and determination, built it into a going concern.  In the early days, there was barely enough money for any extras for myself or for the business.  Now we are successful, and on an upward trajectory.  It's time for a treat so I went out and bought myself a…

You can fill in the blanks with anything you like.  My favourite is the Porsche.  It is a bit of a 'guy thing' but for some people, this is the iconic trapping of success.  The problem is that in any business, things ebb and flow.  There are successful times and there are slower times.  The problem is that we don't know if an upturn in sales & profits represents a long term trend, or a fluctuation in the natural flow of business. 
Entrepreneurs are nothing if not optimistic. When things are going up, then there is no place to go but up.  The problem is that one of two things happens.  Either the entrepreneur commits to higher monthly payments, (on the Porsche) or they deplete the business of cash to pay for the Porsche.  Either way, the business is now more vulnerable to a down turn.

I must confess that I am way too risk-averse to ever make one of those 'bet the company' moves.  (Boeing and 747 come to mind.)  It is one thing, however; to make the big bet with company resources for the company, and quite another to 'buy the Porsche' when you have some excess cash.  I have always been a big fan of retained earnings and contingency funds and I have never been big on borrowing money and increasing cash overheads with lease or loan payments. 

I knew two very successful entrepreneurs who made this kind of mistake.  They had a wildly successful business, and after about five years, started to draw heavily out of the business.  They got hit with two consecutive factors.  Firstly, ice storms in Quebec caused a disruption of supply for their manufacturing.  This cost them six weeks production.  Secondly, they were forced to write off some bad debts made to customers who their factor wouldn't finance. (You should have listened to your factors guys.)  They company had a great income statement, but a weak balance sheet.  They couldn't finance their working capital needs caused by the bad debt and the reduction of production, and as a result went bankrupt as a result.
I am not saying that their problems would have been solved, but, retained earnings, derived by taking less money out of the company, would have provided a cushion that would have helped them withstand the adversity.
So before you buy that Porsche, put away three months cash in a contingency fund. Retain earnings in order to strengthen your Balance Sheet.  It may not be nearly as cool as a Porsche, but it could save your business during a rough patch.  

Tuesday, 10 December 2013

Billy's Ninth Law: The Dangers of Settling

Hire Slow…Fire Fast

From Fortune Magazine’s Best Advice I ever received.

Now I am not so sure that this is always the best advice, however; in the world of business Human Resources is amongst the least understood and the poorly executed aspects in business.  Because people can ‘take care of themselves’, there is a tendency to focus first on Sales & Marketing, then on Production (or provision, if you are in a service industry), then on finance (see the law on cash flow) and finally on Human Resources.  Human Resources strategy is the last developed and Human Resources tactics are often the worst applied.
Human Resources, is often the least respected parts of enterprise.  When was the last time that a Human Resources Executive became the CEO of a major company?  In my experience addressing the needs of small and medium sized enterprises for over 25 years, most business owners claim to know the least about finance…in reality they know the least about Human Resources. 
When I work with business owners, executives and managers I ask this question, “Do you have anyone working here whom you know you should fire?” People look uncomfortable, and inevitably they admit to having “one or two.”  My next question is, “Why haven’t you fired them yet?”  People have ready excuses, but in their own hearts they know the answer… firing people is hard for most people.
Firing goes with the territory.  It is one of the unpleasant aspects of management and business ownership.  Firing for cause, or for downright incompetence is one thing, but firing someone for mediocrity is quite another.  As a business changes, especially when it is growing, there are changes needed to not only the staff levels, but to the staff composition. 
One client, in the financial services industry no less, had an employee who resisted any notion of productivity measures or expectations.  His attitude was that professionals were not subject to such pedestrian measures.  The problem for the company; he was generating fewer billable hours than his contemporaries.  His work was good, however he was insufferably slow.  His poor output was causing problems with respect to profitability and there was resentment amongst his peers.  The company and importantly the owner had settled for this level of performance.
In another case, again a growing company, growth caused the job to outgrow the employee.  A person may be able to fake one level, for example a bookkeeper working as an accountant, however; it is impossible to stretch two levels (i.e. the bookkeeper now having to stretch to a comptroller.)
These and other similar situations create challenges for the owners and managers.  Traditionally we only fire for incompetence; however you should always ask yourself, "Would I hire this person for this position if it were vacant?" The decision not to settle can have positive, unintended consequences.
I had a client who, on finally making and acting on the decision not to settle, found that everybody was on his side...and that the dismissal worked to improve rather than diminish morale. The most comment was "It's about time."  Often our worries about the negative impact of dismissals are overblown and exist only in our own minds.
Jack Walsh of General Electric used the formula that in any organization 20% of the people are stars, 70% are good and you should fire the remaining 10%.  When companies put this into practice, they found that the first two years were easy, but that by year three it became difficult.  Jim Pattison is alleged to fire the poorest performing sales person at his car dealerships. 
I wouldn't make hard and fast rules such as those previously mentioned, however when a company is growing, finding new challenges or are in a rapidly changing environment, it is useful to ask yourself, "When it comes to people, am I settling, and how does settling impact the company".  This is a tough but necessary question every owner and manager must ask him or herself on a regular basis.

Tuesday, 3 December 2013

Billy's Eighth Law: When it comes to the bank, they guy who writes the ads ain’t the guy that writes the loans.

Business owners, media, politicians and the public in general, are in the dark when it comes to business banking. I am not talking about complex derivatives, credit default swaps and currency futures. These are incomprehensible to most bankers, hence this little thing called the credit crisis!  (I actually know what those things are and they never help me in my dealings with small and medium sized enterprises.)  No, I am talking about good old fashioned borrowing and lending.
Banking, to quote the Canadian Bankers Association, is a low risk, low margin, high volume business.  Banks raise money two ways...debt and equity.  A bank incurs debt when it issues a bond or takes deposits from customers.  A bank finances through equity by issuing shares or retaining earnings in the business.  The government requires a certain ratio between debt and equity known as the reserve requirement.
But let's make this easy... we will start-up our own bank.  We'll call it the Entrepreneurship Bank and lend money to struggling entrepreneurs who want to start and expand their businesses. 
Step One:  Capitalize the Bank
To begin we capitalize the bank with $100,000. (It's a small bank for small business)  The rules allow us to raise $1,000,000 in debt.  This is a total of $1,100,000.  We keep side $100,000 in cash float, and have one-million dollars left.  We can now begin to lend money.

Step Two:  Borrowing and Lending
We can now look at the bank’s revenue & expenses under the following assumptions.

Our lending rate averages 6%.
  We pay, on average 2% on deposits
  We generate $20,000 in fees
  Our overhead costs are $30,000
We can look at the income statement:


Notice, we have a profit of $30,000 per year…not bad for an investment of $100,000.  However I have forgotten one small detail...bad loans.  Banks and other financial institutions must make reserves for those loans that will never be repaid.  When I ask participants in small business seminars for an estimate of the percentage of loan loss (sometimes known as PCL, provision for credit loss), they usually tell me, “I guess it’s around 10%” In this example, if the bank would lose $70,000, wiping out most of the capital in the bank and forcing it into insolvency. In our example, a loan loss of 3% would leave the bank without a profit and 4% would create a loss!
In real life, the numbers are much larger, the Net Interest Income is a bit higher and the loan loss provision is between .5% and 1%. Regardless, if a bank makes a net profit of 2% on loan assets after loan loss, they are doing well.  Banks are lenders, not investors. If your bank seems to be somewhat conservative, then it is another reminder that banking is a low risk, low margin high volume business.  
Understanding your bank, and how bank financing works, is essential if you want to be successfully apply for bank financing.  Unfortunately, most bank lending to Small and Medium under $250,000 are written by personal and not commercial lenders,  The implications of this fundamental flaw in the banking system is a topic for another law. 

So the next time you apply for bank financing remember, your banker must be right 99% of the time in order to preserve his or her bank. 

Monday, 25 November 2013

Billy's Seventh Law: There are two ways to go broke. No profit is the slow painful way – no cash flow is the fast painful way!

Financial Statements are the blinds drawn by accountants to keep the mangers in the dark.

John Cleese:  The Balance Sheet Barrier
Of all the concepts I have taught and consulted on over the years, the most important is Cash Flow.  Now I know what many of you are thinking…I don’t like ‘financial stuff’…I don’t understand ‘financial stuff’ … I don’t do financial stuff.  As John Cleese said in the Video Arts production The Balance Sheet BarrierWe leave the financial arrangements to the financial people just as we leave the catering arrangements to the canteen people…We believe in trusting people.”
As an entrepreneur, you need to understand all aspects of your business.  As your business grows and develops, this concept becomes increasingly important. Cash flow is one such area.  Just because a business is profitable, doesn’t mean it has positive cash flow…and you need to have positive cash flow, or the ability to finance negative cash flow to keep your business running.
There are two places cash hides in a profitable business. (It doesn’t take a PhD in finance to see that a non-profitable business will eventually have a cash flow problem.)  The first is Accounts Receivable and the second is Inventory. 
The reason for the problem is that of simple timing.  With an Account Receivable, you make a sale, send the invoice and then later (sometimes much later) you get the cash. The Collection Period is he time taken between sending the invoice and receiving payment. You often incur cash expenses and other costs as a result of making the sale but before the subsequent collection. This creates a shortfall; the cash collections have not yet caught up to the cash outlays.  The period, between the cash expenditure running the business and the time taken to collect the cash creates a cash shortfall. You must either have sufficient cash to survive this temporary shortfall, or you must have sufficient borrowing capacity to finance the shortfall. 
I have a short video on the effects of collection period on your cash flow found by selecting the link below:
The second common place cash hides is in inventory.  Inventory is the cholesterol of clogs up your cash flow arteries and kills your business.  In most cases, you don't sell your inventory before you pay for it. This again creates a time lag between payment for inventory and sale of inventory. 
When too much cash is absorbed in inventory and accounts receivable, there is not sufficient cash to pay the bills. Since you recognize sales on sending the invoice, and not on collection, and since you do not recognize purchases of inventory as and expense until you make the sale, the business may have a profit, and at the same time, no cash. 
Every business, especially a growing business, must manage cash and measure working capital regularly.  As your business grows, take time to plan.  Forecast your revenues and expenses and then, for goodness sake,  please, do a cash flow.  It might well be the difference between success and failure.  If you don’t know how, you can go to the Small Business BC website and take my cash flow workshop.  These are now offered as a ‘Webinar Option’ so it doesn’t matter where you are, the seminar comes to you.  Go to and search for Cash Flow, part of the Business Viability Series.
A final thought, from Charles Dickens’s novel David Copperfield:

Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six…result happiness.  Annual income twenty pounds, annual expenditure twenty pounds ought and six…result misery.

Tuesday, 19 November 2013

Billy's Sixth Law: The Paradox of Strengths and Weaknesses

Your Greatest Strength may be Your Greatest Weakness

Consider the following description of a potential new employee:

  • She is a self-starter...She is a loose cannon.
  • She is detail oriented...She is 'hung-up' on minutiae.
  • She works independently...She keeps important information to herself.

The greatest strengths are the greatest weaknesses.  This dichotomy comes to light as entrepreneurs grow and develop their businesses.  Sometimes the personal characteristics that make an entrepreneur great while starting a business are the same characteristics that prevent them from operating the business.

Sometimes in a job interview we hear the question, "What are your strengths and weaknesses?"  Well they are often the same.  Those same characteristics which are strengths are also weaknesses.  I recently read an article in Bloomberg Business week about Jeff Bezos of Amazon.  He is demanding, smart and constantly driving his company forward.  He is also mercurial, condescending and harsh.  He was once quoted in a meeting rhetorically asking “Did you take your stupid pills this morning?" 

I am working with a company where the implications of this law are revealing difficulties today.  The owner and founder of the company is a great guy.  He believes in providing the best products, the best service, the best terms and the best prices.  He is always willing to help out, even helping competitors who get into a jam. 

These very strengths and strongly held beliefs have drawbacks.  He had a slow paying customer who was having trouble paying.  He gave my client the line "I just need to wait until I get paid." and "Don't worry, it's just a temporary problem." and later on "If you cut off supply the company won't survive and all these people will be out of work."   The result was my client wrote off a $400,000 account receivable. 

Customers often ask for rush jobs. Since service is a core company value, he incurred an additional overtime cost to deliver the rush.  You would think that people would be grateful, but many of his customers began to ignore agreed upon lead times and the rush job became the norm.

I would never want to change this entrepreneur.  He is truly one of the finest men I have ever met.  He must, as we all must, look at ourselves and ask, "Are my strengths weaknesses?"   A strong sense of self-awareness is an essential component of success in life and success in business. Sometimes we need help seeing the weakness in our strength.  The self-starter sometimes needs guidance...the hard worker sometimes needs help ... the extravert needs to realize that not everybody will like him and highly driven entrepreneur must be careful not to ride roughshod over his or her employees. 

I have read and heard many people pontificating on the characteristics of a successful entrepreneur.  I have also seen many different kinds of people, with different skill sets, different cultural backgrounds, genders and levels of education both succeed and fail.  In all that time I have only noticed two common themes.  Successful people tend to have a high level of self-awareness and successful people take responsibility.  Less successful people have little self-awareness and spend a disproportionate time making excuses. 

So the next time you are thinking about your strengths you bring to the world of entrepreneurship, remember that you are also bring a weakness which may very well be exactly the same.





Tuesday, 12 November 2013

Billy's Fifth Law: The Law of Comparative Pricing

The First Immutable Law of Price...Prices are comparative.

The only people who care about your costs are you, me and your mother...and if you are from a dysfunctional family, it's just you and me!

Price is one of the most important and at the same time least understood concepts in all of business.  On the one hand, you may know your costs fact it is crucial you know your costs, however, your customer neither knows nor cares about your costs.  The customer cares about the price they pay for your goods or services.

To truly understand price (besides taking my pricing seminar or hiring me to advise you on price strategy) begin with the single most important concept in pricing:
Price is always comparative, never absolute.
In order to form an opinion of your pricing, your customers are comparing your prices to something.  Sometimes it is a direct comparison with a competitor.  Sometimes it is with alternatives you offer the customer or with a previous price.  Sometimes it relates to some level of affordability or even a false notion of what the price should be, but in any event, too expensive or too inexpensive is  compared to something.

In a restaurant, people tend to order from the central price points of the menu.  It is amazing how often the modal price point is very near the median price point.  The comparison moves the customer towards a central price...neither too expensive nor too cheap.  The wine list is another matter all together.  The modal wine price point is the second cheapest bottle on the wine list. 
This has implications to menu design and price mix.  You can move your customers knowing where they are most likely too look.  Another tidbit, this one from William Poundstone's book Priceless. Price plays a greater role in decision making when the prices are right justified on the menu.  (The price is more distinguishable and easier to compare to other prices.)

The pricing principle of price lining is based on customers choice.  The notion of three price points representing good, better or best, tends to move the customer towards the centre, unless you move the middle price point. Moving the middle price point can affect buying behaviour, as good can look like better or better can look like best depending on where you have centred the middle price point.  
Even a sale uses the notion of price comparison.  This price is 25% off of the regular price. 

I once taught a youth entrepreneurship here in British Columbia.  We did a special version of the program at the Emily Carr University of Art + Design.  As a part of the program, we applied classic pricing theory to art marketing.  One of the participants held a gallery show about six months after the program and invited me to the opening.  As the artists entered, she enquired how they liked the art...I got, "So Bill, what do you think of my pricing?"  It was perfect. She offered a good price range, multiple items in the middle and one item at a very high price in order to frame her other paintings.  In short, she applied classic price theory to her gallery showing. 

So ask yourself, can you provide your customers with choice.  In marketing, this is affected through your product mix... in sales it can be done using your sales presentation. (A mortgage broker may not affect interest rates, but can show the customers the rate, a price for money, )  
Remember, if you do not offer your customers with choice, they will seek to find a price frame through comparative price.  Create price within, and you can keep the customer from 'shopping around' as they feel they have shopped around within your 'store'.  This provides your customer a sense of control meeting one of the most crucial needs in customer psychology.


Tuesday, 5 November 2013

Billy's Fourth Law: Success is the intersection of the Rational and the Passionate

Love what you do and love those for whom you do it

You've got to be able to see the beauty in a hamburger bun!
Ray Krok McDonalds

What I have just written may not seem consistent with the previous law.  The truth is that there is a time for love, and a time for objectivity.  (Wasn’t that in an old Byrds song?)  The key to succeeding in business is truly believing in what you do – and truly believing that your customers get their money’s worth.  Without this, it is hard to look yourself in the mirror in the morning. 

Passion is powerful.  Passion often drives behaviour.  I read Steve Jobs biography by Walter Issacson.  The book is filled with example of  behaviour, often inappropriate, exhibited by Jobs in order to get the exact product he wanted.  Passion is not rational, but drives us to greater things.  Sports fans are...well fanatics. Their passion for their home teams can lead to riots in the streets, as they did in Vancouver in 2010  after the home town Canucks lost game seven of the Stanley Cup final.  Passion is powerful, and successful entrepreneurs are passionate about what they  do and harness that passion.

What you do can be great or humble – but you need to see the value in it before you can sell that value to the customer.  Do you clean houses?  Then know that cleaning has huge value to the customer.  If you make computer games, then make sure that they are the most fun and challenging on the market.  If you are in consulting, you must truly believe that your customer gets their money’s worth from your counsel and advice. The first person who must be sold is you!

JJ Bean is a coffee retailer and roaster based in the Metro Vancouver Area.  Unlike many of the West Coast coffee shops, JJ Bean is a little different.  John Neate, the founder of JJ Bean is a third generation 'coffee-man'.   John's Grandfather founded Neate’s Coffee. John's Dad (John Neate Senior) helped build the company in to one of the two major restaurant coffee suppliers in the Vancouver Area.  I knew John back in my university days you will never meet a more passionate guy.  John is not only passionate about coffee, he is knowledgeable about coffee.    He grew up with coffee, understands beans, roasting processing and all of the other things that make coffee great.  He learned from his Dad, who I am convinced knew everything about both coffee and the restaurant industry he served.  This is a perfect example of the passionate meeting the rational.  The result...a highly successful business.

Sometimes you will fail.  Somebody won’t like your store, your product, your service, or your advice.  When I started doing seminars, I poured over the evaluations.  I looked for the negative things.  I didn’t care about those who loved the seminar, but rather I got upset about those who did not.  I wanted everybody to like my “product”. 

The truth is that not everybody will like your products.  Successful entrepreneurs listen and learn...they anticipate customer needs before the customer knows they know they have a need and rationally and profitably meet that need.   

This week’s quote comes from Business Week magazine:

I love children.  They are my customers.  I have to be informed about what they want to nibble, what they think and what language they speak.
Hans Riegel
Owner of Gummi bear maker Haribo, Who died on October 15, 2010

Monday, 28 October 2013

Billy's Third Law: The Dangers of Falling in Love

Don’t fall in love with the business too soon.

It seemed like such a good idea at the time!
My explaining my last stock pick to my wife
When you are getting starting in business, you need objectivity.  You can fall in love later; once you have an idea that you are sure has a chance make a profit.  But if you fall in love too early, you lose all sense of objectivity and you cannot make a rational decision. 
People in love are irrational.  Consider family Christmas letters. My friends’ children all have all-star athletes, on the honour roll, work with the elderly in their spare time and are currently being considered for a Nobel Prize.  (Never let your own children read these letters – bad for their self-esteem.)  You never hear a mother say “My kid is the ugly one three in from the left.”  You see the point, love is neither objective nor rational.  Now in the world of family – this is (to quote Martha Stewart) a good thing. In the world of the entrepreneur – it is a bad thing. 
Do not misunderstand me.  You need real passion to run your business.  You just need to be rational in deciding which business to start.  It is a little like courting.  You take time to get to know each other.  See if you are compatible, and then fall in love and then get married.  I mean, it’s not as if you appear on a television show, compete for a multimillionaire and then get married to a complete stranger at the end of the show. (Well not again anyway!)
A woman asked me to help her and her husband with the financial plan for a franchise.  I have nothing against franchises, but I had never heard of this one so the brand recognition advantage was clearly not there.   On reviewing the sales estimates, which seemed high for a first year business, I asked her where these numbers came from. She replied, “Why from the franchisor’s sales representative.  He also told me that this was such a good location that if we didn’t buy it that he might just buy it himself”.  When I dared imply that she might trust a franchise salesman’s forecast she was insulted.   “How could I be so negative – how could I be so cynical?  What kind of entrepreneur was I?”  She had a real rant  In her heart, this was a ‘done deal’ and I was just raining on her parade.
She and her husband had fallen in love with this franchise.  She had lost all sense of perspective and could see the two of them working together in their small business and living happily ever after.  Eventually she and her husband purchased the franchise, financed by a loan co-signed by her parents.  She went out of business three months later.  I may be a smart-ass, but I am not an idiot. 

At the pre-start phase, I think that everybody needs to be an optimistic cynic!  You need to know where you are going, look realistically at how you are going to get there and what obstacles will get in your way!  Remember, you don’t cut off a toe to make a shoe fit; neither should you force a business concept which cannot work just because you hope it will work.  Remember the words of my friend and business planner Elizabeth Lake:
Hope is not a strategy.
Next week, we shall see the importance of love and passion in business.

Tuesday, 22 October 2013

Billy's Second Law: The Break-even


Starting a business without doing a break-even is like snowboarding out of bounds in the fog.  You might have the ride of your life, but there is a good chance you’ll wind up lost, injured or dead!

Everybody has a million dollar idea...that won't work!


Maybe it is the last vestiges of my education as a “math geek” or maybe it is just my general scepticism, but you really need to know what you need to do before you get started.  The best way to start, in my opinion, is to do your break-even.  Now to many this will sound like just some numbers oriented accounting crap that gets in the way of the creative soul of the entrepreneur.   Tough luck. 
I know what you are thinking, because I hear the same story over and over.  I had a friend (or relative, or acquaintance’s mothers sister-in-law’s next door neighbour) who didn’t do any of this accounting crap, and now they are rich.  Well, a girl I went to high school with won the $1,000,000 national lottery but I still don’t recommend lottery tickets as a part of a balanced investment portfolio.  Doing the break-even doesn’t mean your business will succeed or not succeed, but it merely tells you what it will take to succeed. Every business can succeed – but not every business will succeed. 

The break-even tells you how much revenue you need to generate to cover your fixed and your variable costs.  Your fixed costs are the costs to run the business – you know the overheads.  Overheads include telephone, wages, advertising, automobile office supplies and the like.  These are costs that you incur whether you make the sale or not.  Your variable costs, or your cost of goods, are the costs to make the product or to provide the service. 

I first learned about break even from my mother.  My mother was a nurse. She equated any purchase around the house to the number of shifts she had to work at the hospital.  If we asked for anything, Mom would ask, rhetorically of course, “Do you know how many shifts at the hospital I have to work to buy that?”  As soon as I learned to divide by $50 (a Registered Nurse’s take home pay at the time.) I just answered the question!  Do you know how many shifts at the hospital I have to work to buy you kids’ new skis?” “That all depends Mom – 3 shifts for the Élan’s, five for the K2’s with Solomon bindings.”  “Smart ass!” she replied.   (My mother is a bit of a smart ass as well.   After my loving tribute to her at her sixtieth birthday party responded by saying that birth control should be made retroactive.  Way to go Mom!)
It is crucial that you know what level of sales you need before you start the business. Once you know this level of sales, ask yourself these three questions:
  • Will my market support this level of sales? (Market Sufficiency)
  • Can I physically produce or provide this level of sales? (Practical Capacity)
  • Can I sell to at least this level of sales? (Sales Strategy)
If the answer to all of these is may just be on to something.  If the answer is no, then you may have to develop a new idea, change your prices, your costs or your market place. 

By the way, the break-even formulae are:

Break-even in Units =
Fixed Costs
(Price – Cost)
Break-even in Revenue=
Fixed Costs
Gross Profit %

By the way, the same analysis works for evaluating projects and new expenditures for an existing company.  Remember, it’s hard to succeed in business if you don’t know the target.  The break-even may not be the final destination, but it is certainly one of the steps along the way.
Next week, working along the same theme, I will post one of the most important business lessons for budding entrepreneurs, the dangers of falling in love too soon.

Thursday, 17 October 2013

Billy's First Law: The Myth of Self-Employment

The Myth of Self-Employment

You’ve got to serve somebody.

Bob Dylan

There is no such thing as self-employment.  You may have to write your own paycheck and you might not make minimum wage, but everybody works for the customer!  In the years I have worked in the field of entrepreneurship, I have noticed that the reasons that people want to start a business are usually self-centered.  They want to make a lot of money they, want to have independence; they don’t want to take any crap from an anally retentive boss.  What ever it is, most people think of a business start-up from their own point of view.

Nobody out there cares about your former boss – your desire for self actualization or your need to have more quality time with your two cats.  Customers care about themselves.  Last time you made a purchase, did you think about how you are helping the business owner fulfil their dreams?  As I type this on Microsoft Word (which I actually purchased by the way) did I stop for a minute to think about how Bill Gates made a few more dollars?  Of course not.  I wanted good software to do word processing, presentations and spreadsheets.  Until that is actually available, I will use Microsoft Office. 

To paraphrase Bill Clinton “It’s the customer stupid!” What do customers want – or what will customers want. They either already know they want what you have to offer or you have anticipated what they will want in the future.

When you think in terms of starting a business, think in terms of they ways you can help customers.  It might be what they buy-- how they buy -- or where they buy. Everything depends on your ability to make enough customers happy to allow your business to succeed. 

I was doing an entrepreneurship workshop and doing my usual rant about the customer when one of the participants burst out in frustration, “You make it sound like we aren’t even starting this business for ourselves.”   “That’s right.” I said, “You start it for your customers!”
This week’s quote is from Theodore Levitt of the Harvard School of Business.

The purpose of a business is to create and keep a customer.  

Wednesday, 16 October 2013

Common sense business ideas, with a dash of humour.

Hi, I’m Bill Erichson and welcome to my blog.  It’s all about small business, especially trying to succeed in starting, growing and surviving in your business.  I base my writings on my years of experience as a business trainer, consultant and general observer in the small business scene. 

As time goes on, and if I don’t get bored, you I will post up several of ‘Billy’s Laws of Business’.  For the incredibly naïve of you, these are neither statutory laws nor laws of nature.   They came as a result of a little presentation tip I use in business seminars.  If I want to illustrate an important point… or at least a point I think is important, then I say “As Billy’s Law clearly states…”  It was really just a way of drawing peoples’ attention back to the seminar.  One day, somebody asked me if I had written them down anywhere.  That gave rise to my ‘laws of businesses’ and to this blog.

Please don’t take these laws too seriously.  In fact, my experience shows that for every rule, there are exceptions and that business rarely black and white, but rather found in shades of grey…at least fifty of them.  (If you are not a bit of a smart ass…you may not like what you read.)

Please don’t expect an academic treatise or proper footnotes.  If there are fewer than five spelling mistakes per post it will be a miracle…and that’s with a spell check.  I will make general references to the myriad of material I have stolen through the years and even make the occasional book recommendations, but the homework is not mandatory.

In case you haven’t noticed, I am a bit of a smart ass.  Although I don’t take myself too seriously, I take your businesses seriously.  I want all of you (all-ya’ll as they say in Georgia) to succeed.  The real reason for this blog, and for my laws of business is to get people to think.  Thinking is dangerous as thinking leads to ideas which lead to change which lead to progress.  But we live in a world of change, and these changes lead to challenges.  As small business owners, must stay sharp and thinking.  So here is a quote to get you thinking until I post up the first law…the Myth of Self-Employment.  I heard if on a BBC Podcast.

Big Businesses survive change with their size…Small Businesses survive change with their strength.

Be strong.