Business Transitions for Growing Companies - Taking the “Y” in the Road
Bill Warner Tuesday, August 04, 2009
Yogi Berra is often attributed to this saying about life. “If you come to a Y in the road, take it.” In business, there are lots of Y’s in the road, and you indeed have to move beyond them. These Y’s are business transition points. But, how do you know you are at a Y in road, if it is important or not, and how to choose which way to go?
Business transitions
Every company goes through transitions as they grow. It goes with the territory of being a successful company. No matter how good you are, these transitions will have to be dealt with. Successfully navigating these transitions is critical to the success of all small businesses. But how do you know you are at one. There are road signs; for example:
- Your people are complaining about their jobs
- Sales are not growing
- Customers are complaining
People tell all
One of the most obvious, but most denied, road signs is how your employees are responding to their job and work environment. It takes a pretty insightful leader and manager to be in touch with the state of mind of their employees. Often, what employees say is not really what they mean. The most convenient complaint is about compensation and the grass being greener at another company. If management has not been communicating well, employees will simply make up all sorts of stories about their dissatisfaction based on what they perceive to be true. Yup, they lie to themselves, and their management. Then, they decide to leave your company because they are not paid well enough. In reality, people are not motivated by money. They are motivated by having a challenging job and a great place to work. If they don’t get that, they will eventually leave for the greener pastures. If management has not created an environment of open communications and business process, along with clear roles, responsibilities and accountabilities, there is going to be trouble.
But, what is the Y in the road. In this situation, the Y has to do with the selection of experienced management that really knows how to lead and manage an organization of the size and complexity of your company and where it is headed. The choice is taking the road with current management and ending up in the ditch, or taking the road of enhanced management and keeping the company on the road to success.
Sales road blocks
Most small companies run into the dilemma of not appropriately getting their product or service into the market. The road sign is easily seen. Sales volumes are flat or down. But you would be surprised as to how many companies don’t respond to what the sign is saying. Hope takes over. Denial and excuses are pervasive. New forecasts ignore the past results. Extenuating factors explain what is going on. This Y in the road is decisive. If the wrong road is taken, the company runs into a brick wall and fails.
When faced with this choice, honest and objective evaluation of sales results is needed.
- Is it a market understanding problem?
- Are competitors winning?
- Is the price an objection?
- Are you selling to the wrong buyer?
- Is your solution not a priority for the buyer?
- Are your sales people ineffective?
To determine what direction to take at this junction, a detailed analysis of the reasons your company has not made its sales goals is critical. If you truly understand the reasons why you are not winning, you are on the road to adjusting your sales strategy to go down the right leg of the road.
Customers put up the signs
The most important sign to read is what your customers are telling you. If you do not have your eyes on this road sign, you are driving blind. All companies have a vision of what the value of their product or service is. And, they are proud of it. However, there is another viewpoint that the customer has. From the very beginning of your company’s history, you must be in touch with the customer’s view. If they are not satisfied, continually, they will eventually move on to other choices.
What you should be looking for is customer reaction to things like:
- Functionality and capability
- Support and maintenance
- Ease of installation and use
- Pricing structure
- Responsiveness to their needs
You need to watch for any dissatisfaction expressed in these areas. As companies increase the number of customers, it gets progressively harder to provide top notch customer care. If you miss this road sign, you will find that customers will abandon your solution for your competitor’s.
Your choice at this cross road is to make sure you are continually adjusting your customer care support structure so that you maintain customer satisfaction. If satisfaction erodes, you will be traveling down the path to disaster in the form of lost future sales and high support costs.
Watch the signs
When you decided to run a company, you automatically got your drivers license, and it is assumed you know how to read the road signs. Tune up those antennas that read what is going on with employees and customers and you will become an expert driver. Better yet, bring people into your company that are expert drivers that know how to make the turns easier to navigate.
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Read the Health Care Bill Yourself
Bill Warner Monday, August 03, 2009
Boy, did I get a lot of feedback on my blog post on the health care bill. I am not a political activist or even an expert on health care, but this bill gets me out of my chair and wanting to scream at somebody. This bill is 1,018 pages that spell out how the government is going to take total control of the health care system. Given that they have not run Social Security, Medicare and Medicaid too swiftly, what makes us have confidence in them running the whole health care show?
The bill itself
Here’s a link to the health call bill itself. It is hard to read and is not very straight forward. Serious readers will need a lawyer to interpret this thing. Here is a link to a controversial analysis of the bill, along with equally controversial rebuttals. Somewhere in this is the truth and I am concerned that it is not pretty for both individuals and businesses.
Now what
First, I suggest everyone use the analysis as a guide to go to specific section of the bill and read for yourself. Come to your own conclusion. Write down what you are still not sure about. Then, contact your US Congressman and ask them to clarify it for you. Go have a meeting with them, or attend one of their public meetings. My congressman is Brad Miller, who I have already emailed my concerns, and I will be going to his public meetings to ask further questions.
You have to understand, I don’t do this kind of thing normally. But I am now. I suggest you do the same, because this bill could change your lives significantly. Go to this link to find your US Congressman. Call them and tell them what you think and ask them for clarification. First, ask them if they have read the bill and understand its implications for people in his or her district. If they haven’t read it, or cannot answer your questions, then start asking when they are going to start representing your interests in Congress. This has to be one of the most important pieces of legislation in a long time. Your life may depend on the outcome of this.
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Stimulus Money - A Long Shot
Bill Warner Sunday, July 12, 2009
The likelihood of getting any of the stimulus money into your business is remote, but nevertheless, there is a chance. I read an interesting article in Entrepreneur that gives a step-by-step process for business owners to consider.
Considerations
Taking this on is not for the faint of heart. Do your research to see if it is worth your time.
- This is big money, a million or more. So, if you are not in that league, this may not be for you.
- Better know how to sell to the government. If you don’t, your chances are even smaller.
- Make sure that your industry is one of those targeted for the stimulus money.
- Follow the process offered by the agencies involved in making the decisions.
- Understand the reporting requirements and strings attached to the money. You don’t want your business tied down in a process that may be detrimental to your business.
Once you have thought this through and understand how much of your time is going to be involved and what future impacts to your business are at risk, you can decide whether or not stimulus money is for you.
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The New Big Three Economic Drivers
Bill Warner Sunday, July 12, 2009
How could curiosity, imagination and failure possibly be economic drivers? They certainly seem like important business factors, among many others, in running a business. Read the details in Open Forum.
How so?
Think about it. We are reading about companies that are circling the wagons on cost and expense reductions and driving current sales operations to bleed every ounce out of the stone of their current products and services. What makes the difference is recognizing when a product or service has reached the point of failure in its market. The idea is that failures drive the need for new innovations. Executives need to have the curiosity about their markets and customers to see when the failure milestone is being reached. Simultaneously, they have to have the imagination and innovativeness to create new products and services that address new market needs. Even in a recession, new innovation continues to play an essential role.
Identify failure and thrive
The lesson here is that business owners need to be courageous enough to recognize and act as they see failure approaching. Just responding to a failure that has already occurred is a death blow. Recognize the signals that indicate your business is failing:
- Loss of cost competitiveness
- Price reductions due to competitive offerings
- Changing customer priorities
- New market trends that weaken your market segment
- Strong competitive offerings impacting sales
Seeing failure coming gives you time to act and take a new direction. Have processes in place that give you the information you need to foresee failure.
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Business Owners Don’t Need Stimulus Money
Bill Warner Wednesday, July 08, 2009
That’s right. Business owners, you are on your own, and that’s OK. In its recent survey of 1,000 customers, Intuit discovered that an overwhelming number are relying on themselves, and not the government, to survive this recession.
What’s the situation?
An unbelievable 94 percent of small business owners say that they depend on themselves the old fashioned way. They use the same operational strategy they did when they bootstrapped their businesses in the first place. Almost none of them have received any stimulus money and don’t believe that the government’s stimulus plan will benefit them.
In fact, sources of financing have declined as shown by the Small Business Administration backing 30 percent fewer loans than it did a year ago. It is still unclear how this situation will change under the Americas Recovery Capital program.
So what are small businesses doing?
Small businesses are again demonstrating why they are the heart of America’s economy.
- Most of the surveyed companies see new opportunities for their companies, showing the adaptability, innovativeness and responsiveness of entrepreneurs, even in the face of continued recession.
- More than half of those surveyed expect to see business growth over the next 12 months, driven by their focus on marketing and sales.
- They also say that now is a good time to invest in a small business, exploiting new opportunities and innovative ideas.
What do entrepreneurs need to do?
Successful entrepreneurs are those that act decisively and quickly. They put their instincts and innovativeness to work to deal with the changes that have occurred in their markets. Some of the keys to success are:
- Financing is still available, but harder to find. In many cases, entrepreneurs need to go back to basics of identifying potential investors within their own scope of influence (friends and family). Strategic partnerships should be purposefully pursued to join with established companies who have the cash to invest in new products and services.
- Don’t let all the media hype get you down. Look deeply into your market segments and see what is really going on and respond to it. Let the facts that face you direct your decisions.
- Recessions also bring changes to markets. Make sure you understand the changes in yours and find the ways to exploit them with changes to what you are currently offering and providing new products and services.
- By all means, act. Do not simply let circumstances overtake you.
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Venture Capital Firms Chase New IPO’s
Bill Warner Friday, June 19, 2009
We all know that the IPO market for venture-backed companies has pretty much disappeared, substantially destroying their business model that requires high value exits via an IPO. Dixon Doll, in his interview with the Wall Street Journal gives us an update on the reshaping of the venture capital industry. Doll is a seasoned business consultant, a leading venture capitalist and the outgoing Chairman of the National Venture Capital Association (NVCA).
NVCA’s “Four-Pillar Plan”
The NVCA’s Four-Pillar Plan is targeted at restoring the venture-backed IPO market, and it takes unprecedented cooperation between the private sector and the government’s taxation and regulatory policies. Given the slap that the venture capital world just took in the SBIR renewal bill, that cooperation is not evident.
The NVCA’s direction is to convince venture capital firms to modify their financial models and business practices to focus on small-cap IPO’s, moving away from blockbuster winners. Another bubble is bursting. This will require substantial reshaping of the way venture capital firms structure their deals and the transition will take five to seven years to complete. But, given the state of the IPO market, this makes sense.
This means that venture capital firms will have to go after more deals, with less money per deal, driving for quicker exits, and culminating in smaller IPO’s. This opens up the venture-backed IPO market to a whole new set of investment banking firms that will be able to service this opportunity. It won’t be just the big firms like Goldman Sachs and Morgan Stanley.
The task ahead
Doll points out that this is going to be a painful transition. Some venture firms won’t make it. It will require a massive education initiative to explain how this can work. This education will have to include entrepreneurs, venture capital firms and investments banks who currently don’t view that they have an IPO market available to them.
There is considerable skepticism throughout the industry. Even if the NVCA pulls off this first pillar, the government regulatory and taxation policies will represent another giant hurdle to jump over. Doll has always been a positive and aggressive thinker. If anyone can make this change happen, he can.
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Financing the Launch of Your Company
Bill Warner Tuesday, June 16, 2009
Once you have gotten your company through the proof of concept stage and are now at the point that you have a product or service ready for market, you will need to finance this phase of your company’s growth.
Many of the alternatives that were considered for the seed financing of your company can play a role in this stage of financing as well. The additional alternatives to consider for this stage of financing are:
- Bootstrapping
- Strategic Partnerships
- Customer Partnerships
- Angel investors
Let’s take each of these and explain the purpose and implications.
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Venture Capital Correcting Valuations
Bill Warner Monday, June 01, 2009
Venture capital firms are finally making corrections in their valuations in response to the downturn in the economy late last year. Read about the details in the WSJ, but this decline in valuations represents an adjustment to the value they place on their portfolios and to any company they are considering for new investments.
The adjustments are not uniform
The sharpest decline is occurring with later stage companies whose valuations declined about 43%, dropping from a median of $56.1 million in the fourth quarter to $32 million in the first quarter, all of which is pretty comparable to the decline in public markets last year. The median for the third quarter was $64 million. Likewise, their limited partners have felt the squeeze as well in that their portfolio values have dropped a similar amount.
Second round companies had a similar drop from $16.1million in the fourth quarter to $10 million in the first. But, first round companies faired well by rising from $6.6 million in the fourth quarter to $7 million in the first, but usually show less volatility to changes in the public markets.
Venture firms are buffering their pain
In the first quarter, 57% of all venture rounds were done by the current investors, giving them the chance to tamp down the pain of the write-down thus protecting the fund’s performance. New investors would be much more likely to want a more aggressive reduction in valuations.
Good and bad news for entrepreneurs
Entrepreneurs of start-ups that are going for their first venture round should expect valuations that track consistently from the last two quarters. Unfortunately, this is a bad time to have to go out to raise later stage VC money. The company will probably be faced with a down round where the company’s value is less than what it was at the time of the last round, and it’s all due to the economy. The hard thing to swallow is that even if the company performed well and met all its milestones, it still will get punished with a lower valuation.
If you need the money though, you have to do it. This is where tightening the belt and conserving cash pays off.
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Are You Ready To Be An Entrepreneur?
Bill Warner Friday, May 29, 2009
In reading Michelle Goodman’s article in nwjobs, it reminds me how important it is that any would-be entrepreneur do a “self-check” to make sure they are ready for it. With more and more people thinking about starting a business, a good self-examination is needed. This is not for the faint of heart.
The checklist
Ask yourself certain questions about your readiness to be an entrepreneur. Here are the must-haves:
- Do you really have the passion for the business you are about to get into? Above everything else, this will determine your success. You have to want to get up every morning and work on the business.
- Are you the entrepreneurial type? Entrepreneurs are curious, outgoing, risk taking and persuasive people. They see the art of the possible before others do. They are great problem solvers and have the determination of a bull dozer. They are also the best sales people for their ideas and have the self-confidence to do most anything. In other words, they don’t know of anything they can’t do.
- Do you have the business knowledge and market understanding to successfully start and grow a company? You really need to create a plan for your business and determine if there is really a business worth pursuing and test your personal ability to create it.
- Do you have the drive and energy to pull it off? You will be working 12-14 hour days with little free time otherwise. Sleep will be at a premium. The physical and mental demands are tremendous.
- Is your family ready for this? You will be spending more time with your business than your family. Will they support that? This will put significant pressure on your relationship with family members.
- Do you have the finances to get it started? Before you put another mortgage on your house, make sure you and your family are ready for the risk and understand exactly what you are going to do with the money. Statistics say that you have a big chance of losing it.
Go after this with discipline
Now that you have proven that you are ready. Go after your business endeavor with focused business discipline:
- Research your market and determine if your idea makes business sense
- Understand your customer in detail
- Know how to beat your competitors
- Create a winning product and/or service
- Absolutely know how you are going to take it to market
- Project the financial dynamics of your business
- Pull together an “A” number one management team
If you are going to put the kind of energy that it takes to create a successful business, do the right planning up front so that you know that you have a good chance of succeeding.
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Number of Start-ups is Declining
Bill Warner Tuesday, May 19, 2009
According to the TechCrunch database, the number of start-ups in the first quarter is down considerably. Keep in mind that this is only a subset of all US start-ups. With unemployment increasing, there is an increasing number of companies overall that are starting in the US. Most of them are not seeking private equity financing.
Venture capital financing is down
This certainly tracks with the reduction of angel and venture capital investments for the first quarter. Although, the reduction in venture financing was felt less for companies needing B or subsequent rounds of financing. This too is proof that venture firms are focusing on their current portfolios by protecting those companies that have the best chances of success.
Other indicators
Their data also shows that start-ups are starting with fewer people and with less money. This can be attributed to belt tightening as well as the increasing number of web based companies that need far less money to get started. M&A is way down for the quarter, with none of the major companies announcing an acquisition.
All of this is perfectly predictable, but the reality is here. Nevertheless, if you are planning on starting a business, go for it smartly.
