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

NOT ONE DIME MORE UNTIL …. A message from a small business owner to the administration and Congress.

Like many of you business owners, I too recently completed my taxes and cringed at how much of my money is going to Washington DC.  Mind you, I don’t mind paying taxes.  I understand there are roles the federal government has a constitutional obligation to perform (defense, regulate commerce, regulate immigration, coin money, etc…) and as a “customer” of these services it is my duty to help fund them.  I also understand the federal government is not a private company and thus by it’s sheer size cannot behave like one.  Despite this I think it is reasonable to expect they will strive to adhere to common prudent business practices.  The top three as a I see it are: (1) be fiscally conservative and sound (solid balance sheet), (2) be good stewards of the funds they receive from tax payers by searching for ways to remain lean and efficient and avoid waste, and (3) never lose sight of who your customer is and try your best to meet or exceed their expectations.

The recently publicized lavish ($822,000) Vegas trip taken by GSA (government) employees was a gross violation of trust.  Add to this the $523,000,000 dollar federally backed loan given to now bankrupt solar start-up, Solyndra, one has to wonder if there is a business person among them in charge. 

Causing further angst is the latest chant from Washington “we cannot solve our current fiscal crisis with spending cuts alone”.  However it is worded you know this is political speak for - new taxes have to be raised. The conversation then immediately proceeds to who should pay and how much. Here is where I want to stand-up and yell, “STOP!” 

When a business is forecast to have red ink on their balance sheet and they know their customer will be extremely sensitive to any price increase they focus first internally to find a solution.  They start by tackling internal waste. Then they ferret out and eliminate “nice to have” versus “must have” spending. And lastly and most regrettably a company will look at their people – evaluating and cutting layers of management and staff – learning how to do the same with fewer.  It is only after they completely exhausted these stressful steps do they come humbly to their customer and make the case for raising prices.  This is a process that has been taking place and continues to take place in businesses large and small since the very first business opened its doors.

It is time we ask our federal government to do the same thing.  That before nonchalantly asking us, their customer, for one dime more we must insist they exhaust every means to internally bring down their operating budget now.

Let your voices be heard America and tell the folks in DC …..

Not one dime more until each of the 15 cabinet departments (Treasury, Defense, etc…) and the multitude of their subordinate agencies (see entire list here) completes a thorough review and cut of wasteful spending.

Not one dime more until these same agencies candidly review the necessity of all discretionary and operational spending. In a time of fiscal crisis if it is not an absolute “must have” then they should learn to live without it.

Not one dime more until each and every agency conducts a thorough review of management layers, administrative staff and the workforce.  Most companies have to deal with this at some stage in their lives.  The federal government is no different.  A high national unemployment figure is not sufficient rationale for skipping this step.  The goal is an ultra lean organization void of perks.

And finally, not one dime more until Congress reviews every single appropriation ($3,769,000,000,000). Are these “must have” spending or “nice to have”?  I would argue that in the fiscal climate we are in today a $500 million loan to a solar start-up is not a “must have”.

I realize these are painful, difficult steps that will have personal and political ramifications.  Politicians will have to let pet projects and agencies die. Those who remain will have to learn to do more with a lot less. Businesses and State governments have to weather these storms when they are in crisis, our federal government should do the same.

When the spending is actually cut and the excess people let go our legislative and executive branch leadership should report to their customers (tax payers) on the outcome and new state of the federal balance sheet.  Then, and only then should they be allowed to start the debate about how much and who should cover the remaining deficit.  But not one more dime until this is done.

Let’s put an immediate stop to any conversation of tax increases and compel our leadership to prove they can for once do the tough part of cutting waste, non value-added spending, and staff now – not in 2016 or 2020 - NOW! Not one more dime until then.

Let your voice be heard. Call/write your representative, those who are running for office and those who seek reelection, not one dime more until....

About the author. Mike Gomez is President of Allegro Consulting, a growth specialty firm helping turnaround businesses wrestling with stagnant growth. He grew his very first client’s business from $8M to $35M in just two years. Mike is also a prolific speaker, writer, three-time marathoner, a former military officer and pilot of both aircraft and helicopters. www.allegroconsultant.com

How to Grow Your Business in a Challenging Economy

I attended a seminar with this title - curious as to what the speaker would say here that is any different than how one advises a business owner on growing a business in a "normal" economy (if there is such a thing). Well, as it turned out the seminar was more of a sales pitch for a couple of company's services, and as such, a complete waste of my time. I should have known this - by the title alone.

The fact of the matter is the economy has no bearing whatsoever on the processes used to consistently grow a company. It may affect the strength of the growth but not "how" growth is achieved. A challenging economy will also magnify the impact of not following fundamental business processes when planning for growth. Incorrectly assessing your company's strengths and weaknesses or the opportunities and threats in a good economy can hurt you - but in a tougher setting can bring you down to your knees. That is why it is always wise to have someone challenge your assumptions and make certain you don't drink your own bathwater when creating your strategy for growth.

Good economy or bad the fundamentals of achieving growth remain the same. It starts with a sound plan.

Does your company have a written strategic plan? My informal poll says the answer is most likely "no". Ugh!

More on this topic later.

More information can be found at my
website: AllegroConsultant.com

Have a great day.