Articles & Book Reviews About The Business Owner’s Inner Game

I’m watching the promotional content for a new product launch called Profit Hacks which is all about helping Internet entrepreneurs to get more done in less time.

This is very relevant to me as I spend a significant proportion of my working time information marketing.

It’s got me thinking about what I do and the way that I do it.

And I don’t like what I see very much. [continue reading…]

The secret to getting more done is to leverage your time more effectively.

OK that’s:

a) Obvious

b) Easier said than done.

The key question is:

How can I get more out of what work I’ve already done or work that I’m about to do?

It’s back to the old adage of “working smarter, not harder”.

There’s a new course coming out called Profit Hacks.

Should you buy it?

I don’t know. It depends on your own situation (in terms of your time management and productivity problem and the money you have available) and whether the course is good enough to justify the premium price.

I’ve been given access but I don’t have the time to go through it to give you an honest opinion. I also have to say that while a lot of the course is already there, there are plenty of videos that are coming later.

I believe that you should pay attention to the pre-launch promotion /  training materials.

It will get you thinking about how well you do leverage your time and the work you’ve done.

I watched the first launch Profit Hacks to the house list of Rich Schefren and it made me think about what I do and where I could be achieving much more.

A good technique to get you to focus on where you focus your time is The Stop Start More Less Grid.

The Hidden Obstacles To Your Success by Rich Schefren

Book Review – 5 Stars

Rich Schefren made his name by writing excellent free reports for Internet marketing entrepreneurs starting with the Internet Business Manifesto to promote premium priced training courses.

You can see details of them if you click on the link below: [continue reading…]

The full title of this book by Lisa J. Scheinkopf is

Thinking for a Change: Putting the TOC Thinking Processes to Use

In my review posted on Amazon.co,uk, I gave the book Five Stars. This means it is Excellent and Very Highly Recommended.

Here is my book review.

A Big Improvement On It’s Not Luck

I found “It’s Not Luck” by Eli Goldratt a frustrating read.

The Theory of Constraints Thinking Processes were clearly powerful tools for diagnosing problems and implementing solutions and taking TOC out of the factory floor and into the boardrooms. But I found the tools abstract and confusing. [continue reading…]

One of the most powerful things you can do when negotiating is to see things from the other person’s perspective.

To find out why banks don’t finance business startups I want you to put yourself in the bank manager’s shoes when he meets an eager entrepreneur looking for cash to finance the great (ad)venture.

• I don’t know you.
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• You’ve got no track record of running your own business successfully.
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• You’ve got little management experience.
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• You don’t know the trade you want to go into.
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• You haven’t done your homework.
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• The proportion of money you’re putting into the business is much less than the money you want to borrow.
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• You’ve got no security to cover the loan so the bank can’t get its money back if things go wrong.
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• Your business concept isn’t proven.
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• Your presentation and business case is badly explained with little logic and pie-in-the-sky numbers.
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• You don’t have a management team in place so the business can carry on if anything happens to you.
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• There’s nothing special about your business which will cause customers to choose you rather than your competitors.

I could go on but long lists of bullet points are tough to read.

It’s easy to criticise banks and in many cases right to do so.

But business startups are making rejection inevitable by making unreasonable requests.

If you think as the bank manager thinks, you’ll see that he’s got a number of interests:

1. He wants to protect his own position. He doesn’t want to look like an idiot and propose a no-hope situation to the credit committee to get final approval for the loan. He’ll lose the respect of colleagues and his boss and make them more reluctant to back his judgement on other proposals.
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2. He wants to protect the bank. A bank isn’t there to provide risk capital and one bad loan which doesn’t get repaid takes away the profit from many good ones.
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3. He wants to protect you. If your proposal is only so-so but you’ve got security (e.g. your family home), the bank can protect its position but you’re taking big risks.

Banks are in the business of lending money but it’s much easier to lend to an existing business with a proven record of sales and profits and with a stable and experienced management team in place.

Banks want to invest in winners (and avoid the losers).

The big question of you want to get finance from a bank for your business startup is “How can you give them confidence that you are a winner?”

It starts by trying to avoid the black marks that I listed at the start of this article. The more of them that apply to you, the less willing a bank will want to finance your startup business.

So what can you do instead?

First, can you put more money into the business yourself. I’ve known entrepreneurs who have money but didn’t want to risk it in the business. That sends a very clear signal to the bank about your confidence in the business idea. If you’re not confident, there’s no reason why the bank should be anything other than very nervous about risking its cash.

Second, can you borrow the money from family and friends or even have them as silent partners who own part of the business? My advice is to formalise any agreement – what interest you will pay, when you hope to repay the cash, what happens if you don’t? Also, if shares are involved, what happens if one person wants to sell up? It’s a good idea to get legal advice but it can be expensive and that creates a chicken and egg situation.

Third, think about what you can do to bootstrap your business. The sooner you get your business making profit and generating cash, the less finance you will need. I hate to hear business owners talking about “breaking even in year 3.” Look at how you can boost your revenues and trim your expenses by avoiding unnecessary costs at the early stage of your business.

Focus on what’s critical and delay the nice-to-have items.

Take advice where you can. From other entrepreneurs and from professional advisers. Often good advice is a lot cheaper than bad advice or no advice. It saddens me when I see essential money wasted on marketing that obviously won’t work because there’s no clear message or offer.

You may want finance for your business startup but it can often be used to disguise mistakes and inaction. These only become clear when the money runs out.

It’s easy to fall into the trap of thinking that business is simple and especially that more sales equals more profits.

Sometimes it’s right but sometimes it’s wrong.

Sometimes growing a business can destroy it.

There are three big reasons:

1. Growth can destroy your brand and market positioning.
2. Growth can cause you to add costs faster than you add extra margin.
3. Growth can cause you to run out of cash.

Let’s look at these three problems in more detail.

Growth Can Destroy Your Brand & Positioning

I blogged about whether Stella Artois are making a mistake by extending their brand to include cider.

It’s a great example of a business with a very clear brand image – Stella is a premium priced lager (light beer) from Belgium. But now after the introduction of Stella Artois Cidre, it’s not. Stella no longer means lager.

And that come mean that sales of the lager go down as sales of cider go up. Or it could mean that Stella lager can no longer command a premium price.

That’s not good news.

But it could get worse.

Lager drinkers and cider drinkers may have very different customer personas and it is tough to appeal to everyone with a well known brand. After all I can’t think of any drinks company that has crossed cider and lager.

When I think of cider I think of Merrydown (my personal favourite), Magniers, Strongbow, Taunton’s etc. When I think of lager I think of Carlsburg, Kronenburg, Carling, Heineken, Fosters and Castlemaine.

This blurring of position is a particular problem where:

1. Prestige is an important reason for buying/owning – personally I think that both Mercedes and BMW have reduced the status of their brands by going into the mass market with the A class and 1 series respectively. I think Toyota got it right when they wanted to move upmarket and created a new brand, Lexus, to do it.
2. Specialisation is important – people of wary of the jack of all trades, master of none and it doesn’t matter whether that’s in professional services, tradesman or your local takeaway restaurant. I’ve just had a flyer come through my door from a  local takeaway offering pizza, kebabs, burgers, fried chicken, fish and chips… but it’s tough doing all those to a good standard when competitors specialise.
3. Where capacity is limited – a shop selling a bit of everything is a useful convenience in a small village or on a housing estate but it lacks a clear reason for being in the city centre.

Growth Can Cause You To Add Costs Faster Than Margin

The easiest way to grow the top line sales numbers is to cut prices and offer customers a better deal.

There are four big problems with this approach.

First, what I call margin deception. This is when you think your gross margin or contribution is growing because sales are increasing but you’re deluding yourself.

The arithmetic of the extra sales required to make up for a price reduction can be alarming if you don’t calculate them in advance.

I’ll just take you through a numbers example.

Imagine you sell 100 units at a price of £1000 and you make a margin of 35% or £350 on each (i.e. costs variable costs are £650) every month.

That’s a margin of £35,000. (100 * 1000 * 35%) on sales of £100,000.

Now imagine you decide that it’s a good idea to reduce prices by 10% because you’re confident that you can get an extra 20% of volume.

And you’re proved right.

Sales volumes go up by 20% to 1,200.

Sales prices fall from £100 to £90.

Total sales are £108,000 – £8,000 higher than before – not as good as you expected because you hadn’t done the maths but it’s still up.

Unfortunately your margin has been battered.

The price reduction has reduced margins from £350 to £250 (that’s the selling price of £900 minus the cost of £650).

1200 units sold at £250 each gives a margin of £30,000.

That’s £5000 down from the original margin of £35,000.

Over 12 months, that’s a £60,000 drop in profit because you hadn’t bothered to check how the numbers work.

The second problems is that price discounting often attracts the wrong type of customers. Low prices are most appreciated by the people who really care about buying at the lowest price, and they have little loyalty. The first sign of a better price, and they are off.

Third, you can’t expect competitors to stand idly by and let you “steal” their customers by offering lowering prices. Your competitors are likely to react and match or even beat your low prices. They will find out and if you are taking much valuable business away from them, they’ll get mad.

And if they match your prices, all you’ve done is cut your profits and theirs. Even worse, you could start a price war.

Fourth, overheads are usually driven by transaction volumes. As you sell more, you need more people to handle the extra orders, to do the despatches and to follow up and collect the cash. You can try and hold the line but extra work creates pressures and it causes things to slip. Perhaps orders are delayed because the paperwork can’t be processed or mistakes are made in picking and packing as staff rush to meet targets. Either way customers get angry.

Growth Can Cause You To Run Out Of Cash

If you manage to avoid the first two ways that growth can kill your business, by staying focused and making sure that growth is profitable, it can still be profitable.

One of the reasons why the business failure statistics in the 2009 recession have not been as bad as you might expect is because a shrinking business generates cash as the working capital in stocks and debtors reduces.

It goes the other way for growing businesses so when the economy picks up, order books get healthier and sales go up, you can expect businesses to run out of cash. And in the current situation, banks don’t appear to be eager to lend.

Growth needs financing unless you’ve got a high margin business which has a favourable working capital cycle. Retail can be good because sales are paid immediately so provided stocks are smaller than creditors, the money to finance the business comes from the suppliers.

But if stocks are high, customers expect good credit periods and suppliers won’t give you credit, your cash flow gets squeezed as the business grows.

It gets even worse if you have to increase your costs in advance to either create the growth (advertising or extra salespeople) or to service the planned growth (extra warehousing).

Growth Can Be Profitable

You can get caught in profitless, cashless growth which damages your market position but growth done the right way can be very profitable.

My advice is to do your planning upfront and challenge your assumptions so you can see what happens if things don’t work out as you hope.

It’s very easy to make growth look good on paper by making over-optimistic assumptions about extra volume and ignoring the likely actions of competitors so do some what-if tests and see where your growth plan is most vulnerable.

I regularly read the Harvard Business School blog and many of the articles are for big businesses but one inspired me to give you my own thoughts.

If you are thinking about starting a small business, see how you measure up to these three personality traits:

• Practical
• Purposeful
• Impatient

First, if you’re starting a business, you need to understand that the world is very different from being employed.

There’s no one to look after you and do the things you don’t like to do or the things you don’t know how to do unless you find someone competent to delegate to. The brutal truth is that there are plenty of jobs that must get done and you’re the person who is going to have to do them.

That’s why you must be practical.

You can’t have your head in the sky without your feet firmly planted on the floor.

Ask yourself the difficult questions you might have been avoiding and get yourself a plan.

Yes it might change.

That’s what a plan is for – to get your thinking down on paper so you can think about the implications and consequences. It also acts as a great record of what you are thinking because your ideas will change as you learn more.

The second point is to be purposeful.

This comes back to planning too.

Have a clear destination.

Clients know that I use a short quote from Chinese philosopher Confucius to them – “a man who chases two rabbits catches neither.”

It’s much better to decide which rabbit you want and focus your time, energy and money on getting it.

I believe that your big task as a new business owner is to find ways that you can create value for customers that’s different or better than your competitors.

The last trait is impatient.

I see two types of entrepreneurs.

The first is very patient and accepts that it takes time to develop a market, to make sales and especially to make money.

The second is impatient.

I prefer the second.

Focus your business on taking action and getting results.

You do need to do some thinking upfront. Otherwise, you can very quickly make expensive mistakes.

But you don’t know for sure that something is going to work until you’ve taken action and seen the response.

If it doesn’t work, check that you’re clear on the purpose and then change what you’re doing.

I like these three personality traits for starting a business. If you’d like to read the original article on the Harvard Business School blog, go to Three Traits of Successful Entrepreneurs

It’s no surprise that I am a big believer in the advantages of planning and preparing strategic plans, business plans and budgets.

It’s the process of planning and how it helps you to clarify your thoughts and see problems and weaknesses in advance which is often more important than the plan itself although it can be very valuable to capture your thoughts and assumptions in writing. Your memory can play funny tricks.

But I find that many small business owners are confused about planning and because they are confused, they either don’t do it or their plans don’t help them as much as they can.

And because they don’t plan, actions taken don’t produce the results expected.

There’s a fine balance between thinking and doing.

Too much thinking and not enough doing means that you don’t make the progress you want. I met one lady who had spent five years planning here business without ever trying to take it to market and proving the concept – and she wanted me to help her do more planning. I decided not to play.

Too much doing without thinking means that precious resources (time and money) are squandered. I’ve known plenty of people who leap into a new marketing campaign without taking 30 to 60 minutes thinking about what they want to achieve and why potential customers should take action.

There are five types of planning suitable for small businesses:

• A strategic plan – this answers the big questions about how and where you are going to compete and keeps you focused on the 3 big business risks.
• A business plan – which is written to attract resources from third parties, usually loans from a bank or equity finance from venture capitalists. The purpose of a business plan is to “sell” your business idea and provide sufficient credible proof that people want to become involved.
• A budget or annual operating plan – this is a detailed plan of action for the next year with numbers that you’ll be using to compare your business performance against.
• A project plan – a very detailed action plan to implement one particular project.
• A one-page campaign marketing plan – I really like the idea in Guerrilla marketing that you can quickly create a winning campaign by thinking through and answering a few carefully chosen questions.

Confusion happens when you mix up these five types of plan or think that one plan will serve for all five purposes.

Here are some quotes about planning which help reinforce the advantages of planning:

“Planning is bringing the future into the present so that you can do something about it now” (Alan Lakein)

“Let our advance worrying become advance thinking and planning” (Winston Churchill)

“Good fortune is what happens when opportunity meets with planning.” (Thomas Edison)

“Plans are only good intentions unless they immediately degenerate into hard work.” (Peter Drucker)

“In preparing for battle I have always found that plans are useless, but planning is indispensable.” (Dwight Eisenhower)

Planning is thinking about the future – what could be, should be, may be – and turning it into the actions which will help you to create the future you want.

Planning is the start but not the end.

Successful action must follow the planning stage so your plan needs to have your commitment.

There’s a useful acronym, SMART which helps you to create the right kind of action focused goals:

• Specific – be clear on what it is you will do and achieve
• Measurable – so you can be certain you’ve succeeded
• Achievable – your goals should stretch you but not overwhelm you.
• Relevant – to your bigger objectives
• Time bound – to create some urgency. Even with a great plan, day-to-day problems can mean you delay what it is important for you to do today.

It’s very easy to get stuck when you face a difficult decision. You can go round and around in circles in your mind, weighing up the pros and cons.

Use Zero Based Thinking To Focus Your Mind On Difficult Decisions

I learnt this technique from Brian Tracy.

It’s an effective technique to use if you are struggling to make a difficult decision or you face a dilemma.

It’s called zero based thinking. [continue reading…]