Why businesses succeed (part 4): They ‘hire’ the right people

Every business starts with a single entrepreneur or a small team who launch the business. There’s not a lot of money, so the solopreneur or the team needs to perform all the important tasks – marketing, sales, production, delivery, collecting money, accounting, paying taxes, and everything else. If all goes well, the business starts to grow to the point that the founder or founders can’t do everything themselves. They need to add to the team.

Adding to the team may mean hiring a full-time or part-time employee, or finding an independent contractor who specializes in one particular area (like web design, marketing, accounting, or taxes) and works for several different companies. Whatever kind of ‘hiring’ you do, there are several things to keep in mind:

Don’t ‘hire’ someone just like you. A “mini me” isn’t what you’re looking for. You want someone who has skills that you (or your team) don’t have.

Be clear why you are ‘hiring’ this person. What problem do you need to solve, or what opportunity do you want to address?

Build a job description for the new ‘hire’. What results will this person be responsible for? What duties and tasks will he or she perform? Who will he report to? How will performance be measured? What resources (budget, computer systems, other assets) will she have access to? This is especially important if you have a founding team rather than an individual. If the team doesn’t agree on this, conflict is almost inevitable.

Don’t just select based on technical skill. Personality, attitude and ability to learn are at least as important as technical skill. Many experienced entrepreneurs say “hire for attitude, train for skill”. Henry Albrecht, CEO of Limeade, has a very strict hiring rule: “no jerks. none. ever”.

Prepare the new ‘hire’ to succeed. As a small business, we want the new ‘hire’ to “hit the ground running”, but it’s better to make sure the new person clearly understands his role and responsibilities, how she will fit in to the company, and what policies he or she will need to follow. What you don’t want is the “oops syndrome”, where the new person says, “I didn’t know I was supposed to do that!”. You or one of the other founders should spend some time coaching the new person and giving her timely and regular feedback.

Don’t wait until the last minute. When money is tight, we often hold out as long as possible before hiring someone new. But this can lead to a rush to hire someone. It can take some time to find the right person. Start looking for people before you need them. Ask business contacts to recommend people they know. Keep your eyes open when you are networking.

SCORE counselors are available locally or on-line to help you create and manage a successful business. Call us in Pinellas County at (727) 532-6800 or go to www.pinellascounty.score.org. Also check out this online webinar: http://www.score.org/workshops/hiring-right-employee

Photo courtesy of Nathan Stephens via Creative Commons license.

Why businesses succeed (part 3): They figure out how to price what they sell

Pricing your products or services correctly has a tremendous impact on your company’s sales and profits. Correct pricing lets you earn a profit that you can re-invest in your company. Here are the five things you need to know:

• Your relative product or service quality. Not what you think your quality difference is, but what your customers think. Do you offer something that competitors don’t, that your customers value? Or are you a me-too business? If you’re not sure, ask some customers.
• Your company’s direct and overhead costs. Direct costs are the costs associated with buying and delivering the product or service. Overhead costs are all the other costs associated with running your business. No matter what kind of business you are in, it’s easy to overlook some costs, like fees for accepting credit cards, and various taxes you have to pay. Review your prices when you see changes in your costs.
• The overall level of gross margin and pre-tax profit in your industry. This gives you a reality check for what you expect to earn. Trade associations can be a good source for this information. There is a trade association for almost every business.
• Prices your competitors are charging. These prices may be easy or difficult to find, depending on what you’re selling. Your competitors may be using a lot of discounting or promotions. Also, look at what your sales unit is. Have you un-bundled something only offered as a package by competitors? Or are you like Costco, selling products in larger quantities?
• Prices you think will be acceptable to your customers. Price too high and you can lose business to competitors. Price too low and you may be giving away profit, and possibly reducing the perceived value of what you sell.

Match competitors’ prices? Matching competitors’ prices can be effective if you understand how your business is different from competitors. How is your product different and better than competitors? How much of your business is conducted on-line or on-site compared to your competitors? What is the competitor’s cost structure? What profit margin they are willing to accept? A competitor who is in financial trouble may cut prices to get more business, and you probably can’t make a profit charging those prices.

Price using cost plus markup? Cost-plus pricing is easy to implement, and easy for employees to understand. Success depends on a thorough understanding of all your direct and overhead costs. Your markup needs to cover all of your overhead costs plus your required profit. If your overhead calculations are inaccurate, your profit will be too low.

In a service business, a good price quote needs an accurate estimate of the hours required to do the job, plus overhead costs. Your overhead costs can change based on the amount of billable hours versus unbillable hours. If you need to spend more time this month visiting customers to give quotes, or writing proposals – time you don’t bill for – your cost per billable hour is higher.

Payment schedules also make a big difference in your profits. If at all possible, collect the payment via check or credit card at the time the product or service is delivered. If you have to offer payment terms, remember this:

• Do a credit check before starting the work, if the amount involved is significant.
• Get a purchase order from companies that pay from invoices.
• Collect progress payments. If you offer a service and customers don’t normally pay up front, get partial payments. Make sure the customer knows you won’t proceed until the payment is collected.
• If you’re shipping a product, use a service that tracks deliveries, and require a signature from the person receiving the shipment.
• Send invoices promptly. Don’t wait for the end of the month. The sooner invoices go out, the sooner they are likely to be paid.
• Set a policy on when you expect payment, and make sure the customer understands. Follow up as soon as the payment is late. Be polite and professional. Set another policy on when you will stop selling more products or services to a customer who is late paying. Thirty days is too early, but you should definitely take action after sixty or ninety days.

SCORE counselors are available locally or on-line to help you create and manage a successful business. Call us in Pinellas County at (727) 532-6800 or go to www.pinellascounty.score.org.

photo courtesy of zizzybaloobah via creative commons license

Why businesses succeed (part 2): They understand how to sell

Almost nobody really likes to sell. But small businesses that don’t understand the selling process can end up with stress-inducing revenue and cash flow problems.

Avoid the revenue roller coaster. What’s that? First the owner or team spends a lot of their time closing sales. While they’re closing sales, they’re not spending time delivering the product or service that customers will pay for. Revenue falls. Once the sales are made, the owner or team spends most of their time delivering the product or service, but not closing more sales. Money is coming in, but there aren’t many customers in the sales funnel. So the owner or team spends a lot of their time closing sales. It’s feast or famine.

Create a balanced sales process. Sales success depends on networking and prospecting, plus using your web site and internet tools to help potential customers find your business.

Most prospects start the sales process by doing an online search. When prospects start looking for more information about what you do and how you can help them, they identify themselves as potential customers. That way you can consistently spend part of your time interacting with prospects who have reached out to you. The feast or famine cycle is reduced.

Customer referrals are a great source of leads. Here your existing customers are doing some of the prospecting work for you. Referrals from strategic partners are also valuable. Outbound lead generation tools include networking, prospecting, email newsletters, presentations to outside groups, customer events, and advertising. Your web site, blog, social media sites, webinars and podcasts are inbound lead generation tools that let you leave a trail of content from the prospect to you. Find out which of these works best for you.

Start with a clear understanding of your target customer. If you don’t know who your target customers are or what their pain or opportunity is, how do you know what to say to them? How do prospects come to see you as the best vendor to help them? How do you screen out prospects you can’t help?

Respect your time and theirs. You have limited time every day or every week to spend with prospects. You have to spend that time with the best opportunities. Every sale starts with a prospect that has a need. Your sales process should help you understand which prospects have a need and intent to satisfy the need, and focus on them.

As you narrow the list of prospects, start checking social media to see what questions they are asking or what comments they are making that create a ‘buying signal’ for you. Do a Google search. See if they have a LinkedIn profile. Have they connected to or followed or liked any of your competitors? That’s a bad sign.

After you have researched the prospect, your first personal contact needs to focus on learning more about their problems or opportunities, and the payoff of addressing them. Don’t present your solution until you understand their situation. Your value to them will depend on how well your solution helps them. If you want your business to stand out from the competition, solve a more important problem.

SCORE counselors are available locally or on-line to help you create and manage a successful business. Call us in Pinellas County at (727) 532-6800 or go to www.pinellascounty.score.org.

photo courtesy of zizzybaloobah via creative commons license

Why businesses succeed (part 1): they build a loyal customer base

Spending money to bring new customers in the front door while existing customers leave through the back door is not a strategy for success.

Some businesses have the focus and do the work needed to hold on to existing customers. Here are some of the things they do:

Start with the basics. Deliver a superior product or service, and provide great customer support after the sale. Give customers a reason to say good things about you.

Emphasize customer experience. How do customers feel when they do business with you? Do customer satisfaction surveys with every customer. How do they use your product or service? How can you do a better job meeting their needs? And contact the customers who leave. If you don’t know why they left, it’s hard to fix the problem.

Do something extra for long-term customers, active customers, and customers who recommend your business to others. Make them feel like insiders. Include them in your decisions. Encourage them to give good reviews and share their success stories.

If your business depends on a relatively small number of customers, use a customer relationship management (CRM) system to keep track of their purchases and your communication with them. (For more on this, check out the Ritz-Carlton Hotel and the Ritz-Carlton Leadership Center).

Put likeable and competent people in customer contact positions. The people who have the most impact on whether customers stay is the ones who deal directly with customers. Hire for friendliness, provide lots of training, and eliminate the policies that keep front-line people from satisfying the customer.

Communicate, communicate, communicate. Keep in touch with your customers. Remember, ‘out of sight, out of mind’. Thank them for their business. Give them information that is useful to them, not sales pitches. If your customers are other businesses, help them succeed. Talk about ways you can apply your products or services to overcome their business challenges. Look for ways to find customers for them. If your customers are consumers, help them make their lives better. And don’t do everything on-line. Meet customers in person. If it makes sense, set up customer events. In a perfect world, your customer events will turn into the equivalent of the Harley Owners Group.

Avoid attracting ‘bad’ customers. A bad customer is one whose needs are a bad match for your product or service, who buy only on price, and don’t see value in what the company offers. They often generate more than their share of complaints, taking up employee time that could be used to satisfy ‘good’ customers. Make sure that all of your external communications appeal to customers who you can satisfy, and the sales process lets ‘bad’ customers drop out voluntarily.

SCORE counselors are available locally or on-line to help you create and manage a successful business. Call us in Pinellas County at (727) 532-6800 or go to www.pinellascounty.score.org.

Photo courtesy of James Morrison via creative commons license

Why businesses fail (part 4): they don’t do the work needed to be different and better

We’ve all seen it. An entrepreneur opens a new business, but before long we notice it’s closed.  They ran out of money before the business broke even. The time and money they spent is gone, and their lender may have a claim on their home and other assets.

How does this happen?

A wise person once said, “There’s lots of competition for average”. If you’ve identified an important customer problem, they probably found a way to address their problem before you came along. Prospects can compare ratings, reviews, and prices for you and your competitors online. If you’re no better than everyone else, why should the customer buy from you?

What should you do instead?

You need to create a competitive advantage based on what your target customers think is important. Federal Express knew that its customers needed fast reliable delivery, and their message was “when it absolutely, positively needs to be there overnight”. Superior product design has driven Apple’s success, while low cost keeps customers coming back to Wal-Mart and Costco. Whatever you think about the health value of their menu, McDonald’s wins with consistency, cleanliness and service.  The luxury hotel chain Ritz-Carlton focuses on the needs of their high-end customers, using the slogan “ladies and gentlemen serving ladies and gentlemen”. They share their knowledge with other companies through the Ritz-Carlton Leadership Center. Their quality is regularly praised in the influential Zagat Survey.

Whatever your customer’s definition of quality, you need to deliver excellent value at every point where the customer interacts with your company. This means your email newsletters, how easy your web site is to navigate, your sales process, delivery, billing, and customer service.

On the positive side, think about the online shoe retailer zappos.com. Their sales process is very smooth. They offer free shipping on all domestic shoe purchases. If you’re not satisfied with the shoes when they arrive, you can return them in the original packaging for free. You can return items for up to 365 days, as long as they are in the original condition and the original packaging. Zappos.com has a customer testimonial page with almost 10,000 testimonials. They set the bar pretty high for on-line and physical shoe retailers.

On the negative side, remember the YouTube video “United breaks guitars”? Lots of other people do. It was viewed more than 10 million times. And General Motors probably wishes it had done a better job replacing the defective ignition switches on the cars it recently recalled.

SCORE counselors are available locally or on-line to help you create and manage a successful business. Call us in Pinellas County at (727) 532-6800 or go to  www.pinellascounty.score.org.

Photo courtesy of Mark Wheadon via creative commons license

Why businesses fail (part 3): they don’t attack an important customer problem

We’ve all seen it. An entrepreneur opens a new business, but before long we notice it’s closed.  They ran out of money before the business broke even. The time and money they spent is gone, and their lender may have a claim on their home and other assets.

How does this happen? 

Third, they didn’t attack an important customer problem, or satisfy an important customer need. The customer or prospect isn’t very anxious to solve their problem. They may have found a work-around that is acceptable for now. They will procrastinate if you ask them to buy, and when they finally do, they will look for the cheapest solution. Not a good market for your business: long buying cycles, low conversion rates, and constant pressure on margins.

What should you do instead?

• Look for a segment of your current target market, or an entirely different target market, that has an important problem you can solve, or an important need you can satisfy. If you were originally planning to offer a car washing service, focus on people who get a real benefit from a clean car, like real estate agents, executive limousine services, and people who want to sell their cars. If you were planning to open a small book store, offer a subset of books that aren’t available on Amazon, like antique and rare books.
• After you choose your new target market, you need to reach out to target market customers. Meet with as many of them as you can. If these customers have an important problem or need, they have probably found a solution already. Executive limousine drivers are not driving around in dirty cars. People who want rare books are probably not waiting around for someone to open a new small book store. But they may think their current solution is too inconvenient, or could be improved to better meet their needs, or is too expensive. For example, they may go to an antique book store, but they have to drive a long way to get there. Find out what it would take in terms of delivery or features to make them switch to a new company.

SCORE counselors are available locally or on-line to help you create and manage a successful business. Call us in Pinellas County at (727 532-6800 or go to  www.pinellascounty.score.org.

Why businesses fail (part 2): they wait until the business opens to build an audience

We’ve all seen it. An entrepreneur opens a new business, but before long we notice it’s closed. The classic example is a new restaurant, often in a location that has been the scene of more than one failed restaurant before. They ran out of money before the business broke even. The time and money they spent is gone, and their lender probably has a claim on their home and other assets.

How does this happen? Second, they waited until the business opened to start building their audience. When they opened the doors or published the book, what did they hear? You know.

What should you do instead

Guy Kawasaki, one of the original Apple evangelists and an accomplished author, had this message for new authors: “The process of building a platform [audience] takes six to twelve months … If you don’t have a platform yet, you need to build one as you are writing your book.”

This applies to everyone. Find ways to build relationships with potential customers as soon as you have figured out who they are. Go where they hang out in the real world and meet them face to face. Meetup groups. Chambers of Commerce. Community events. Conventions. Trade shows (yes, there are still trade shows. Don’t believe me? Check out the convention center in Orlando). Look for opportunities to speak.

Go on-line and look for people who are posting on Twitter about the problems or opportunities you are attacking. Join relevant LinkedIn groups. Do your potential customers upload to Pinterest? Do bloggers write about your industry or your customers? Respond to their posts. Ask them questions. Try to move the on-line relationships off-line.

When you meet people, invite them to subscribe to your email newsletter or your blog. Keep them up to date on your progress. Ask them for opinions. If you have a product or a physical location, share pictures as things get built. Writing a book? Ask people to comment. Listen to them and make changes. Have a contest … give away a few autographed copies of your book, or meals at your restaurant, or tickets to your concert.

On launch day, you should hear more than crickets.

SCORE counselors are available locally or on-line to help you create and manage a successful business. Call us in Pinellas County at (727) 532-6800 or go online  to www.pinellascounty.score.org.

image courtesy of arpingstone via wikipedia commons license

Why businesses fail (part 1): they run out of money before the business breaks even

We’ve all seen it. An entrepreneur opens a new business, but before long we notice it’s closed. The classic example is a new restaurant, often in a location that has been the scene of more than one failed restaurant before. They ran out of money before the business broke even. The time and money they spent is gone, and their lender probably has a claim on their home and other assets.

How does this happen?

First, they didn’t have enough industry and management experience. It’s good to have a passion for a business, but if you haven’t spent enough time working and managing in that kind of business, there’s a good chance you will over-estimate your projected revenue and under-estimate the problems, delays and costs that will confront you. And you may not know enough to anticipate and avoid them.

What should you do instead?

• Start a business in an industry where you have work history and management experience.
• If you don’t want to stay in that industry, get a job in the industry that interests you. Yes, this will delay the launch of your new business, but it can also delay big financial losses and a lender having a claim on your house. Besides, once you get some experience in this industry, you may not like it either.
• Recruit a partner who has relevant industry management experience.

SCORE counselors are available locally or on-line to help you create and manage a successful business. Call us in Pinellas County at (727) 532-6800 or go online  to www.pinellascounty.score.org.

How will I know if I have a good business system?

According to Gerber, there four essential ingredients of a successful business system:

It creates the right impression for the target market. The impression is created by product, packaging, retail displays, advertising, signage, your web site, the way you and your employees are dressed, the way you answer the phone, the appearance of your parking lot … everything.

It appeals to the emotional needs of the customers and employees. People need to be heard, to feel that that what they do is important, and to be connected to something larger than themselves. Think about customers of Apple Computer and the employees who create the products for them.

It is organized to produce the best results with imperfect people. A great system turns ordinary people into extraordinary people. Everyone knows what their role is and how they contribute to the success of the company. The system has high standards. It works predictably even when the owner isn’t present. You do plan to take some time off, don’t you?

It has financial integrity. The business earns a profit, customers are charged correctly, employees and suppliers are paid on time, and investors earn a good return. All four groups – customers, employees, suppliers, and investors – get more from your business than they can expect from any competitor.

Start by choosing the right business and the right customers. When you start your business, focus on the entrepreneur role. It’s hard to stand out in a commodity business where prices and margins are low, and products or services are almost interchangeable.

• Look for an important problem or opportunity experienced by a lot of people.
• Reach out to customers who value what you do and will pay appropriately for it.
• Create a system that exceeds the expectations of these customers. Set standards that make your business stand out. Improve the system as you go to keep up with changes in customer expectations.

SCORE counselors are available locally or on-line to help you create and manage a successful business. Call us in Pinellas County at (727) 532-6800 or go online to www.pinellascounty.score.org.

Image courtesy of Jessa-Minnie via creative commons license.

Sell the business, not just the product – but how?

Find out what your customers want, and create a system that does the best job delivering it.

Several years ago, Michael Gerber wrote a book called “The E Myth: Why Most Businesses Don’t Work and What to Do About It”. Gerber’s message: the customers buy the total results of the business, not just the technician’s product or service. Sell the business, not just the product.

For a good illustration of this idea, check out our previous post.

A successful business is designed as a system that delivers consistent value to its customers and its employees – that gives them (and its investors and suppliers) more than they can expect from any competitor. After all, a business can’t deliver excellent products and services if its employees are unhappy, if the business isn’t making a good profit, and if its suppliers aren’t getting paid on time. It’s extra hard to deliver on time if your business is on ‘credit hold’ with a key supplier.

The system is a structured way of doing business that works predictably and profitably, and sets the business apart from its competitors. According to Gerber, the system produces results, and your people manage the system. This is true even if ‘your people’ is only ‘you’.

This is where you take on the third critical role of a successful business – the manager role. The manager organizes the business created by the entrepreneur. He or she wants to make sure invoices are mailed, customer payments tracked, supplies ordered and checked in, bills and employees paid, and all the other details that  both the technician and the entrepreneur would rather avoid are covered.

McDonald’s is well known as a franchise that depends on systems and operations manuals (an article in Entrepreneur magazine says the McDonald’s operations manual is 300 pages long). They make it easy to train new employees to deliver high quality consistent products and service. But McDonald’s didn’t start out as a franchise with more than 33,000 locations around the world.  It started with the McDonald brothers and Ray Kroc. Kroc was attracted to McDonald’s because of the innovative assembly-line process the brothers created.

Your business doesn’t need a 300-page operations manual to be successful. But it does need processes and structure, so your business can run smoothly without you being there. You do plan to take some time off, don’t you? If you’re the only employee right now, this is an ideal time to set up and test your system so it will be ready for your first new hire.

SCORE counselors are available locally or on-line to help you create and manage a successful business. Call us in Pinellas County at (727) 532-6800 or go online to www.pinellascounty.score.org.

Image courtesy of crschmidt via creative commons license