Up and Running Blog

July 2009

Looking at Specific vs. General Risk in a Startup

by Tim Berry on July 31, 2009

Can you take the risk of starting a business? I think most of the focus in starting a business is about the specific risk in the business, but Eric Williams notes a problem with what he calls general entrepreneurial risk on the Oregon Business Broker’s Info for Business Buyers.

Writing specifically about business buyers (as opposed to business starters, generally a different group), he says:

I find that some prospective buyers obsess about and over-analyze General Entrepreneurial Risk, rather than Specific Business Risk.

What’s the difference?

  • Employee turnover is general risk, but dependence on two very important employees is specific risk.
  • Losing clients is general risk, but a business that depends on one client for most of its business has specific risk.

What I realized, reading Eric’s post, is that I normally look at a business plan with an eye on the specific risk. But in starting of a business, buying a business, or running a business, you also have to acknowledge the general risk out there. Including the rest of Eric’s list:

  • uneven cash flow
  • a declining economy
  • an important vendor going under and
  • many others.

If you’re going to start or grow a business, you live with a lot of risk. And remember, by the way, that risk goes both ways: There’s a lot more upside to owning your own rather than just being an employee, but more downside, too.

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The Entrepreneur – The good news and the bad news

by Chelle Parmele on July 29, 2009

On Twitter this morning, a note by Barry Moltz caught my eye.

@barrymoltz:  Perfect movie for entrepreneurs and car people- “The Entrepreneur” about Macolm Bricklin  http://bit.ly/9THrC

The good news is that Barry is pointing to a very good 1 hour and 30 minute documentary about Malcolm Bricklin.

In 1967 Malcolm Bricklin started Subaru of America. This established him as a maverick entrepreneur and a man ahead of his time. Now, 40 years later he’s back and ready to do it all over again. But this time it’s China and the stakes are higher than ever. The film is shot by Malcom’s son, Jonathan. It’s a no holds barred accounting of Malcom’s latest attempt to put the auto industry on it’s ear.

The bad news, is that the film is only available on the website for free until tomorrow.

If you have the time to spare, I really urge you to watch this fascinating, inside look into Mr. Bricklin’s attempt to put together the deal of his life.

Watch The Entrepreneur – Through 7/30 only

‘Chelle Parmele

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Are You Ready for Free?

by Tim Berry on July 29, 2009

I had a long talk yesterday with a good friend at the back end of a bad business experience. Call it recession-related, banking, credit cards and a website that might be valuable someday–good information, nice interface–but was taking too long.

We had a talk about web apps, trends and the long-term problem of free. My friend is safe, thanks; he’ll be fine while what he’s been working on falls apart through no fault of his own.

But free? Are you ready for free? If you’re looking at a web business or information or expert business, you’ll probably have to deal with this. People on the web–you included–expect free.

Unless you’ve been hiding under a rock, you already know about the dustup between Malcolm Gladwell, Chris Anderson and Seth Godin . . .

Anderson’s book, FREE, came out a few weeks back, arguing in part that the distribution costs of any intellectual property that can be boiled down to digital format, be it a song, a book, a video or a game, have become so low that you should essentially round down to zero and accept that if you don’t make it available for free, someone else will.

So, rather than fight it, just suck it up and give it all away.

That’s from Jonathon Fields’ post last week: Why I Hope the Free Brigade Got It Wrong. He adds:

Because if the Free Brigade are right, if we who create information, performances, music, writings, recordings and any other electronic “commoditized” form of our work are required to give our creations away whenever they appear in digital form, that effectively shuts down one of the most powerful and lucrative ways to scale a small business built around creative or strategic output.

Which brings me back to my conversation with my friend from the besieged website. Somebody has to make payroll.

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How Not to Divide Ownership

by Tim Berry on July 28, 2009

Here’s a case for discussion. You be the judge.

Mary comes up with a great idea for an iPhone application. She works on it for three months in her spare time. She develops sketches and designs, trying to figure out how it would work. She looks at other iPhone applications doing related things.

About three months into it, her enthusiasm has waned a bit, but she’s still thinking about it. She’s spent maybe 10 to 20 hours on it so far. Her best friend suggests she talk to Ralph about it. She doesn’t know Ralph, but her friend does. They meet for coffee. Ralph is a programmer. He works for a company in town doing web programming. He’s also an enthusiastic iPhone user and has been thinking about taking an online course on programming the iPhone. Ralph is excited, and his excitement rekindles Mary’s excitement. They agree to be partners in a new business based on this initial iPhone application.

Four months go by. Ralph takes Mary’s initial idea and starts developing. It turns out, as he gets into the code, that what Mary imagined isn’t quite possible on an iPhone. Ralph revises the idea radically, makes it practical and develops a prototype. Mary meets with him three times, they talk, she accepts his changes begrudgingly. At this point Mary’s total hours have gone to 15 to 25, but Ralph has worked a lot, probably 120 hours, on the programming.

At Ralph’s suggestion, he and Mary take the prototype to Terry. Both of them know Terry, but neither knows him well. Terry has been through a failed startup, has a business education and is looking for a startup to do again, this time the way it should be done. Terry’s skill is mostly marketing, but he knows how to develop a plan and seek investment. Terry does a business plan and networks with local business development groups to find angel investors. They win an opportunity to present to an angel investment group.

Another three months have gone by. Mary has now put in more like 40 hours, Ralph 250 hours, and Terry 120 hours.

The three of them meet to plan their approach with angel investors. Ralph wants to quit his job and work full-time on the new thing but needs to get paid. Mary doesn’t want to quit her job but wants to stay involved; she’s not quite sure how. Terry wants to lead the new company as soon as he can get financing.

The business plan indicates it’s going to take $250,000 to develop the business for the first year, after which it will probably need another $750,000 to become cash-flow self-sufficient.

During this meeting, Mary and Ralph and Terry come to an extremely awkward realization: They’ve never really talked about who should own how much of this company, much less how much they are willing to offer to investors in exchange for $250,000.

So what do you think? This is a typical case.

  1. How would you suggest that Mary, Ralph and Terry divide up the 100 percent ownership of the company now, before they go to the angel investors. Who owns how much?
  2. What do you think of the management team here? Ralph and Terry both want to work full-time on the business when there’s money to pay them. What titles should they take? How much salary?
  3. How much of the company should these three offer to the seed investor for $250,000?

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photo by flickr user Jon Curnow

What to do with a "cold" lead

by Guest Author on July 27, 2009

photo by flickr user Jon Curnow

photo by flickr user Jon Curnow

We have a client who has so many requests for quotes on his desk he is way behind on filling them.

At first this seems like a problem we would all like to have. So many leads we can’t get to all of them! But there is a down side to this story. Our client has no way of sorting the leads into those that are “hot” and need immediate attention; and those that are “cold”. Maybe these cold leads are from qualified people, but who knows when they are going to close.

On top of that, he has recently learned that two of the leads in his pile assumed he wasn’t interested because it took so long to get a quote; they took their business elsewhere.

This raises two important issues: what is a hot lead, and what do you do with a lead that’s gone cold? Most of us are pretty good with hot leads. These are qualified prospects who have the cash to buy our product or service, a real need we can fulfill, and the intention to buy right away.

Cold leads are prospects who are qualified, but who simply aren’t ready to purchase right away.

What does your sales team do with a lead that is qualified, but won’t close for a while? 99% of small businesses throw these cold leads away, or let them fall through the cracks because it’s so time consuming and expensive to follow them up.

But those businesses who do follow up can literally double their sales in a year. Why? Because these folks will eventually buy – but if they haven’t heard from you in a while, they won’t be buying from you.

The best idea is to hand leads back to marketing for re-engagement and continued nurturing; creating opportunities for the sales force to pursue again in the future when timing is optimal.

Marketing can use tools like automated messages, newsletters, direct mail, events and public relations that are up to 90% cheaper than direct contact from a sales person. And, when the prospect decides its time to buy, they don’t need to be re-sold, because they have all the information they need to make a good buying decision – your product.

Let’s do the math. Say you have a showroom, and 100 people who are interested in your services walk in the door in a week. Your staff can only talk to 35 of them, so that’s 65 people who walk out again – you don’t know if they are qualified, interested, ready to buy or just there to kick tires.

Of the 35 people your staff talks to, let’s assume 25% of them are hot leads, and 25% of the leads close. So of the hundred people who came in, two actually bought your products.

Let’s assume the same ratios apply to the 65 people who walked out without speaking to a member of the staff. 25% are hot leads, 25% of the leads buy – that’s 4 more sales, an increase of 200%.

Now imagine those 65 people are the cold leads, qualified people who for whatever reason won’t take your calls, won’t see a sales person or put off making a purchase. And imagine what those incremental sales could do for your business.

It’s a great argument for follow up marketing, wouldn’t you say?

ducttapemarketingbadgeKen Burgin and Elizabeth Walker are the Marketing Masters (www.MarketingMasters.ca), a full-service marketing and advertising partnership that helps build busy businesses. Send your ideas on How to Thrive in Times Like These to liz@marketingmasters.ca or ken@marketingmasters.ca, or call 1-866-908-5720.

web: http://www.marketing,masters.ca
blog: http://thebuzzwithkenandliz.blogspot.com/

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Paying attention to voice mail

by Steve Lange on July 27, 2009

As part of your Customer Service, your team must pay attention to the voice mail messages of your customers. Almost all of us have answering machines or voice mail capabilities on our home phones, office phones, and cellular phones. And we all leave some kind of outgoing message on those systems, sometimes humorous, sometimes dull and stilted, most often direct and giving the basic facts: you have reached *name*, leave a message after the tone and we’ll call you back.

Now here’s the question. When you place the call and are connected to voice mail, how often do you tune out the message while waiting for the tone? There’s the point. For many of us, the voice mail’s greeting message is so routine we ignore it completely. And there we show our disrespect for our customers. And in doing so, harm our own businesses.

As an example, not too long ago we received a message on our home voice mail. It was from a lawyer, we’ll call him Mr. A. Turney. Mr. A. Turney was leaving a message for Mr. Cheung about a current legal issue, and needed Mr. Cheung to return his call right away. To me this was an obvious miskeying of the phone number. I figured Mr. A. Turney would call Mr. Cheung the next day when he hadn’t heard from him.

The next day we had another message from Mr. A. Turney, telling Mr. Cheung, in a slightly irritated voice, to return his call right away. Now, this was kind of funny, since at that time, I was in the habit of telling jokes on our outgoing message, and my voice has a rather slight Pacific Northwest accent, with minor hints of my Upper Midwest Scandinavian background. And to tell the truth, I doubt very much that Mr. Cheung would be telling jokes on his business phone voice mail.

The third day came, and to my surprise Mr. A. Turney left us another message. He was getting quite exasperated. I can just see him, sitting at his desk, pressing redial on his phone, and busily multi-tasking, writing his torts and retorts, while cluelessly ignoring my joke for the third time. Now, I was getting a little irritated myself. So that evening I called Mr. A. Turney’s office and told HIS voice mail that he’d been leaving messages for Mr. Cheung at the wrong phone number all week. Then I changed our outgoing message to tell a somewhat unflattering lawyer joke. Unfortunately, I didn’t have Mr. Cheung’s number, or I would have called him to let him know that his lawyer was severely lacking in attention to detail.

Thursday night we returned home, and sure enough Mr. A. Turney had left yet another message for Mr. Cheung. Obviously he didn’t listen to our message with the ribald lawyer joke, or at least he didn’t deign to mention it, nor had he listened to his OWN voice mail messages, telling him he was barking up the wrong telephone pole. But wouldn’t you have thought he’d have figured out that something was wrong after almost a week of unreturned calls about a pending legal issue?

Here are a few things to consider in your Customer Service contacts with VoiceMail:

  • If you are a business, use a business-like outgoing greeting on your voice mail, including your business name.
  • When you, a Customer Care Team member, call someone and you get sent to voice mail, listen to the message. Don’t dismiss the message content out of hand. There is good information there. You might find that the person you want is out of the office for a week. Or that they have moved or left the company. You might find a different number to call. Or you might discover you are calling the wrong number.
  • If you promised you would return a call to a customer, follow through on that promise. Your customer is waiting for your call. Leave the pertinent information on their voice mail, and if possible, call them back, later, to confirm that they got your message.
  • If the voice mail greeting you encounter is a non sequitur, it should be a clear hint that perhaps you have miskeyed the number, or perhaps been given an incorrect number by your customer. In that case you should put in a little extra effort to contact them by email, or look them up in the phone book.
  • If you persist in leaving messages on an incorrect voice mail you disserve your current customer, and you’re almost certain to alienate a potential new customer. I know that I won’t be going to Mr. A. Turney for my legal work. He didn’t listen to me before when he thought I was his client…why would I believe he’d listen to me if I truly was?

Show your customers that you respect them, and value your communications with them. Listen to what they have to say.

p.s. I’ve not received a voice mail from Mr. A. Turney recently. Probably Mr. Cheung hired a new lawyer since Mr. A. Turney was obviously ignoring his legal needs because Mr. A. Turney never called him back.

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The Idea and 2 Dollars Gets You a Cup of Coffee

by Tim Berry on July 27, 2009

Somebody I know sent me the address of a new website along with the question of whether  I thought it was a good idea and did I think there was a need.

I clicked and visited the site. I found a very nice-looking site. I’m not sure I’d use it, but I am sure that the look and feel were all positive. I wasn’t sure I’d pay the subscription price, but that’s not the point.

The point is a reminder that a good idea and a market need; necessary but not sufficient conditions for a new business. You can’t make it without that. But having that doesn’t mean you are going to make it. Lots of good ideas with market needs fail.

Of course there’s nothing in any business plan that guarantees success; but the idea alone means nothing without the management team, marketing strategy, financial plan and product/market focus.

Lots of great products, services and website businesses have failed for reasons beyond the basic need or idea.

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True Story: The Name Game. Disaster Story

by Tim Berry on July 24, 2009

Once upon a time (1997) there was a friendly Internet programming company in Portland, Ore., named “emedia.” My company, Palo Alto Software in Eugene, Ore., was a client. Emedia hosted our sites for a while, helped us get started with Cold Fusion and gave us advice about getting our software available for immediate download online.

Emedia was a great name for a Web-based company, right? I mean e-mail and e-this and e-that, and it was emedia, at emedia.com. (And I checked; that’s not the company there now. Please don’t bother the real rightful owners of that site because of this post.)

Late that year emedia changed its name. They changed it to something way less memorable.

“Why?” I asked.

“Because we had to,” they answered. “A company in Texas had the same name. We couldn’t prove we had it first, so we had to give it up.”

That was 12 years ago. Today I can’t find any evidence that the Portland emedia ever existed. Maybe I just imagined it?

Changing your company name is really hard to do. Don’t get trapped into having to do it.

Understand how business names work:

  1. Technically, there could be an emedia corporation in Oregon and another in Texas, and one in fact in every state. There could be emedia companies in most counties in most states. The naming organizations don’t care.
  2. What happens, though, is that as soon as any two of them seem to be reaching the same customers, doing similar things, then the first one can legally make the second one stop it.

Another example, also a true story: It’s 17 years ago now since we moved Palo Alto Software, Inc. from Palo Alto, Calif., to Eugene, Ore. That many years later, we’re so completely integrated into Eugene that it hurts to have that other city’s name for the company. Eugene Software, Cascade Software, Willamette Software or McKenzie Software would have been nice; Cascade was my favorite because Eugene is due west of the Oregon Cascades.  But it’s still Palo Alto Software because it had lived with that name for seven years before we moved. And it would have been really hard, and bad for business, to change a name after seven years.

Think of this: If your grandfather was named McDonald and he started a burger shop 75 years ago, and you could prove it, you’d be able to keep the name McDonald’s Hamburgers. But even if your name is McDonald’s, you still wouldn’t be able to start a new business with that name today.

Conclusion: Check the name out well before you name your company. Unless you’re satisfied with living inside a fence, it has to be exclusive, not just legal.

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Does Twitter Fit Your Marketing Plan?

by Tim Berry on July 23, 2009

Trends: solopreneurs, the new artisan economy, social media, a lot of one-on-one relationships, the long tail, splitting larger groups into smaller groups. More channels, each of them more focused.

With that in mind:

For many mom-and-pop shops with no ad budget, Twitter has become their sole means of marketing. It is far easier to set up and update a Twitter account than to maintain a Web page. And because small-business owners tend to work at the cash register, not in a cubicle in the marketing department, Twitter’s intimacy suits them well.

That’s from Marketing Small Businesses With Twitter from yesterday’s nytimes.com.

Small businesses typically get more than half of their customers through word-of-mouth, he said, and Twitter is the digital manifestation of that. Twitter users broadcast messages of up to 140 characters in length, and the culture of the service encourages people to spread news to friends in their own network.

Examples include a food cart in San Francisco, a sushi restaurant in San Francisco, an antique store in Ohio, a bed and breakfast in North Carolina, etc. My favorite is from Becky McCray, a Twitter friend of mine. She runs a liquor store and cattle ranch in Oklahoma, and does a blog named Small Biz Survival:

In towns like hers, with only 5,000 people, small-business owners can feel isolated, she said. But on Twitter, she has learned business tax tips from an accountant, marketing tips from a consultant in Tennessee and startup tips from the founder of several tech companies.

What I particularly like about this idea are the focus and specificity. It’s target marketing executed well, using a good tool.

One word of caution: I don’t know the rest of these small businesses, but I follow Becky on Twitter and she’s there as a person, not a product, not a company. From what I see on Twitter, that’s an important factor. Relationships are between people, much more than between companies and people. Sure, there are exceptions, but that’s the rule.

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builtofbrick

A Business Plan Fable

by Chelle Parmele on July 22, 2009

A tall but mostly true tale by Tim Berry-

Once upon a time there were three entrepreneurs who set out to seek their fortunes. Each of them developed a business plan.

The first business plan was built of straw. It was easy to complete, but it was mostly just puffery. It had objectives like “being the best” and “excellence in customer satisfaction” and “create a revolutionary product” and “Google killer!!!” without any way to measure results or milestones to make anything happen. It had a lot of talk, but very few specifics.

The second business plan was built of sticks. Most specifically, “hockey stick” forecasts. The plan showed sales growing slowly to a point, then forecasting a radical shoot upward, boldly showing a huge growth rate, with no real defined reason for the growth. The sticks piled up higher and higher, neatly stacked but not grounded in any kind of fact.

builtofbrickThe third business plan was built of bricks. Bricks were specifics, especially “ownership” as in specific job responsibilities, specific people in charge of well-defined activities. Bricks were milestone dates, deadlines, budgets, and concrete, measurable objectives.

Then came the big bad real world, as awesome and fierce as any wolf. The real world was phone calls and daily routine. It was business problems and changes in economic environment, customers paying slower than expected, costs going up on one product, down on another. In business school they called it the RW, pronounced “are-dub”. Suffice to say there was a lot of huffing and puffing.

The real world blew the plan of straw and the plan of sticks apart in an instant. The plan of bricks, however, stood up to the real world. As each month closed, the plan of bricks absorbed plan-vs-actual results. Managers looked at the variance. They made adjustments. Each manager kept track of milestones and budgets, and at the end of each month the actual results were compared to the plan.

Managers saw the performance of their peers. Changes were made in the plan–organized, rational changes–to accommodate changes in actual conditions. Managers were proud of their performance, and good performances were shared with all.

And the company who made their plan out of bricks?  Well, they lived happily ever after.

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