Heal Thyself Small Business and In-Turn Heal This Econonomy - What Small biz & Start-ups Can Do to Prevail Again and Rescue Our Economy

It is no secret (except to folks in Washington DC) that it is small businesses who have led us out of every recession in our history (50% of all jobs and 65% of new jobs). While large corporations hoard money for acquisitions and to invest in innovative technologies to replace humans (because they can afford to) it is the small business owner who judges the horizon and takes the risk to hire talent to grow. Likewise it is the entrepreneur who decides to invest his/her life savings and those of family and friends for a start-up idea or franchise ownership. This is where new jobs are formed. And this is how rampant national under-employment or unemployment issues get resolved.

A rather startling bit of historic news broke a few years ago about startups in America. In 2008, emerging startups for the first time in history trailed business failures. That means more business are failing now than are new businesses entering the market to take up the slack in jobs. 

Some great insight into this trend can be found in this article by Jim Clifton, Chairman and CEO of Gallup. He had a quote in the article that truly captures the challenge we face in America.

"Let's get one thing clear: This economy is never truly coming back unless we reverse the birth and death trends of American (SMB) businesses." 

My intent here in this two-part article is to candidly address these two topics (the birth and death trends of SMBs). I will share a perspective - why and how to improve - that comes from 14 years of consulting for privately held businesses and advising/mentoring startups.

Part 1 - Why are they failing?

To fix the problem we have to understand the problem. Let’s first discuss business failure rates. According to the Small Business Administration, a business started in 2004 has a 48% chance of still being around today - half are gone. The number-one reason businesses fail is rather obvious - they flat run out of money. But how does this occur?

Try these reasons (compiled research of Moya K. Mason, “What causes small businesses to fail.”) :

• Choosing a business that isn't very profitable.
• Inadequate cash reserves.
• Failure to clearly define and understand your market, your customers, and your customers' buying habits.
• Failure to price your product or service correctly.
• Failure to adequately anticipate cash flow.
• Failure to anticipate or react to competition, technology, or other changes in the marketplace.
• Overgeneralization - be everything to everyone.
• Overdependence on a single customer or customer set.
• Uncontrolled growth.
• Believing you can do everything yourself.
• Putting up with inadequate management.

This list is very comprehensive and accurately captures what I have observed. Sadly, these are all preventable, everyone of these causes are, if only business owners would follow the very basic business rules - the very first of which is have a plan, or in the case of a startup, write a business plan (before you launch).

A war is being waged against business/strategic plans.

There are folks out there, especially in the start-up world, who are advocating that business planning is outdated. Here is an entry from one such “expert” who titled his blog, “Why you Should Ditch Annual Business Plans” 

"Business planning is broken. In a world that is constantly changing and increasingly complex, business leaders can’t plan for a predicted future anymore. By the time an annual business plan is ratified the market has moved on to places that nobody could have imagined. If businesses are unable keep up with changing customer needs they stagnate or decline.

Leaders need to abandon traditional business planning and embrace the creative process instead. Business plans should look more like sketchbooks than spreadsheets. What do sketchbooks do? They help artists unlock ideas, to experiment and learn, to stretch boundaries, and to build talent. Artists take their best ideas from sketchbooks and use them to create their best work.

Businesses should operate as a similar collection of experiments. The testing and refining of new growth ideas ensures a constant connection with a changing customer base. Aggressive growth happens when leaders are able to continuously shift investment to those ideas that show the most promise." 

His contention, like so many taking this position, is that the marketplace is changing SO rapidly it is just not possible to plan. He is also suggesting the best and most respected business owner (CEO) is the one who stands up in front of his/her employees with his sketch book of ideas on where he is taking the business. Do you want to follow this leader? This is all utter BS and this mindset explains in part the sad failure rates for start-ups and established businesses alike.

Let’s look at the very basic elements of a business/strategic plan:

• What basic human problem am I solving?

• Is my solution unique?

• Do people want to buy my solutions? What is my proof?

• How big is the marketplace that I am selling to?

• Who are the competitors/trends I should pay attention to?

• What skills/people do I need on-hand to sell and deliver my solution?

• How many widgets will I have to sell to cover costs and be cash-positive?

• How long can I operate with cash on hand?

If you look at these 8 basic questions and compare them to the reasons for failing you have to wonder why business owners fight this basic step of business. I‘ve heard a few excuses over the years and share them here.

“While poor management is cited most frequently as the reason businesses fail, inadequate or ill-timed financing is a close second.”

Because of this, some (especially politicians) will immediately point their finger at our banks and other financing institutions and blame them for this problem. “If they would only loan more we would solve this problem.”, they will claim. There are even those suggesting the criteria for loans guaranteed by the Small Business Administration should be lowered to “untie the hands” of the banks.

STOP!

Asking banks and our government to assume larger risks is not the answer. While it is unimaginable to find the CEO of Coke, Facebook, Home Depot or Uber unable to intelligently discuss forecast sales, cash flow, profits, trends that may impact their market, the competition they face and long-range growth strategies, these types of conversations with SMB’s and startups are dubious at best. So to suggest easier access to US government-backed loans is crazy talk. Let’s not make this mistake again. We’ve seen and felt what happens when our banks and government invest in speculation (Solyndra).

Heal thyself American business owners and save our economy (play the Battle Hymn of the Republic now).

America needs you, small and medium sized business owners. We need you more than ever! There is nothing Congress, or the President can do that will have a more dramatic impact on our economy and jobs than you can by dismissing those who irresponsibly suggest there are shortcuts to success in business. Or those suggesting you can Tweet, or social media, or robo-call your way to growth. Dismiss the notion that simply having an idea and ambition is all that is necessary to launch a start-up. I implore you to help heal our economy by healing your businesses. Become a disciple for businesses owners around you by first following the basic tenets of a growing business - have a plan, execute to the plan. Inspire your workforce with a vision of the future and a realistic written growth path. Show you can lead. Show you can set goals and achieve them on a recurring basis. Show you can be a responsible steward of someone else’s money (a bank for instance) by repeatedly making prudent, plan-based decisions on hiring, marketing, capital equipment and services. Let your profitable sales win-rate reveal how well you know your customer and respect your competitors. And finally, surround yourself with smart, critical thinkers who will not shy away from challenging you or telling you what you need to hear. 

If you do these things you will do more to transform your business, the lives of your employees, and our national economy than any new President, Congress or trade deal could ever dream of doing.

And my message to Washington DC - get the heck out of the way!

Part 2 will examine the second issue facing America - the declining birth trends of SMBs.  

About the author:  Mike Gomez is the President and CEO of Allegro Consulting, a business growth specialty firm in Atlanta, Georgia helping privately held business owners find new avenues for sustained growth for over 14 years. He is a start-up mentor at ATL Tech Village and Four Athens Tech Incubator, guest lecturer at GaTech and UGA, and prolific business speaker.  His growth focused articles have appeared in the Atlanta Journal Constitution, ATL Business Chronicle, Gwinnett Business Journal, and the Business Insider. www.allegroconsultant.com

3 Things That Will Surprise You - Entering the U.S. Market

When consulting for international companies expanding into the U.S. market I’ve picked up on a few common issues that consistently catch the leaders off guard. “I had no idea ….” is how they typically started the conversation.
Let me share the top three:

1) I had no idea that it would take so long to establish a presence here (in the U.S.).

“It seemed to take forever to do all the mundane tasks necessary to get established,” said one client. “What made it worse was the home office had no comprehension of the time or effort it took to get the company up and running. Once they saw I had an internet connection they assumed we were in business and immediately began assigning tasks and planning visits. I had to tell them to STOP!”

Establishing banking credit, securing transportation, making living arrangements, turning on utilities, selecting an office location, furnishing that office, securing a phone and internet service, establishing the proper legal framework and setting up the bookkeeping is time consuming and can be overwhelming especially in a foreign land. Don’t underestimate the amount of time and resources this can demand. And be wary of the business vultures who will prey on your lack of local knowledge. Rethink the traditional start-up model. Leasing temporary furnished and supported office space while you get your bearings can be a prudent alternative and save a lot of the early headaches.

2) I had no idea how geographically large the United States really is.

A client shared this story, “….and after our meeting in Los Angeles we can drive to San Francisco and meet with our customer there before flying back home.” Upon telling the San Francisco client his plan he was embarrassed to discover it can take anywhere from 7-9 hours to drive that distance. Needless to say he had to plan for an additional overnight stay.

The good news is the United States is a large market. The bad news is it is a really large land mass and as such takes an unexpected amount of time and travel budget to get around. For example, the entire country of Germany is slightly smaller than the state of Montana. Spain is twice the size of Oregon. Japan is slightly smaller than California and Israel is almost but not quite the size of New Jersey. You can be certain the shear size of the United States will impact your sales, marketing, and logistics strategy more than you might have first anticipated. Keep this in mind when selecting a site to launch your U.S. endeavor. Being near a major U.S. airport can make life a lot easier for you and your traveling employees.

3) I had no idea that the sales cycle will take this long.

Though I hear this comment quite a bit I doubt this is unique to the United States. I think this would be the case for any foreign small or mid-sized business (lacking name recognition) entering a new market. It seems that no matter how hard you work to get a response to an email, a request for an appointment, a proposal, or a selection decision it always seems to take twice as long as you remember it taking at home.

A client recalled that even after multiple visits she was stunned to hear, “who are you again?” from a business she was calling. Partnering with established U.S. companies can speed this process. Leveraging a well connected business network is also an effective strategy to move you to the front of the line.

Prudent, conservative business decisions accompanied by a well vetted local sales and operational strategy makes the difference between success and failure – even in the lucrative and vast U.S. market. Delaying major expenses such as permanent office space until you become more familiar with your surroundings and daily routines is also a wise move. And finally, leveraging partnerships and a good business network can open the right doors and accelerate the sales cycle immensely.

Welcome to the United States of America.

Are things going as well as you thought? Want some unbiased, experienced inputs to your current strategy and sales plan.  We'd be glad to help.  Contact us here.  The first coffee is on us.

About the author:
Mike Gomez is he founder of Allegro Consulting, a growth specialty consulting firm located in Atlanta, GA.  Allegro helps business to define and implement new growth strategies. Mike has worked in over 20 countries and has an accumulated sale record of $10B.