Employee medical insurance benefits often complicate things for small business owners, and that fact is unlikely to change.  Recent developments in the employee medical benefit arena offer some good news, some bad news, and some options yet to become available. 

You might be relieved to know that medical insurance premiums for small business employers have increased at a slower rate than those for large employers. Despite sharp increases across the board in 2011, rates for small business programs showed a 6% increase versus 8% for large employers.

Small businesses, on the average, sponsor programs with higher deductibles, co-pays, and less comprehensive coverage. On the other hand, small businesses pay more of the cost per employee than the larger companies do. According to the Kaiser Family Foundation, small business owners pay a surprising 85% of single person plans and 64% of family plans. Fully 35% of small businesses pay 100% of the premium for their employees although this percentage has declined steadily in recent years.

Over all, the percentage of employers offering medical insurance has continued to decline. In addition, the percentage of employees declining coverage when it is offered has increased. It would appear employees feel so pressed by the economy that they decline the cost of the benefit offered. At the same time, employers are pressed by the economy into withdrawing the offer.

The Patient Protection and Affordable Care Act takes effect fully in 2014. It will enable employees, without medical insurance at work, to purchase insurance on the open market. Theoretically, that market will prove competitive. The PPACA will protect applicants with pre-existing condition, and the market should offer a variety of options and plan prices – in time.

There are some signs that employees are risking loss by opting out of insurance now in anticipation of the protections afforded by the PPACA. And, some employers may slim down their benefit programs in advance of the Act. How this will affect premium costs is a mystery at this time. Medical insurance is still a risk pool; fewer participants increase the risk. If the employees secure their insurance – and there is no guarantee they will – outside of the employer’s group, they may or may not reduce the loss ratio experienced by the employer group.

If we assume that the insurance underwriters/companies are working forward on these issues, they will aggressively move into the 2014 market with attractive offers for uninsured workers. However, I believe they will prudently develop plans and rates attractive to employers because employers provide a filtering underwriting screen for them. Underwriters know that steadily employed workers have an edge in character, life style, and longevity.

Family businesses often happen by accident. The entrepreneur drives the start-up while the spouse and family chip in. Underpaid and overworked, these people are often willing to  sacrifice to make the dream come true.

Serendipity may bring success to a family business; however, the heads-up business owner builds practical solutions for potential family friction into the business plan.

• Identify the members of the family with potential to perform successfully within a structure. “Family” can mean a married couple, parents and children, or siblings and their spouses. In short, there are family members, and, then, there are family business members. Share that picture with the family.
• Separate family issues from business issues. Share an understanding at the very start about what you bring to the worksite and what stays at home. It may take some practice, but everyone needs to know where to discuss family baggage. Everyone needs to know what the process is to solve issues.
• Budget vacation, holiday, and personal time with the family. Keep business out of those moments. However, remember that children are competitive; the best families suffer some dysfunction. So, clarify an understanding for the handling of dependency issues, hostile behavior, and divisiveness.
• Pay fair competitive wages. If early revenues do not permit this, clarify the value of their sweat equity. Create a compensation plan that will reward their effort later – proportionate to their contribution and talent. Seek advice on framing the plan and communicate it clearly.
• Hold regular “tailgate” meetings, family retreats, or key member meetings. Let members vent simmering complaints– within reason. Approach these as learning opportunities. Collaborate and incorporate fairly offered ideas.
• Plan for succession when it makes sense and you are ready. Build cautions into the plan to discourage challenge to the plan. Communicate it well. A well-structured plan should reduce infighting.

Finally, enlist a third party coach – not a crony or other family member. Retain the advice of a specialist in family business matters to get things right from the start and to bounce things off as you succeed at your goals.

Heuristics influences marketing, management, software development, and decision-making. It contributes to algorithms and that pesky way that Amazon always “knows” what you want. This knack for cutting corners mentally to solve problems quickly and efficiently – heuristics – is one of many things that sets successful entrepreneurs apart.

Sometimes, small business owners get stuck. Worried about risk, debt, and growth, we can sometimes overthink things.

I admit that the best decisions are those made with the best information.  The better your input the less likely you are to decide poorly. Good information reduces bias and develops structure for good decision-making.

Enter heuristics. Very simply, there is value in an approach that is more rule-of-thumb than the management school process of testing a hypothesis with evidence and results. There is a real place for decision-making on a trial and error basis. Mistakes may happen, but it encourages learning, solution evaluation, and deeper understanding.

Setting this fancy talk aside, you want to respect and develop a talent for cool thinking. For example, when you are up against a seemingly large and complex problem, with no clear solution, you need a system to help you think.

1. Block out unessential information.  Someone said, “when the going gets tough, the tough relax.” Remember that “C-file” we all learned about in time management classes? I suggest that you don’t even keep such a file; just burn it. Run away; take your laptop to some place quiet. Turn off any internet access. And, work on the problem without distractions for a pre-determined period, say, 30 minutes.
2. Understand the Pareto Principle. 80% of the importance of a task comes from 20% of the work put into it. So, if you focus your energy on the critical 20%, you won’t overthink the non-critical 80%. Think of the pilot being forced to land on a river or a highway; there isn’t much training to fall back on, and there’s no time to weigh Plan A against Plan B.
3. Separate important tasks from the urgent ones.  It might be important to work out, read a good book, or have a nice lunch. But, these won’t make or break your business. Instead, determine what your personal peak productivity time is: early morning, mid-day, or even the middle of the night. Create walls around your peak productivity where you can work without bother or distraction.
4. Set up a debriefing process.  Knowing you are going to be making a difficult decision or a daring move, schedule a process where you can review and evaluate your decision, adjusting follow-through or implementing remedies.
5. Take aim and fire.  Think simple, and you will do a good enough job of solving enough problems. Move past indecision and take action. Visualize the result. Imagine yourself crossing the finish line. Clarify the problem in one sentence, and take a shot at fixing it. Jot things down, draw a picture, and make course corrections. Be ready to figure out things as you go along.

Imagine you need to move a product cross country despite a transit strike, inclement weather, and a three-day holiday. Think in a straight line until you hit a barrier. Move right until you can see a way forward. Go forward until you hit the next barrier, and continue as before. Eventually, you will see yourself at the end of your plan.

This is the second in a series devoted to building business on value and redesigning your business to maximize customer perceived value.

Small business succeeds when it – consciously or unconsciously – provides customer perceived value. This begins with a new understanding of customer loyalty.

Customer loyalty may be the most misunderstood value in commerce. The US economy grew in the ‘50s on the unspoken marketing concept of “built-in obsolescence,” the presumption that, because customers were repeat buyers, their loyalty would keep them buying brand. Quality, not surprisingly, stole these “loyal” customers away from American manufacturers in the ‘70s and thereafter.

Now that American businesses have learned the value of quality – a reasonable demand of local and global customers – we are winning back markets thought lost. American designs, programming, engineers, and craftspeople have regained dominance in automotive, aerospace, and technology.

Small businesses, on the other hand, have always understood and depended on the values of buying local and customer service. Given small business volume, a lost customer is not just “a drop in the bucket.”

• Small business must move away from so-called “customer loyalty” that is really just reluctant allegiance. For example, every Christmas, a dry cleaner I know, bless him, gives out lint brushes. In his mind, he is repaying customers for their loyalty. But, it isn’t the lint brush that keeps them coming back; it is the convenience of the store’s location and the geniality of the counter person. Open another dry cleaner across the street and cut the price by $1.OO per shirt, and he will be overstocked with lint brushes.
• Small business has to learn that customers don’t like having no choice in the matter. They do not like having their loyalty monopolized. This is what tears at the fabric of small town businesses as customers flee to improved perceived value at the newly big box stores. Customers are fickle and whimsical, but they will stick with you if your perceived value gives them a choice. They are able and ready to compute the cost of travel away from town to save a few cents, but if you can’t offer an offsetting experience, they will one-stop shop.
• Small business rewards only matter so much. Big businesses can lure and harness customers with rewards programs. But, studies show this link is tenuous at best. For example, United Airlines’ frequent flyer points are nowhere near to turning people away from the perceived value in flying Southwest. A flyer may keep his/her United frequent flyer plan open because the boss pays for the flights or because United goes to some places that Southwest does not, but all things considered, Southwest has the edge in value – and an attractive travel incentive plan to  boot.
• Small business needs to learn that customer loyalty is not a tangible asset. You cannot trade on it even though it may figure into the price of your goodwill. You are missing the point of loyalty and corrupting the principle if you think of loyalty as leverage, as customer ownership. A goal – not a strategy – loyalty is driven by total customer experience.

When businesses learn to drive this total customer experience – and to price it accordingly, they will define their future success. If they fail to do so – and do so soon, they’ll wonder what they missed.

The right Small Business Coach can challenge you to set and achieve bigger goals in 2012, while helping you navigate the obstacles.  Know what you are looking for in order to choose the best candidate.  Read on for some practical advice for choosing the right candidate:

Let’s start with what you don’t need in a Small Business Coach:

• Nice is not a virtue. You want someone to hold you to high expectations. If you think you are a good manager, then, you probably have a skill in holding employees to performance accountability. You will best benefit from the advice of someone who practices the same demands. Expect to be pressed to the edge of your comfort zone.
• Expertise is not a priority. You need someone who is a good coach. What you need is cross-disciplinary skills: communication, planning, training, etc. These are valuable transferable skills that help you see the short and long-term.
• Avoid a therapist. Don’t pay someone just to listen to you and all your problems. Look for someone who will turn your path around. You need someone focused on action, plans, and deliverables. You don’t have the time for the coach to worry about your feelings.

So, what do you need?

• Someone you can afford. Bargain basement coaching is not worth the money. It will cost you time and money, and some outcomes may require additional investment. So, you need to be at a point where all this makes sense: the need, the expectations, and the price. Shop available coaches; seek word of mouth; look for referrals. It’s a big decision, and deserves focused investigation.
• Someone you can listen to. Coaching is partly a matter of style. If – and only if – you are ready to take a close look at what you are doing, you need to find someone with the rapport you need to take a few hits. You are paying to be told things you may not want to hear, to get tough about what you have been doing, and to push your face into some bad decisions you may have made. For this to work, you need someone you can work with.
• Someone with a plan. Demand a schedule and agenda in writing in advance. Expect the coach candidate to demonstrate goal-setting and effective planning. Ask to see models and samples of what the coach has done for other clients, and make him/her connect the dots between plan and results. Ask the candidate to introduce you to previous clients with your intent to seek their story of the relationship. And, be sure you talk to more than just one.
• Someone who knows what you don’t know. Remember, you are looking for someone to bring something new to you. Much of this should be in the form of plans and direction. But, you also want insights, product knowledge, marketing strengths, and fresh perceptions about your business. I am reluctant, for example, to recommend a coach who claims to be “all things to all people.” You’d be better off with someone experienced in your line or business or business sector.

A final caution is that you do want to see the track record or credentials of a coach who does this for a living. I am reluctant to recommend the coach who is an out of work MBA. Interview candidates with their experience in mind.

Running any business is tough enough, but involving family members can make it even more challenging.   Unfortunately, if family members are drawn in, you greatly increase your risk of failure when you don’t handle it correctly.  Here are a few tips to help you successfully navigate those challenges…

I know of many successful family-run businesses. But, such enterprises have their own set of problems, and success only follows solid management.

• For starters, don’t let a family business happen by accident. As often as not, the business starts; then, you call in your spouse to do the accounting, and/or recruit the children to work on weekends or fill in at the counter or phones. Once you have envisioned your business, decide then and there whether this is going to be family based or not. Then, structure it accordingly.
• Imagine a table of organization with job descriptions. Start to formalize the descriptions with skills, knowledge, and experience. Then, decide which relatives could best serve in those roles. Frankly, you have no obligation to include all members of the family, and this would be a first step in strong management. If your brother-in-law or nephew fits your needs, great; if they do not, you might explain what it is you need and what they need to do to fit your needs. But, you have no obligation to please.
• Form a mission statement. It is your job to keep “your eye on the prize.” Call the family together to share your vision. Invite them to help you with the mission statement, but let them know there job is to defer to your leadership. In doing this, draw a simple but firm chain of command and line of authority. You can do this with authority and still maintain the family magic.
• Confirm how disputes will be handled. Friction occurs among people in any business. Somehow, families make it more intense and longer lasting. In a regular business, the manager can resolve conflicts with authority; in family businesses, dysfunction and grudges can ruin things. With a family business, family matters require different handling.
• Take care of this as much as possible up front. Well before, you “open the doors,” let the family know this is a real concern of yours, and solicit input on structured solutions. Let this happen over several planned meetings, so they appreciate the weight of the problem. And, put as much of this as possible into writing. Let these meetings be the first of regular family meetings.
• Include tough subjects in these early meetings. Present and discuss your succession plan and sharing “the wealth” of sweat equity. These plans can and should evolve with time and experience, but everyone should know where your head is at from the beginning. Of course, these plans are best formed and maintained if you have legitimately secured and integrated the family’s input.
• Finally, formalize a system for conflict resolution. The family can survive arguments over Aunt Sally’s gruffness. But, workloads and salary discrepancies are another matter. Structure a “court” for discussion and resolve, and secure allegiance to the policy and procedure.

Communicating your mission, dreams, and plans early, often, and with reasonably democratic participation goes far towards building the substructure you need for continuity.

Ever tried to define the value that you offer your customers?  A price is the dollar sign on a product, the tag on the item for sale, but that is not the same as value.  I’ve been mulling this over lately, and wanted to share some of my thoughts.  While this post is somewhat of a textbook discussion, it lays important groundwork for additional posts. 

Pricing of products and services has traditionally been cost-based, determined by adding a desired profit to a cost determined by cost analysis. That is, the seller/vendor figures out what the product cost is in terms of parts, materials, labor, sales/marketing, packaging, shipping, etc. Then, s/he added the desired profit margin, say 25-35%. Or, the lawyer/doctor/consultant charges hourly fees in an attempt to place an arbitrary price on a service that portends to cover operating costs plus the alleged value on professionalism.

The cost methods are not value based because they don’t clearly and unambiguously determine what value means to the customer.

In traditional costing, the attitude has been: “here’s the price; take it or leave it.” Small businesses hanging onto this tradition may not be serving their customers well – and are leaving money on the table. The tradition does not understand that a customer’s opinion of a product’s value determines the value to him or her. This value differs from the market price which has typically determined by competition and accessibility.  

I find that customers buy from the source that offers the highest perceived value; i.e., “the difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives.  Customer perceived value is the exchange a customer would be willing to make before dropping down to the next offer.”

Small business customers do not place the same value on three martini lunches, big promotional items, or glossy marketing efforts. Frankly, they do not care what you paid for the item or how the economic crunch is hurting you.

Customers are more interested in the following:

• Overall, do you convey an image that respects your own self-image?
• Do you communicate frequently and with a caring attitude?
• Are your services offered on a timely and dependable basis?
• Are you available and responsive?
• Can your customer expect fairness and accountability from you?
• Is your work efficient and effective?
• Do customers feel they have learned something about the services/product and about what you have brought to the party?
• Do customers feel they have done the right thing – and that you have done right by them?

Notice that these are criteria separate and distinct from market values. For example, I knew a newly hired marketing manager at a manufacturer who promised to secure customer loyalty by delivering product as soon as possible. Trouble is most of the customers did not want the product until a specific later date because they did not have storage room. So, in this case, prompt delivery was not a value to the customer.

Small businesses can do better if they realize that loyalty is a strategy and not a tactic. Loyalty is not to be presumed. Target loyalty as a goal worth securing and developing – rather than as something you can bank on.

How you move from cost pricing to value-based pricing may be difficult. You may be turning around a big ship. And, the move may be more treacherous in some lines of work than others. I believe there is profit in making the move sooner than later, but here is the big question:  How do we clearly and succinctly identify what it is that our clients value? Stay tuned…

Optimism about the economy is on the upswing, according to recent surveys.  Big indexes are reading well – with high holiday sales, record cyber sales, and reduced unemployment. But, really – just how do small business owners feel?

A recent survey of small business owners’ problems and priorities conducted by the National Federation of Independent Businesses (NFIB) reports some good news. Attitudes about the future have improved, and priority concerns have changed.

There is a certain conservative element to small business futures. And, I think if you allow for that, there is a measurable sense of optimism about the coming months. For example, 14% of small businesses report having job openings and 3% expect to increase hiring. In addition, 21% plan on making capital outlays, and 7% feel it is a good climate in which to expand. The numbers may seem low, but they are increases over the past month.

There are continuing negative concerns about credit conditions, earnings trends, and overall economic improvement. However, these indexes reflect improvements over previous months.

The survey shows that financing and credit sources remain the #1 business problem. In October, reporting showed only 9 % felt all their credit needs were satisfied, and 11% found loans were harder to get. Of those surveyed, 26% report poor sales as their top concern. The optimism here is in the fact that, in most of these metrics, there has been cautious improvement.

I thought it might be interesting to look at the problems that rank among the lowest in the 75 measures of concern in the survey:

66. Competition from imported products is less a problem than it had been. This sense of balance is supported by recent reports on US trade balance.

67. Credit Rating does not seem to be a problem, suggesting that the owners have a confidence about their stability.

69. Competition from Internet Businesses is not the concern it was, admitting that, while there is competition, owners are more confident about their ability to manage it.

70. Undocumented Workers do not present the problem they did because employers are getting better at meeting their recruiting and documentation obligations.

71. Winning Contracts from Federal/State/Local Governments is a low concern, either because the businesses choose not to compete in such markets or because they have gotten better at the process.

72. Obtaining Short-Term (Less than 12 Months or Revolving) Business Loans is very low in the priority index because such loans are easily secured.

73. Obtaining Long-Term (5 Years or More) Business Loans is surprisingly low in the index and may indicate that owners have likely despaired of such financing sources.

Small businesses will feel economic recovery first. I am banking on the fact that their optimism is likely to be cautious and reserved. If I’m right, their measured optimism will underestimate the force of the recovery.

Are dependable employees myth or legend?  Small business owners tell me that they are desperate for dependable employees. And while I’m sure they are hurting for reliable and accountable workers, I sometimes find that part of the problem is confusion in the employer’s expectations, and the other part arises from their failure to structure their hiring interview to these needs. 

Employers look for personal chemistry and, in so doing, miss clues to specific behaviors. They would be smarter to structure the interview around specific desired behaviors. For example, dependability should not be a generalized characteristic. It should be a virtue defined by specific behaviors.  

Dependability is a measure of things that the boss wants to depend on. Employers need employee support in their business process. They need people to show up and be on time. They need workers who respond to customers’ questions and complaints on a timely basis. They look for new hires that are willing to work on teams and go the extra mile. These are all measurable behaviors for which you can structure interview questions.

 Make your list of dependability behaviors:

• Completes assignments as scheduled
• Arrives at meetings or events on time.
• Completes reports to teammates and superiors on time.
• Follows business’s rules and regulations.
• Solves customer problems on time.
• Willingly takes on work when peers are overloaded.

If dependability is delivering on promises, an interviewing employer may want to ask:

• People miss work from time to time. What would you say are good reasons to miss work?
• What would you say is satisfactory attendance at work – 75%, 90% or 100%? How many days work did you miss last year?
• Tell me about a time when you accepted responsibility for a problem at work.
• Describe the reaction of your coworkers when someone is late for work.
• Give me an example of how you prioritize things.
• We expect employees to keep in touch with customers. How frequently would you make contact to keep customers satisfied?
• Only 4 employees showed up when 6 were on the schedule. How would you handle this?
• Suppose you woke up and heard the weather and traffic are bad. How would you react?
• Many things happen in our personal lives. Just what would affect your dependability at work?
• What happens if your car doesn’t start?
• How do you handle a customer problem if the call comes as you are leaving for lunch?

These are all questions you can ask in a qualifying phone interview. If you want to save them for a face-to-face interview, stick to your plan. These questions won’t take more than five of the minutes you allocated for the meeting. Structure the questions, make your list, and take notes. If nothing else, the job candidate will walk away with a sense of how important dependability is to you.

Creating loyalty doesn’t have to be difficult. It just takes good common sense. But. it also requires you to build a culture of service – at your virtual and real world sales counter.

We all know great customer service when we see it. When quality customer service is what brings them back for more (isn’t that what loyalty is?), why is it so hard for small business owners to pull it off?  try these tips to start building loyalty among your own customers and clients:

• Clean your windows! Be very aware of what your customers see from the street. Post clear, attractive, and inviting signage. Keep it neat and professional. Seasonal and whimsical can be appropriate, but keep it simple, so your identity is not lost. This applies to the front of your online business. Put emphasis on accessibility, ease of navigation, and welcoming design. Remember, website appearance must be an integration of visual design and search functionality. Pretty is a side-benefit and not a goal.
• Put your best face forward! Stop cleaning up after staffs who don’t meet your customers’ needs. Hire people-forward people, employees are keen on stepping forward, cracking a smile, and shaking a hand. Before you put them on the floor, make sure they know your key customers by appearance, name, and need. If you don’t physically meet your online customers, make sure your picture and those of your customer friendly staff are on the website. Encourage your customers to connect through Skype or Google+; it’s meaningful to put face and service together.  Make sure your employees know that customer loyalty helps pay their salaries.
• Keep them surprised and guessing! Think outside the usual seasonal and business cycle calendar. Hit them with a deal they weren’t expecting, an unexpected sale, or an email only discount. Take advantages of those slow times of the year to bring people back though social media and Groupon sort of discounts. Tie a deal to a referral or a customer anniversary. Surprise customer engaged employees, too; handout good service cash certificates, but do it sparingly and with some ceremony.
• Build a better mousetrap! To build customer interest in and employee support for a new product or service, structure their early involvement. Invite them to collaborate in the design, development, and delivery of a new product or service. Lay it out early what can or could go wrong, and seek input on quality improvement and service response. Give them a discount for their assistance and secure a partner for life.
• Under-promise and over-deliver! Keep and meet your deadlines. Structure your business to around delivery. Delivery built southwest Airlines, FedEx, and Amazon. This model makes a promise, meets its promised deadline, and keeps customers current on the process. They also hold their suppliers and vendors accountable for their part of the process. Maximize email, phones, and video conferencing in a scheduled structured strategy that communicates and engages.

Finally, be prepared to make it right when service fails. If you have built your business well, you can keep customers even when things go wrong. But, if they have bought into your culture, refunds are not enough. Make the mistake right and throw in a spiff, such as a gift or additional service. Whether you are selling coffee, books, or marketing advice, you have something the customer wants and needs.  It’s part of what builds customer loyalty.  It’s your job to make that multi-dimensional.