Before the Business Plan:  For those of you that know me, you know that I’m a firm believer in making sure you have a marketable product or service long before you start your business plan.  So for those of you who already know there is a demand for your product and/or service, please sharpen your pencil.   Determine your purpose, and identify your target audience. Then, write, write, and re-write.

Unless you are trying to secure millions in venture capital, you can do it on your own with a considerable level of comfort if you remember a few things.  It’s not necessary to trust your Business Plan to an online template, so keep the following in mind:

• On-line or textbook templates are cookie cutter devices and, therefore, descriptive at best, a jack-of-all-trades and master of none. There simply is no master plan.
• One plan does not suit every need or audience. For example, I am a big advocate of sharing your small business’ plans with your partners, officers, and staff. Such transparency is a proven link to success. But, I think you need a more private plan that self-accesses, forecasts, and self-corrects. The language of the former plan, for example, would be motivational, but the language of the latter would include more specific and current data.
• Not every plan tries to raise money. Some sell product or service, and others solicit business alliances. If you plan is meant to position your product, the stress is going to be on performance, markets, and competition. If your plan is to form alliances with like businesses or complementary services, you want to stress all the elements that you and the solicited partner bring to the table and its future.
• Seeking funds and investors requires its own form. When applying for loans or capital, you need to provide data, experience, and forecasting. It requires appended records, incenses, contracts, etc. Still, I find many such plans to be unoriginal, ineffectively standardized, and overwritten.

Accept templates for what they are: descriptions of what goes where. Avoid templates or lessons that encourage you to fill in the blanks. Try to position yourself as the lender. Typically, a committee makes the lender’s decision, and the committee pretty much thinks it has seen it all. In fact, it has seen every template that MS Word offers.

The Plan is a leave-behind. As such, it should be very neat and clean, and it would be worth the buck to get designer advice on laying out your plan: margins, type size and style, logo/color, and data displays.

It’s my policy to keep the language at a minimum. Clarity, logic, and specifics match lender needs and mind-set. Avoid contractions, first and second person pronouns, and passive voice. Pay for support and coaching in preparing the covering letter and introduction. You may need the help in creating the first impression.

Some lending opportunities require a verbal or visual presentation. Do not confuse these needs with the business plan itself. They serve different purposes. For example, the live presentation offers you the chance to present yourself, your energy, and business savvy. Do not burden the presentation with the data and research that the plan includes.

Of the many advisors out there, I would suggest a review of the following sites for additional perspectives and tips: the Small Business Administration roadmap, a simple approach by Entrepreneur, and a detailed presentation by VetBiz/gov.

If we are going to make room for small business ambition, strategy, value, and success in the future, we have to find a new vocabulary - not to mention a new lens with which to view the world.  Try these different perspectives on for size…

Downside:  Unemployment will hover around 9%.

Upside:  Unemployment is not likely to increase until returning military are processed into the workforce. However, this represents a real plus if you see this as a pool of dependable, accountable employees. Form an alliance now with the designated veterans’ rep at your local unemployment office. Meet with him/her and make clear what you are looking for in terms of character and skills set. This will prove an invaluable partnership.

Downside:  Inflation will increase slightly.

Upside:  Inflation reduces the impact of debt. More important, it is a sign of the availability of money. You need to position yourself to land the part of that money that is discretionary spending. With fuel prices declining or at least returning to 2010 levels, you have cash flow you didn’t have throughout 2011. Plan now to make use of it.

Downside:  Housing starts are still down and repossessions have not bottomed out.

Upside:  Construction has resumed on unfinished developments in many places, and many cities are seeing an uptick in denser residential development and delayed retail construction. These are all signs that someone has faith in the direction of the economy.

Downside:  2012 is an election year.

Upside:  Issues of importance to small business owners and to your customers will be argued 24/7. Efforts will likely be made to please the middle class, but nothing material is likely to take effect until after the next inauguration. If the payroll tax break is extended, small businesses are likely to benefit directly.

Downside:  World economies will remain volatile.

Upside:  Economies in Greece, Italy, Spain, etc. are worrisome. Hysterics in their markets affect investments in ours. Nonetheless, American markets remain relatively steady and consistent. Inflation in China and political unrest in Russia favor US currency, and emerging Middle Eastern nations are creating potentially loyal markets.

Downside:  “Quality” is not the buzzword it once was.

Upside:  Quality has become a given in US manufacturing, and global markets demand it. But, as Time Magazine reported recently, perceived value is the deal breaker. US software, pharmaceuticals, aviation, and other manufacturing sectors are succeeding in new ways. I’d like to believe this is the tip of a resurgence.

Downside:  Small business owners remain discouraged.

Upside:  Their level of discouragement has dropped, and their pessimism has lessened in key indexes, such as accessibility of funding, capital investment, and expansion of labor force.

This may not be a terribly optimistic view of 2012, but it marks positive steps. In most sizable cities, the major bank hosts a yearly event in which an economic expert paints a picture of the coming year. Make sure you get an invite or pick up the report. It can provide strong and layered direction for your 2012 planning.

As the end of the 1^st quarter approaches, it’s time to use your small business outcomes to draw your benchmarks for the rest of your business year. Is your small business where you thought it would be?  Where you want to be?

If you’ll indulge me, I’d like to share a few statistics as a basis for further discussion.  SMB Perspectives found the small business owners surveyed had settled nicely into a statistical curve. About 45% were worried about keeping their customers, 20% are worried about local competitors, and almost 30% are basically worried about staying in business. Most had hired employees in the past year, but few planned to hire this year, hoping to keep their employees in place. Starting 2012, 40% were optimistic, 30% were neutral, and 25+% were pessimistic about succeeding this year.

This sort of stodgy centered statistic tells me things are sluggish at best, but interestingly, it does not necessarily reflect my experience. For starters, this survey calls a business “small” if it has less than 500 employees and $25 million in revenues. These business execs say they are worried about meddling from Washington and uncertainty about the impact of election year politics and policies.

But, employers of this size are not the real job builders. The small business owner who works from home through sub-contractors, the construction company with 200 employees, the medial practice with 25 employees, and so on, are the ones who tell me they are committed to securing and building on their 2011 gains. They are going to spend time and money on customer retention and market building. They expect these moves to require more focus on product offering, tech needs, and staffing to make, sell, and delver.

This trust in the status quo restrains spending, and if small business creates jobs, it sparks the rest of the economy with its risk taking. If your forward motion is on hold this quarter, it is not a good sign. Now, there are some valid concerns. If your business depends on Department of Defense contracts or Defense or Military personnel spending in your neighborhood, you may have some real problems down the road. If you were expecting spending related to looming infrastructure improvements, you may want to wait. If your customers’ spending is related to expansion in your local school system, shift your focus.

However, the investment markets have recently returned to 2008 highs, and, while election year and international uncertainties are always a concern, it seems to me this is the depth and breadth of news we have been looking for. Home sales are picking up, apartment construction is soaring, and retail sales are steady. This brings customers out of doors, spending on home improvement, eating out, getting back to work.

So, what’s in your numbers? Review daily sales revenues and expenses. Extrapolate these “habits” over the rest of the year to chart some indication of where you trend. Adjust the roll out for known seasonal impacts, and mark each week to come. If what you see for the second quarter, based on what is fact in the first quarter, is what you want, stick to the plan. If it isn’t, do what you can now to make it happen. Debrief yourself, your team, and your advisors on what is not working and what can be done to fix October by changing April. Don’t let it sneak up on you!

No graduate business school fully prepares you for the real work of entrepreneurship and small business ownership.  Studying theory, managing numbers, and examining quality processes can only give you the background necessary for what the real world dishes out.

So, while there are good arguments for continuing education, most business and management schools do not have a small business focus. They neither appreciate nor share the daily pressures that we know as small business life.   Here are three areas many business and management schools fall short:

1. Your skill set must be broad and deep.

Despite what you read and have been told, it takes more than hard work. Think about it: when you are an employee, you are responsible for one area of thought and operation, but as a business owner, you have to know about each and every corner and aspect of the company and its operation.

You must have practical skills, like the operating of office machines, phones, word processing, and spreadsheets. You need to know software, such as office, accounting, and tax software. You must master the ins and outs of your production, shipping/receiving, and customer service. You have to be on top of purchasing, supply chains, and billing. You’ll want to know personnel and payroll laws as well as risk management. Even if you delegate some functions, you need to know costs, overhead, compliance, accounting, and so on.

Solution: Be your own best critic. Know what you can do and can’t. Hire the advice you need and study as you grow. The “need-to-knows” can be daunting, but you are better off going into the business with a full awareness of what you don’t know.

2.  The marketplace is not friendly.

The free enterprise system puts you into market competition. You’re entering a world where other businesses want your customers and may not be friendly about it. It may be one thing if you are the only candy store on the county square, but most businesses competitors would rather you were not in the picture.

Be prepared for price wars, false claims, and downright personal attacks. With some stamina and character, you can weather shady practices. You are well advised to avoid the dogfights and foul play, and to focus on your quality and customer service.

Solution: Customers can be selfish. They will shop for price and move their business at a whim. You need to determine their purchasing motivation and be there to meet them with what they want. Structure customer loyalty by frequent contact, promotion advantage, and response to feedback. Build partnerships with your customers, so that their self-interest is in your interest as well.

3. Small businesses cannot afford debt.

Income does not begin the day you open the doors. From before the doors open to well after, money is scarce and start-up costs are high. You have to pay to get it running, and you have to expense the search for new customers. So, you find yourself hurting more than your competition all the while you are bringing in less.

Add, as I would suspect, the necessary costs of supporting your family and household, and debt can be tempting. Trouble is that debt is another expense – interest as well as principal payments. In fact, debt is usually collateralized with something you cannot afford to lose.

Solution: Don’t borrow to start a business – without fully understanding the implications. The more you borrow, the more you reduce your chance for success.

Now, you may find such things discouraging, but I hope not. I am more anxious to see people enter into business ownership with their eyes wide open. Too many small businesses fail despite the hard work of their owners. Proceed with eyes wide open:  hard work is not enough!

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.

The increasing importance of credit union financing in small business operations and lending has recently been the topic of an SBA Advocacy report. As of this posting, a million customers have moved their checking and savings plans from banks to credit unions. Coincident to the Occupy Wall Street activity and ostensibly prompted by Bank of America’s ill-advised debit card fee, credit unions are swamped by applicants while major banks don’t even seem to notice. What does this “revolution” mean to small businesses?

As recession-bound banks hold back on loans to small businesses, credit unions are taking the initiative. And, with their sudden growth in deposits, they appear ready to move aggressively when Congress raises their cap on loans.

The Small Business Administration watched bank lending to small business decline by 6% in 2010. It also reports credit union financing increased by a comparable percentage. Still, commercial banks lend 200% more than credit unions, so we will have to see if this trend continues. Nonetheless, it’s worth looking at your local credit unions to see what they can do for your small business.

For starters, credit unions account for only 5% of the total lending pool. However, the Small Business Lending Enhancement Act, introduced to Congress in March, could raise the current lending cap to 25% of their assets. This more than doubles their lending potential. With their lending cap raised and their influx of deposits, credit unions will expand, multiply, and hire.

 It is also likely that, as economic confidence returns, lending underwriting guidelines will loosen allowing businesses to borrow more with less secure experience and collateral. Among other things, credit unions are exempt from federal corporate income taxation. They do not belong to the FDIC; instead, they have a separate deposit insurance system and fund – with lower premiums. Such features help them to provide lower-priced products and services. They are non-profits, and this may reduce performance incentives for management.

 Small businesses have been underserved by banks in recent years – despite a $30 billion commitment by Washington. In addition, only 30% of the nation’s credit union lend to small businesses. But, credit unions are seeing gold in the weaknesses in today’s bank market and are upping their staff training to underwrite and market small business loans.

Give it some thought: look at what your local credit unions can do for you, check their credibility with CUNA, move your money if and when it is in your own interest. Remember, that most credit unions – unlike banks – are local and “behave” like small businesses in your community. You may find you have a lot in common.

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.