Few New Businesses Started in 2010

I just read a rather depressing piece of information: for the first half of 2010 the rate of new business start-ups was the lowest it's been in 24 years.  According to a blog post for the Wall Street Journal "the 3.4% first-quarter start-up rate and the 3.9% in the second quarter mark the lowest first-half since (executive coaching firm Challenger, Gray & Christmas) started recording data in 1986."  The reason for such a dramatic decrease from last year is less than obvious:

“It is difficult to pinpoint the exact reason behind the decline in start-up activity among former managers and executives,” Challenger Chief Executive John Challenger said in a statement Monday. “On one hand, it could be that the job market has improved to the point that many do not feel compelled to take the risk of going it alone. Then there is the fragility of the recovery and the uncertainty that comes with it. Many small business owners are increasingly pessimistic about business conditions and still find it difficult to get a loan.”

The silver lining for this is the increase in payroll workers over last year, but it's still hardly encouraging news overall.  Be sure to click on the link below and read the full WSJ post for more details.

Small-Business Formations Decline

Money Talks; Bullshit Walks

On Monday I wrote a post about reviewing business performance, and I got lots of great responses in the LinkedIn groups where I posted it as a discussion topic.  There were many different ideas about what metrics are most important, including customer retention, employee satisfaction, and marketing effectiveness. 

Each of these measures are helpful, as are countless others.  However, for startups and small business with limited resources the measures that matter most are financial, specifically cash flows and operating profit.  Customer and employee satisfaction don't matter if your business isn't profitable (and low prices and high wages might be what made them happy!).  Even effective marketing campaigns mean little if you can't afford to pay for them any longer. 

Businesses need to have their finances in order before they worry about other success factors.  No other measure matters if the company can't stay in business.  Without cash everything else is just bullshit.

Reviewing Business Performance

The first quarter of 2010 is now behind us, and it's time for businesses to look back and see how they did.  There are typical measures of success that many companies use:

• Did we make our target numbers?
• Did we do better than first quarter of 2009?
• Did we do well compared to our competition?

All of these are valid questions and can give a company insight into their business compared to their projections, their historical achievement, and the rest of their industry.  But does that really indicate whether or not a business is doing well?  Should you be pleased your company is doing a little better than others in an tumultuous industry?  Should you be upset if you don't achieve budget numbers that were overly aggressive?  Is it really smart to gauge year-over-year success compared to the worst economic period in recent history?

As corporations report these types of numbers their shareholders will overreact as usual.  Good companies will see their stocks devalued because of slow growth, and share prices in a few mediocre companies will increase based on performing a little better than expected.

Small businesses, however, have the luxury of looking at the big picture.  Can you meet your short term obligations?  Do you have a product/service mix that satisfies your customer base?  Is your company well positioned for future growth?  These are the types of questions that monthly/quarterly/annual reporting should attempt to answer. 

Over-Planning Causes Inaction

Last week I wrote this post sharing my social media strategy as it is today.  I received a ton of great feedback!  Thanks to everyone who commented on this blog and in the group discussions it was posted in.  One reader, Mike Y, left a comment offering to review my LinkedIn account and my website.  I accepted his offer and we continued our discussion via email.

I had mentioned that I plan to rebrand my website in a couple of months after revising my business plan.  His response was to "rebrand now, while it is ripe and your efforts don't go to waste, the investment is minimal."  This really got me thinking about my current approach.  Perhaps I spend too much time planning and not enough time acting.  Don't get me wrong, I still think business planning is critical (I've written about it here and here, plus it's a service I offer as a consultant).  I just think maybe I need to move through my planning process more swiftly.

Has anyone else found themselves having to choose between careful planning and swift action?  Which do you tend to lean towards?

Oh, and if anyone would like to see what other insights Mike has on e-Marketing check out his latest blog post below.  I've looked at a few of his other recent posts and it's pretty useful stuff!

http://diywebjem.com/blog/2010/03/30/maximize-your-linkedin-profile-and-expand-your-web-traffic-and-business/

Small Businesses Need Business Plans Too

One great thing about small businesses is their ability to produce results.  They don't have to worry about many of the things that slow down corporations like stock prices and endless reporting.  With less administration needed they can spend more of their time generating revenue and growing the business.  But how should the business grow?  Where should the business go to find new customers?  What products or services can be included to help the company succeed?

These questions (any many others) should be answered by creating a business plan.  Business planning is critical to any business's success, but all to often is overlooked by smaller companies.  It's also important to review your business plan on a regular basis (monthly, quarterly, annually, etc.) and make revisions as needed. 

Below are links to a couple of great (and free) resources to help start the planning process.

http://www.sba.gov/smallbusinessplanner/plan/writeabusinessplan/index.html

http://www.entrepreneur.com/businessplan/

Google Apps Marketplace- First Glance

This week Google launched its newest offering- the Google Apps Marketplace.  I'm a huge fan of all things Google (my apologies to all Apple fans), so naturally I'm excited about their app store.

Google Apps Marketplace provides a great opportunity for small businesses, both buyers and sellers. This article on TechCrunch does a great job of explaining the details, so I won't try to here.  Instead I'd like to highlight a few of the apps that caught my attention.

Google Calendar Time & Activity Report - FREE

Description

Add time and activity reporting to your Google Calendar.
Calculates and charts hours spent and amount and duration of different event types, for specific users, within a specific date range, etc.

• Connects to your Google Calendar data
• No software, no setup
• Easily manage time and people

 

Office In Cloud: Microsoft Office Integration for Google Docs

Description   

Office in Cloud for Google Docs is the first native and easy-to-use integration between Microsoft Office and Google Docs

• Cloud's tagging for personal documents
• Save/Open/Update/Merge Google Docs from MS Office
• Share documents with others with notifications

 

BatchBook Social CRM

Description 

BatchBook is a lightweight but powerful CRM that allows you to easily organize contacts, monitor social networks and track leads and deals.

• Integrates with other small business web apps
• Tracks contacts, communications and tasks
• Highly customizable; custom fields and reporting

 

OnState Virtual Call Center for Google Apps

Description 

Firmly at the crossroads of Google and SaaS, OnState is a true hardware-free call center and ACD that enables full customer collaboration when paired with Google Apps.

• Unified communications across voice, video, chat
• Combine Google, Salesforce, SIP, and others
• Ensure the right team members are reached

 

Google Analytics Dimension Analyzer - FREE

Description 

Identify and analyze top landing pages, campaigns, keywords, etc. by any metric, e.g. top landing pages by conversions, top traffic sources by new visitors, etc. No setup, runs on your live data.

• Connects to your live Google Analytics data
• Easily identify top performers across dimensions
• No software, no setup

Has anyone else looked at or purchased any of the apps?  Feel free to comment.

Startup Advice In Exactly Three Words

I was browsing discussion topics and news items posted in my Linked-In groups yesterday and this article caught my eye:

http://onstartups.com/tabid/3339/bid/11539/Startup-Advice-In-Exactly-Three-Words-StartupTriplets.aspx

It's a collection of 50 pieces of advice for start-ups, all of them three words (as the title suggests).  I think it's worth a look.  Some of my favorites:

• Defer renting space.
• Sell something today.
• Respect your competitors. 
• Cancel unnecessary meetings.

My least favorite:

• Avoid business plans.

Check it out and see if any are right for your business.

Small Business Use of Social Media Increases

A recent survey by the University of Maryland’s Smith School of Business showed that the rate at which small businesses are using social media doubled from 2008 to 2009 (12% to 24%).  There's a great article about it posted here on Mashable and another here on Marketing Pilgrim.

As this graphic suggests most small businesses that are using social media use Facebook and LinkedIn.  Twitter usage is relatively small, even smaller than blogging. 

Interestingly 50% of small businesses complained that using social media takes more time than they expected.  17% believe social media gives customers an forum for complaining, and 6% believe social media has hurt their business's image.

The main takeaway from this data: Social Media is a great resource for small businesses, but it isn't magical.  Any marketing campaign takes effort and planning, and that includes social media.

Should Companies Focus on New or Existing Customers?

I've read two very interesting articles this week about customer focus:

In Keep Those Customers! on Inc.com Howard Greenstein says that companies focus so much of their energies on obtaining new customers that they ignore the customers they already have.  Christopher Penn, Vice President, Strategy and Innovation at Blue Sky Factory Email Marketing, quantifies this perspective:

A good marketer in general can move 10% of the attention they create into qualified leads. With good customer retention, good service, good product, you have a huge amount of control about keeping your customers. They’re yours to lose.

Not everyone agrees.  In Dear Catalog CEOs: New Customers, Kevin Hillstrom at MineThatData.com points out that no matter how customer-centric your company is there will always be customer turnover.  He addresses the idea of building customer loyalty directly:

If there were easy ways to increase customer loyalty, everybody would be doing it and loyalty would dramatically improve and the economy wouldn't be a mess, right?

His suggestion: "Focus a disproportionate amount of time and energy on finding new customers."  His point is that there are far more ways for companies to acquire new customers than ways for them to improve their customer retention rates.

A successful company should strive to both earn new customers and to please existing customers, but often resources are spread thin.  Which should be the priority?  Should companies give the majority of their focus to existing customer relationships or to creating new customers?

Keep Yourself and Your Employees Well Informed

One of the things I like most about small businesses is that they can be much more flexible than larger companies.  There are fewer layers of management to convince, no board of directors or shareholders to placate, and far fewer regulations to consider.  Because of this fewer resources are wasted on generating mountains of reports and a never-ending series of meetings.

But some reports and meetings exist for practical purposes.  All companies need to have insight into their business.  Every business should be able to answer some basic questions:

• Are we making a profit?  
• If we are not yet profitable are we doing the right things to become profitable?
• Do we have enough available cash to run our business?
• What are the amounts in our Accounts Payable?
• What are the amounts in our Accounts Receivable?

There are countless other questions that should be asked regularly.  Most large businesses so this automatically as part of their month end closing process, and small businesses should do the same.  It is important to do this every month to catch problems early and ensure that the company is moving in a productive direction.

It's equally important to make sure everyone in your company knows how the business is doing.  While you don't necessarily want all employees to have full access to your financials (unless you have an open-book management policy), make an effort to let everyone know about your successes and failures.  A quarterly or semi-annual meeting with everyone is a great way to keep employees informed, and it can also be an forum to receive valuable feedback.

Social Media Isn't a Substitute for a Marketing Plan

I found a couple of articles online regarding social media for small businesses:

http://www.businessweek.com/smallbiz/content/jan2009/sb20090116_666697.htm

http://www.reuters.com/article/idUSTRE59759L20091008

The Business Week article explains that social media is a great tool for small businesses because it's a great way to reach a large audience for free.  The Reuters piece, however, suggests that 75% of small businesses don't find social media at all helpful in their business.  The article quotes Maria Veltre, executive vice president of Citi's Small Business segment:

"What this survey indicates to us is small businesses are very, very focused on running their business and on generating sales and managing their cash flow and doing the things that are really important, especially in these economic times," Veltre said. "I don't think quite yet the social media piece of it has proven to be as significant."

I think both articles are right.  Social media presents an incredible opportunity for small businesses, but it has to be based on a solid marketing plan.  And any social media used must be consistent with that marketing plan.  Creating several accounts with differing messages (or forgetting to update them) won't help your business.  It might actually hurt it.

Charging a Premium

There's an Irish pub I used to frequent when I was an undergrad.  One day I glanced at the drink list above the bar and was surprised to find that an Irish Car Bomb cost $10.  That's expensive!  Curious, I asked the bartender why one drink cost so much more than everything else they offered (most drinks were $5-$6).  I expected him to tell they were bigger than usual, they used a special blend of whiskey, something that justified the high price.  He told me the real reason: "We don't like to make them."  Wow.  I didn't see that one coming.

Years later it makes perfect sense to me.  Sometimes a client asks for a service you'd rather not provide.  Rather than turning business away (especially if you want repeat business) charge a premium.  If they decide you're price is too high, great: you didn't want to do it anyway.  And if they accept your price you make extra money.  Good news either way!

Specialize Your Business

Many small businesses make the mistake of trying to sell their products and services to everyone.  It makes sense at first: selling to more customers means more money, right?  Not necessarily.  Different customers want different things, and it is extremely rare for one good or service to satisfy everyone's needs. 

Take television, for example.  Back in the old days there were three networks: NBC, ABC, and CBS.  They all produced similar programming choices (local news, half hour sitcoms, one hour dramas, etc.).  A particularly successful show could most American households to watch on a regular basis.  Today, however, there are too many viewing choices to count including newer broadcast networks like Fox and CW, cable, premium cable, satellite television channels, and the internet.  Many of these networks are highly specialized like themed networks (i.e. Comedy Central or the Travel Channel).  The internet is ultra specialized and consumers can find exactly what they want, when they want it. 

The Lifetime Channel does not show James Bond movies.  The Food Network doesn't air Nascar races.  They stick to what they're good at.  That's just smart business.

Marketing Doesn't Mean Much If You Lack Substance

Whenever I tell someone that I started a blog a month ago I get all kinds of advise on what to do, most commonly

• advertise with Facebook
• advertise wth Google AdWords
• join every social networking site possible

All of these pieces of advise have merit, but I can't help but notice they have a common theme: advertising my blog.  What about content?  A few people gave me advice on SEO tactics without even asking what this blog is about or why I wanted to start it in the first place!  This brings to mind two problems in the way many small businesses try to generate new business:

1. Far too many small companies believe marketing means advertising
2. Far too many small companies focus on finding customers before they have a product or service to provide them with

I will focus more on increasing traffic to this blog soon, but my first priority is making sure it's worth reading. 

Choosing a Strategy for Start-up Businesses

One mistake that many businesses make is thinking they can be everything to all consumers.  That is a dangerous assumption and makes it difficult to market the company's products and services.  According to Harvard Business School professor Michael Porter there are three generic strategies that companies should use to identify and achieve competitive advantages:

• Cost Leadership Strategy- Used when a company offers lower prices than competitors (Sam's Club provides commodity items in bulk for cheaper prices)
  

• Differentiation Strategy- Used if a company creates goods and services that are unique (iPhone has features that other smart phones lack, like multi-touch)
  

• Focus (Niche) Strategy- Used when a company targets very specific market segments (Curves gym for women)

Which strategy makes the most sense for start-ups?   Cost leadership is usually not where a fledgling company will find its advantage.  Competitors have been around longer will typically have better economies of scale and be prepared to fight a price war.  Differentiation can be a great way to charge a premium price for products and services, but it can be difficult for start-ups to reach prospective customers on a large scale.  This is why I love targeting Niche markets.  Rather than being a small fish in a big pond a new company can quickly become the big fish in a small pond.  Or better yet, the big fish in several small ponds.

Funding a Small Business in a Slow Economy

One of the biggest challenges for any small business is funding.  What is the best way to infuse your business with the cash it needs?  Current economic conditions make it difficult for anyone to get a loan, but small businesses take a larger hit than their larger counterparts.  An article on CNNMoney.com tells how banks have cut an additional $1 billion in loans available to small businesses. 

Bank Loans- There are fewer loans available to small businesses, but this can still be a viable option.

Venture Capital- Venture capitalists are taking full advantage of banking's reluctance to fund small businesses.

Government Loans and Grants- The government has several loans and grants specifically for small businesses.

Each of these can be a good way to get the cash your small business needs, and if you are able to secure funding you can find some great deals while interest rates are still low.

Online Tools to Help Run Your Business Cheaply

One of the biggest challenges facing any new business is controlling start-up costs.  Depending on your business's needs you might have to shell out a ton of cash on things like facilities, equipment, labor, materials, etc.  Why not save a few bucks wherever you can?  Here are a handful of ideas to help keep those costs to a minimum.

Google Apps

I'm a huge fan of all things Google, and I use many of their free applications (obviously Blogger is one of them.  Some of their other great free applications include Gmail, Google Talk, Google Calendar, Google Docs, and Google Sites.  As your business grows you can expand your capabilities with their business package for $50 per year, per user.


QuickBooks Online

QuickBooks Online offers free usage for 1 user, provided you have 5 customers or less.  It's a great way to get started, and once your business grows beyond 5 customers (congrats!) you can upgrade to the Online Basic version for $9.95 per month.

Skype

You can use the basic version of Skype with unlimited calls for just a few bucks a month.  Once your business grows you can upgrade to their small business platform and get additional features like the Business Control Panel, which is relatively inexpensive when compared with other business phone networks.

Do Small Businesses Matter?

There is always quite a bit of discussion in the news about businesses. On any given day there are articles about the stock market, international regulations, and of course federal bailouts. But what about small businesses? Don't they deserve out attention?

According to the U.S. Small Business Administration Office of Advocacy in 2006 98.2% of all firms in the U.S. had fewer that 100 employees (this breakdown by Entrepreneurship.com puts that number even higher at 99.7%). So why, then, do all business related news items revolve around large corporations? I think there are two main reasons:

1.  Though small companies account for the majority of U.S. firms they provide only 35.6% of jobs.
2. Most small businesses aren't publicly traded, so there are no stockholders clamoring for information.

While these are both good reasons to pay attention to what the big guys are doing small businesses provide a substantial contribution.  According to the same piece on Entrepreneur.com small businesses account for:

• 52.6% of all retail sales
• 46.8% of all wholesale sales
• 24.8% of all manufacturing sales

Let's hope that 2010 is the year that small businesses finally get the respect they deserve.