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Forget About Business Productivity - Focus on Business Effectiveness

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Many entrepreneurs joke that perhaps they have ADD. For the record a lot of very successful entrepreneurs had ADD and they got a lot done.

Is ADD, a.k.a. AD/HD an Entrepreneurial Trait?

I Google’d AD/HD and Entrepreneur and ended up at the AD/HD website at about.com They have an interesting article, but one sentence got my attention… Read more

Future of E-Commerce Is Bright

• Do you conduct business online?
• Do you sell your goods or services online?
• Do you have a way to extend the relationship with your customers in a cost effective, efficient, and accepted media?
• Do you want to implement a marketing campaign that is truly measurable and accountable?

In the last decade the cost of starting an online business has fallen dramatically:

But my back of the envelope calculation is that it is about 10x cheaper to start an Internet business today than it was in the late 90’s — due to commodity hardware, open source software, modern programming technologies, cheap bandwidth, the rise of third-party ad networks, and other infrastructure factors. Via Bubbles on the brain

In the last decade the number of people online has grown substantially:

And the market size for a new Internet business today is about 10x bigger than it was in the late 90’s — there are about 10x more people online (really!), and they are far more used to doing things on the Internet today than they were in 1999.

Today people are willing to buy online:

In 2006, revenue from skirts, suits and shoes reached $18.3 billion, surpassing that from PCs, printers and word-processing programs, which totaled $17.2 billion, according to a report to be released today by a major trade group. Via Less Risk Seen in Purchasing Clothes Online

Competition

Your competition is no longer the guy down the street. Your competition comes from the business model of the guy down the street.

If you have been feeling that your business model is tired and worn out, perhaps using a new, innovative approach via an online store is just what you need. You will however need to stop Settling for Less Than Our Dreams, Limiting Beliefs, Sideways Thinking, and Unorthodox Ideas.

Innovation

The opportunity to use an online business strategy to innovate and renovate your business has never been better. As long as you are willing to renovate your attitude toward E-Commerce because Passion and Curiosity Begets Innovation, you will need to know your E-Commerce Math, and remember to do more than build a website and actually build a value engine.

Create Your Own Private Marketplace

Your database of email addresses allows you to reach out and touch someone. Using a newsletter, you can softly and gently plug your new products or services and if interested they will stop by your online store and make a purchase. First you will need to know what type of lifestyle you want because running an online business is very different.

Study: No Link Between Charisma and Business Performance

A University of Pittsburg study of 128 CEO’s found no correleation between charisma and business performance.

How’s that for a counterintuitive fact?

There is hope for the geeks, quiet spoken, and introspective business owners. Hurray!

What Is The Entrepreneurial Shuffle?

Like anything in life, balance reduces risk and increases harmony.

The Entrepreneurial Shuffle is what I call the process of “Kaizen” which is a Japanese word for constant and never ending improvement. The entrepreneurial version of “never ending learning, change, and professional development”. It is also:

1. Equilibrium: Maintaining an equilibrium is how we create balance in any given situation. You understand the difference between balance and equilibrium. Balance is about even weight distribution, or the state of maintaining elements equally. Whereas, equilibrium maintains a state of equal forces and balance.
2. Responsible Commitment: That you had better pay attention because you know that whether your family gets to eat ‘well’ tonight it is your place to make sure they can and do.
3. Brutal Reality: Knowing you have shortcomings and when you notice them, you immediately set about to change your behavior and make a new habit.
4. Remove Limiting Beliefs: Changing your mind about something based on new information, observations, and learning’s.
5. Thinking Ahead: Knowing it is not just about winning or losing but making sure you are able to ’stay in the game’ long enough so you can win.

Beware of The Impostor Shuffle

When you are in avoidance mode you are experiencing the Impostor Shuffle, a distraction. It’s what happens when you move from foot to foot, anxious due to boredom, nervousness, or embarrassment.

You might also notice the ‘impostor shuffle’ when you find yourself ‘tweaking’ this and that to keep busy. Busy work versus important work.

Apply the five traits of the Entrepreneurial Shuffle and change your life and business one decision, one action at a time.

Relationship 2.0: Geography, Identity, Place, Learning

Today I was listening to a podcast of the MooseCamp as a preface to Northern Voice (Canadian blog conference) in Vancouver this year.

Specifically, I was listening to the “Social Media Disaspora” session. Bloggers attended mentioned their birthplaces as New Zealand, Philippines, Dominican Republic, USA, China, Siberia, Taiwan, Quebec, Canada, and Japan. Ages ranged from 21-40 plus.

Some spoke about using blogging to reconnect with their homeland, connecting wth people from their past, exploring their culture, and how they use blogging to interact with the global neighbourhood and to integrate into the local neighbourhood.

Learning Happens While Blogging

During the podcast, a 23 year old high-school teacher from Edmonton and told a story of working with a 16 year-old student whom she gave a book to and the 16 year-old asked, “How do I use this? There’s no search button?” The 23 year-old teacher walked away because she didn’t know what to do.

This teacher said she is exploring how she can use and integrate blogs into the classroom, so she can get them “into a book without knowing it’s a book. My kids do not know or like books.” Great teacher.

Am I An Expatriate?

Typically, the term expatriate is reserved for those citizens living outside their country. What does it mean now to be ‘in country’? I spend most of my day online either on Skype, email, IM, or the telephone - with my clients and friends all around the world.

What does it mean to be a Citizen in these times?

As I was listening to the “Social Media Disaspora” session, I started thinking about how diverse and multicultural world we have become. So I am raising this important question about identity and what it means to be a ‘citizen’.

Perhaps this is what I was trying to sort out when I coined Relationship 2.0 April 30, 2006.

Think about it, I am a Canadian with Scottish roots that resides in Western Canada. I do almost all of my business around the world, a lot in the USA, and little in Canada. Most of my friends are all a result of my business activities, writing, and blogging - and international.

Sure, I live in Edmonton, pay local property taxes, and federal income tax as a result of my international business activity. As web applications continue to develop we will continue to see a blurring of social, cultural, and business boundaries.

Cross Cultural Communication Skills Essential

Increasingly, we will need to develop our cross cultural communication skills. The good news is that the secret to success in the decades ahead will be “who you know” and the relationships you form. I used to hear that it wasn’t who you know but “what you know” but the Internet has changed all that because information is now a commodity.

Knowing what to do is not enough. You have to do it. Take action. With an international business that does most of it’s ‘business’ online you need relationships to be able to ‘take action’.

It is not realistic to think that you can just start doing business in another country without understanding the culture. Therefore, “who you know” and “who knows you” will become increasingly important.

Connected people like my friends Phil, Rosa, and many other relationship masters will be well positioned to make a deep impact.

So, lets do more Relationship 2.0 activities!

Resources: Social Media and Demographics

What is social media, who is using it and why should I [read you] care?

These are questions I have been asking and have learned something in the process. Here are links to the blogs and resources I visited.

Do Not Believe Everything You Read or See

You cannot begin to investigate this topic without getting the balloon of your perceptions popped.

I have come away with the observation that the more you rely on traditional media for your information, the more counterintuitive my comments will sound.

My Observations So Far

Social Media’s “Demographics Different Than Expected” observes that demographics change as time goes by.

Many marketing managers have the misconception that all social sites are the same, and thus all they need is a cookie cutter approach that will work across all the whole socialnetwork. This analysis debunks that thinking.

Hat Tip to Beth’s Blog for point me to the social media chart above.

Insights and Opportunities

In Marketing to the Next Generation (Gen Y) they talk about:

“…high school and college students which offered a fascinating insight into how to marketing to the next generation of consumers (18-24).”

Insights include just 1-2 hours of watching TV a week. They do not tolerate commercials, use TiVO and iPods. Text messaging is a huge part of how they keep in touch with friends and family. They will reject inauthentic and overly slick content and messages.

Make sure to visit Social Media Optimization because you will learn what they are receptive to and how to approach and reach the market. I learned a lot. Other resources include:

• Emergence Media also has some great content in their best posts archive on social media optimization, social media marketing, and search marketing.
• Pew Internet makes a number of reports available on their Reports: Technology & Media use page.
• Dennis McDonald has an interesting post about Social Media, Demographics, and Anti-War Demonstrations.
• MarketingVox has a potpourri of demographics section and it covers a wide range of topics. ClickZ have their own archive of demographics and technology articles.

Are Small Business Owners Small Because They Think Small?

What do business owners think about?

Thinking small. All we do by thinking small is become smaller, less than we were before. If you have been feeling small, listen to this podcast.

Fear of playing big is one of the most significant fears facing aspiring entrepreneurs. It is what keeps us mulling around ideas in our cube for years at a time while colleagues, neighbors and relatives move forward and make things happen… In this episode, I share some of my own experiences with playing small and the tremendous surge of energy and abundance I experienced when I decided to play bigger. Why not decide to play big this year? Via Stop Playing Small

Listen to Pamela Slims podcast to hear her story of how she felt invigorated when she started to play big.

Or visit Pamela’s web site to learn more about her coaching services.

Why would a business coach tell you to visit a website of another coach? There are as many different people as there are colors in the color spectrum and there are as many different coaches as there are people.

People that ‘connect’ with Pamela may not ‘connect’ with me and my style and that is just great because there is enough business out there for everyone.

Live Large!

Greg Balanko-Dickson

Business Performance Coach

Update: Challenging Business Environment Ahead

I have updated the PDF available from the post Challenging Business Environment Ahead.

Challenging Business Environment Ahead

I commented on Anita’s blog that her post titled, “Comprehensive 2007 Trend Map” analysis was interesting and yet I could not fully understand what she was saying and so Anita accepted my challenge by creating her own “Money Trends for 2007 and Beyond” chart which shows some interesting trends.

As promised, here is my contribution to the conversation Anita. When I look at Anita’s chart together with my chart I see something interesting correlations.

Observations On Anita’s “Money Trends” Chart

As I look at Anita’s trend chart I see interesting correlations between the rise of virtual currencies, death of coins, and paper currencies with the rise in the number of Echo Boomers. Business owners and entrepreneurs better wake up and smell the coffee.

Understanding Demographics and Generational Differences

Times have changed and the youth of today do not think like you would expect. Check out Gen Y: These Young People Know What They Want and make sure to check out what Jeff Cornwall says in a great post that contrasts the Baby Boomers and Echo Boomers (baby boomers kids) expectations, values, and ethics. VIA Generational Differences in Expectations Of The Workplace

Schwarzkopf Generation, 11.5 million Schwarzkopf Generation (born before 1946)

The youngest of this group turned 60 in 2006. Many do not have computers and never will, as my own Mother says �I do not have enough time, I do not know if I would use it.� no matter how much I tell her how easy it is to use, she has no interest. For those that do have a computer, having Internet access is �nice� but not something they would miss. They do not use IM and opening and sending attachments in an email can represent a significant challenge for them. They get their news from newspapers, radio, and TV.

Baby Boomers, 61.5 million Baby Boomers (1940-1964)

The single largest demographic segment (age 43-67 in 2007) were not first to come online but they have quickly adopted the internet to help them find health, financial, and participate in online support groups. They see Instant Messaging (IM) as a distraction and do not really like to use it and prefer sending and receiving email.

Generation X, 43.5 million Generation X (born 1965-1977)

Age 27 - 41 in 2005 and are the generation that has lived in the shadow of Baby Boomers. Some have called them the �sandwich generation� as they are sandwiched between the Baby Boomers and Generation Y. They are web savvy, mobile, and have the entrepreneurial bug just like the Echo Boomers (baby boomers children). Sometimes criticized as �slackers�, they nevertheless were widely credited with a new growth of entrepreneurship and the resulting dot-com boom.

Generation Y (aka. Echo Boomers), 31.5 million Generation Y or Echo Boomers (born 1978-1989)

Age 17 - 29 in 2005, this is the generation that has never known life without a persistent internet connection or a life without computers. They love Instant Messaging (IM) and manage a large list of friends via instant messaging. IM was their first social application. Many have been instrumental in innovating Web 2.0 with social applications and tools.

This is the �Post and Share� or IM generation and they prefer to get their news from their friends or a trusted source online. They spend 62% of their time reading, listening, and watching user generated content from their friends and trusted sources. Traditional media is dead to this ‘E’ Generation. In The Secret To Recruiting Echo Boomers I document that this net-generation is curious, intelligent, focused, willing to adapt to change, self reliant and confident. They are ready to pursue their dreams via entrepreneurial pursuits. Source: some information from the �Who�s Who in the Workforce�.

Planning ahead is key to coping with this large change in demographics that will take place over the next decade.

Create a HR Contingency Plan to Keep the Employees You Already Have

The brutal reality is that you will need to keep Baby Boomers working longer due to the small number of younger workers. This would also increase the cost of your health care insurance benefits as insurers adjust for the increased costs of providing older workers with full health benefits.

Plan for Increased Payroll Costs

There is no doubt that one of the major strategies will be to keep baby boomers working as long as possible. Experienced workers tend to get higher salaries than their younger counterparts.

Who Will Buy You Out?

When you do decide that it is time to exit the business the shortage of skilled and experienced employees who have the necessary skills, experience, and financial potential to buy you out.

Lower Net Return When You Do Sell

If these trends turn out as expected there will be a lot fewer potential buyers for your business, which could drive down the amount you would get for your business. If you are like many business owners, most of your net worth will be tied up in your business. So you will want to be very conservative in your estimate of how cash you will get from selling the business.

Notes About My “Significant Workforce Shortage Looms” Chart

The chart in my version is not scientific but represents the general trend and changes in the working population. In late 2004 and early 2005 I was researching my first book and created a chart that illustrated trends related to Baby Boom, Generation X, and Echo Boomer population in North America.

My chart shows a real shortage of available younger workers occurring between 2008 - 2020 as a result of low birth rate among Generation X (current age 21-43) and we do not see Echo Boomers (current age 17-29) in significant numbers until around the year 2015 which will create various issues for you to deal with.

Do Not Start a Business, Buy a Business

My 15 Reasons To Buy a Business instead of Starting one are organized under the following headings:

1. Leverage Marketplace Position
2. Window of Opportunity
3. Proven Systems - Mature Infrastructure
4. Reduced Risk of Failure

NOTE: the book is also available at Borders, Barnes and Noble in the US and in Canada you can buy it at Chapters, Indigo across Canada and Audrey’s Books, 10702 Jasper Avenue, Edmonton, AB.

This section of the web site is provided to introduce you to my new book (now shipping in 24 hours) Tips and Traps When Buying a Business.

I really do believe that Buying a Business is much better than starting one from scratch. The links on the right represent 15 reasons that make a compelling case for buying a business.

CAUTION: This is not any ordinary advice, it has proven to change the outlook of those who read it. You will find yourself seriously considering the possibility of buying a business. Shamesless Self-Promotion: if anything you read here makes sense to you, buy my book!

If you buy it direct from me (buy now button at the bottom of the page) you get to participate in a conference call with me.

This section will provide you with 14 compelling reasons to buy a business instead of starting one from scratch.

Under New Management! Imagine putting your own ‘under new management’ sign onto a business that you just purchased. Yes it is possible to buy a business and there are at least eight reasons to buy an existing business (instead of starting from scratch).

“Thank you very much. It (ebook) changed my outlook on businesses. I just ordered your book on Amazon and can’t wait for it toarrive. It will be the first business book that I’m anxious to read, in many years! Thank you!” Ken.

Go Ahead and Make Your Day: If you have always dreamed of buying a business this is the right book for you.

What is your dream business?

If you could own any business, what would it be?

Do you have doubts? Wondering if you have what it takes? Are you concerned about not knowing what you do not know?

Worry no more. Think of this book as your coach. You are the athlete and all any coach expects is that you make a commitment, trust the process, and put 100 percent of yourself into the game. Sure, it’s a lot of hard work, but anything worthwhile is hard work. This book will coach you through the entire business-buying process.

Financing Is the Least of Your Worries: If you think that you simply can’t afford to buy a business, think again. An established, successful business is highly sought after by financial institutions because businesses make a lot of money for the banks. Hence they will be eager to lend you money for the purchase of a successful business. New banks are opening all the time, so there will be many financing options available to you. If you have a 401(k) or an IRA you may also be able to use those funds to finance your purchase without exposing yourself to taxes on withdrawal.

Seller Financing: Further, my personal experience is that most business owners are only too willing to finance the purchase for you. You can read about owner financing and other funding details in Chapter 13.

1) Leverage Marketplace Position

Immediate Cash Flow

You do not have to go through the trials and tribulations of trying to get enough customers to make a profit because established customers provide an established cash flow, a.k.a. money. With an established cash flow it is just a matter of managing the available cash to achieve your business goals. You do not have the extra pressure of finding enough business to pay the bills.

1. Security and peace of mind because you do not have to worry about where the money will come from because of the revenue from established customers.
2. No changes to standard of living. You are more likely able to take a full salary buying a business than startingone from scratch.
3. Buying a business and making the transition requires a management focus whereas when starting a business requires concentrating on sales and revenue.

Money is not a Roadblock

Financing an established business with proven cash flow is appealing to both the bank and you as owner. It reduces the risk, and you will have better financing options available. If you are just buying the assets of a business, you will still need to demonstrate your ability to generate revenue, and you will have to pledge the purchased assets as collateral.

An existing business will likely have established credit terms with a bank. The banker would want to maintain a business relationship with a new owner. When you get to the point where you have a business you are ready to buy and are ready to investigate banking options in more detail, have the seller arrange a personal introduction to his or her banker. Do not approach the bank without the permission of the current owner. Aside from being an act of rudeness, it is unlikely that the banker would disclose any specifics regarding banking history and credit terms without the seller’s consent anyway.

A successful business always has goodwill and financing the sale of their own business is attractive to a seller. When structured properly they can not only extract their equity but save a lot on capital gains and taxes on the sale of the business.

SBA guaranteed loans will not exceed 50% of the total amount. However, depending on where the business is located in the U.S. you might be able to get up to 90% financed. It is done in conjunction with\ your bank, SBA and the local Certified Development Company (CDC). Funds can be used when buying a business in a depressed area, expansion of manufacturing capability as well as purchasing a business.

Cheaper to Buy a Business Than Start One From Scratch

It is almost always cheaper to buy an existing business than trying to start a business. For example, it will always cost less to buy a business than try to start one in a mature industry where the players\ are well entrenched because of the marketing, promotion, sales and advertising investment is greater than the cost to buy a customer list i.e. buy a business. Look at the net profit (before taxes) – it is almost double.

I bet you want to know how this could possibly be done right? In my book, Tips and Traps When Buying a Business you will find the information, background, and process to walk you through the process of buying a business. It is actually quite simple.

The cost of advertising, promotion, sales reps and other marketing efforts is considerable. Take a look at a real world scenario that I extracted from a real small business. Having a good understanding of this business I was able to identify that I could reduce overhead by close to $100,000 plus:

Eliminated the full time sales position.

Reorganized and retrained office staff.

Reduced owners salaries (husband and wife team).

Reduced advertising, promotion and marketing expenses to just 37.5 % of previous expenditures.

Using these strategies I would be able to pay $750,000 to buy the business, pay-off the note in just 10 years ($750,000 @ 5% interest rate) and end up with a better before tax, rate of return than the existing business. Truth is I could probably even afford to accelerate\ paying off the $750,000 note and pay it off a lot faster. But I wanted to use a conservative approach for this illustration.

Seller Financing - Opens a Whole New World of Opportunities

One of the best reasons to buy an existing business is obtaining financing from the seller. Because the financing will be provided to the business (with your personal guarantee) it would not eat up your personal credit capacity. You will still have the normal amounts available for financing a new car, renovations, or other important expenditures.

The reason for business owners to finance the purchase is that it is in their best interest. They get the interest payments that a bank, investor, or financial institution would normally get if you went out and financed the business on your own. Just like the bank, they will have a note and a security agreement (i.e., lien) on the business for the amount financed. They will require that you also provide a personal guarantee that allows them to seize your personal assets should the business fail to meet its obligations.

It does mean you will have a much closer working relationship with the owner and I have seen a few do 100% financing. Owner financing is a legitimate option plus with some good financial, corporate and tax planning it will save the seller a lot on taxes which in many cases can only be accomplished through a deal that includes seller financing.

You can learn more about seller financing in Chapter 13 of Tips & Traps When Buying a Business.

2) Window of Opportunity

Established Customer Base

When you buy an existing business you get an established customer base.

When you start a new business you have no customers and have to start from zero. So when you have an established customer base it gives you immediate cash flow.

The business has relationships with existing customers and when you buy the business you are able to leverage that relationship to:

• Flexibility to add new products or services and generate additional revenue and profits.
• Tweak operations to maximize profits whereas when you start a business you have to first establish those relationships before you have a chance to make a dime of profit.
• Segment the customer list, analyze data, and uncover customer purchase patterns. This can provide significant opportunities to improve customer service and marketing opportunities.

Shorter Time To Market

One of the great challenges for inventors or manufacturing companies is bringing their product to market. Moving from R & D to production and marketing/sales is what makes or breaks companies attempting to penetrate a market.

The same is true of a business in a start up situation. So much time, energy, and resources need to be extended to acquire market share and maintain momentum that they often fail to succeed in making any real progress, if they do it comes at a very high price – depleted financial resources.

The real cost in starting a business is time. I think of it the same way people who sell radio and TV airtime do – they cannot sell yesterday’s advertising today. Yesterday is gone. If they fail to sell out all available airtime they are not maximizing their opportunity. The same is true for every business – you cannot sell your products or services to yesterday’s customer. It is impossible since that opportunity has evaporated.

Therefore, the quicker you get to market (i.e. buying a busiuness) and start making money the better off you are.

Avoid Excessive Experimentation

Where time gets wasted in a start up is with excessive experimentation. Without a formula or well-researched plan, a business in start up mode has to experiment and try various strategies. It is the time and resources spent trying and testing marketing, sales or operational strategies that the business looses on two fronts:

1. Lost time spent on activities that do not result in any measurable or tangible result translates into a lost revenue opportunity that may have resulted in generating revenue that is now lost. Making money doing something else.
2. Experimentation with marketing, advertising, and promotion almost always involves expending a portion of your budget. When unsuccessful not only did you the money that was spent on the unsuccessful campaign. You also lost the profit those dollars were supposed to generate.

New firms face a learning curve. In the early stages of life, internal deficiencies are so prevalent that most bankruptcies occur for these reasons alone. Management must master the basic internal skills—general and financial knowledge, control, communications, supervision of staff, and market development—or it will fail solely from the weight of these problems.

Market Strength

The company you are buying already has a market position and recognition in the community and the industry. Whereas, when you start a new business, you have no recognition or position in the marketplace. If nobody knows\ about the products and services you sell, they cannot buy them.

If your market is in a mature market dominated by companies ‘long in the tooth’ starting a business is out of the question because the cost of acquiring customers is just too expensive, time consuming and unrealistic.

Without positioning, you have to spend money on marketing and advertising. Plus, during the time it takes to establish your market position, you will be earning less revenue while overhead remains the same and time is lost. For example, in the time it would take to penetrate an established market with a start up – you could be making money operating an existing business that you purchased.

Starting a business in a growing industry it can still take years to establish a serious and recognizable presence. Starting a business in an emerging industry makes it even more challenging because of the time it takes to figure out the marketing and sales mix it takes to succeed.

When you buy an established business, experimentation and testing can be kept to a minimum leaving energy and resources to be invested in expanding relationships with existing customers and adding new products or services.

3) Proven Systems - Mature Infrastructure

The operations, systems, and procedures of an existing business can make life a lot easier for you during the transition when you have many details to absorb. It is easier to make changes to systems that already exist than to create new systems from scratch or by trial and error.

Plus you save time and money by not needing to train staff and\ implement new systems.

This is my favorite reason to buy a business instead of a franchise.

A well-established business typically has mature systems that are a ’success formula’ that reduces risk the same way a franchise providing systems ensures success for the franchisee. There is no need for experimentation as someone else has already paid the price and risk. Plus no franchise fees!

This provides you with an opportunity to concentrate on tweaking the controls, management, and operation to put your own signature on the operation. Bottom line, you do it with less risk.

Experienced Employees

Another valuable asset you get with an established business is experienced and\ dedicated employees. In the service-based economy of the 21st century experienced employees are a huge advantage. They are trained, experienced, and have relationships with the customers.

With a start-up business you are starting from scratch. Experienced employees can really make a big difference in helping you run the business, achieve your goals, and provide great customer service. Starting a business from scratch requires recruiting, interviewing, selecting, and training employees. Whereas when you buy a business the biggest thing you have to do is fit in with the existing team.

In the transition period, experienced employees provide a buffer allowing you to focus on familiarizing yourself with the operation. You will appreciate this time, as there will likely be things you want to change within the business. With these dedicated and experienced employees you will have time to make modifications while the business profitably chugs along. This can be very different from a start-up situation, where you have to focus on getting new customers, creating systems and procedures, and getting the cash flowing.

Recently it has become apparent that the Millennial Generation, born after 1985, has a strong orientation toward entrepreneurship.

They are confident that they can create great results and earn a satisfactory living – by going into business for themselves – which means they are not available to become employees of existing companies. They are self-aware, astute, creative, and comfortable taking the risks involved with owning a business and as a result simply not interested in working for someone else. So one of the best ways of getting young entrepreneurs with the drive, intellectual curiosity and energy is to buy their business and merge them into your operation.

That being said the other end of the age spectrum is also actively doing the entrepreneurial gig. Companies like DELL and Microsoft were started by younger entrepreneurs like Michael Dell and Bill Gates but the startup domain once dominated by young, highly-driven, technology-oriented entrepreneurs - is quickly being taken over by individuals who, while still driven and tech-savvy, happen to be in their 50s, 60s and 70s.

As companies outsource more and more functions, they end up outsourcing to firms that could quite possibly include people they may not have been able to hire because of their age.

The makeup of the workforce in the 21st century is very different and requires a different approach – like buying a business – instead of starting one from scratch.

4) Reduced Risk of Failure

Reduced Risk of Failure

An established business has a reduced risk of failure compared to a new business that has no customers, no cash flow, no market recognition, and no established trading relationships with suppliers.

Buying a successful existing business propels you forward in a way that a brand-new business cannot.

If a business has been successful, there is no reason to expect that it would not be successful once you take it over, especially if you can demonstrate in your business plan your vision and goals to increase the performance of the business.

Scarcity of Young Workers

In a report from the Herman Group - Young Entrepreneurs Drain Labor Pool “early indications suggest that the Millennial Generation, born after 1985, has a strong orientation toward entrepreneurship. They feel confident that they can achieve great results–at least earn a satisfactory living—by going into business for themselves. This population cohort is showing itself to be self-aware, astute, creative, and comfortable taking the risks involved with businesses.”

“This scenario is a “good news—bad news” situation. While it is\ inspiring to see young people with a desire to create something, to try new business ventures while they are young, there is also a downside. These entrepreneurs, full of intellectual curiosity and energy, are often ideal employees for existing companies. However, if they are business for themselves, these unique human resources are usually not available to work for other employers. They are simply not interested.”

This does not bode well for any business that needs young workers. To access this group of workers, you will need to either outsource to gain access to this entrepreneurial group or buy a business to build your staff.

You could buy a business owned by these young upstarts and merge them into your existing business or in the worse case simply outsource work to them. I actually think that outsourcing work to these motivate and inspired people is the best way to build a business relationship and test drive the ‘owner’ to see if your styles are complimentary. If so, discussions to become part of a larger organization – that they trust – will appeal to their desire for personal growth.

Senior Entrepreneurs Make up 27% of the Self-Employed

An insightful article on the Hispanic Business web site stated that, “…the last 20 years of entrepreneurial pursuits, youth has ruled the roost. Bill Gates, Michael Dell and Napster creator Shawn Fanning all started their ventures before the age of 21.” It goes on to point out that “… the latest government figures indicate that the tide is turning toward more experienced individuals, many of whom may have lost their jobs during the three-year wave of job cutting, which has yet to let up.”

The article goes on to claim access to “…unpublished government data obtained by Challenger researchers show that … has increased 22 percent from 2,136,000 in May, 2000 to 2,598,000 as of May, 2005.”

“These senior entrepreneurs now represent nearly 27 percent of all self-employed workers, which is second only to 45- to 54-year-olds who make up more than 27 percent of the self-employed. Clearly, experience pays when it comes to entrepreneurship.”

“While self-employment was expanding among those 55 and up, it was falling for almost every other age group. The biggest group of self-employed workers in 2000 was the 35- to 44-year-old cohort… their numbers have fallen 10 percent.

“The only other age groups to see an increase in self-employment between 2000 and 2005 were 20-to 24-year-olds and 45- to 54-year-olds, which increased by 29 percent and more than 6 percent, respectively.”

This is good news for business buyers because the sheer number of older self-employed baby boomer business owners could mean more businesses for sale which could drive prices lower for business buyers.

Baby Boomer Business Owners Have a Liquidity Problem

The single largest demographic segment baby boomers, are now beginning to look at retirement options. Depending on your view, this is either an opportunity or an obstacle. Baby boomer business owners’ greatest problem is to figure out a way to retire and extract the equity that has built up in their businesses.

For many baby boomers, that will mean selling their businesses and converting their equity into cash or retirement income.

Because Baby Boomers have a liquidity problem that is created by one simple economic principle: supply and demand. Like anything else, supply and demand affects the sale price of a business. The more buyers (the greater the demand), the higher the asking price. Fewer buyers will result in lower sale prices.

If all baby boomer business owners try to sell their businesses at the same time, there will be an oversupply of businesses for sale— meaning that asking prices will drop as finding a buyer becomes more difficult. The implications are vast.

Without a succession plan or buyer waiting in the wings, baby boomers will struggle to get the full value out of their businesses. This will be bad for the baby boomers, but good for you as a potential buyer.

But baby boomers have another option. If they have not planned their business succession in advance, and they’re unwilling or unable to liquidate at a lower price, they may continue to work well into retirement. With postretirement life spans of 25 years or more, baby boomers will need adequate retirement funds to maintain the quality of life they have become accustomed to. If they have not saved enough money to fund that long retirement, baby boomers may decide to keep running their businesses into their retirement years. If this happens on a large scale, the supply of businesses for sale will drop dramatically, and prices will rise. This doesn’t mean that potential business buyers have no hope, but it does mean that you will have to get creative to find a business owner willing to sell you the business that is funding his or her retirement dreams.

There’s no way of knowing for sure what will happen as the baby boomers retire, in any event their actions will impact the business landscape. For that reason, it’s important to keep these scenario’s in as you consider buying a business.

Should I Buy a Distressed Business That Is Losing Money?

I got an inquiry over the weekend from a entrepreneur who located a business that the existing owner listed for sale. The question I was asked was how much is the business worth? How do I come up with a price?

A Deal with Some Hair On It

The important part of the inquiry is that the business technically showed a profit except for the fact that the owners did not take salaries, pay rent (they own the building), or invest in marketing/promotion. So when factoring in the costs associated with those expenses the business is losing money.

I have seen businesses whose owners do not take an income from the business or do not show that they are taking income - sometimes it is just the owner treating the business as an investment. Other times it is a tactic they use to hide income and paying taxes. If it is the later, avoid that business like the plague.

There are two common methods to buy a business:

1. Purchase the shares of the corporation from the previous owners and takeover control of the corporation along with all the assets and liabilities.
2. Buy the assets of the business including the land, building, and equipment. Buying the assets of a business is popular because you have none of the encumbrances that you assume when you do a share purchase.

Buying a distressed business can represent a real opportunity provided you know the industry and have experience with the business. Without direct experience buying a distressed business can be a nightmare except when you wake up the nightmare does not go away.

Cost of a Start Up vs. Buying the Shares of a Business

The first comparison that needs to take place is what the cost of a startup would be including advertising, marketing, and sales costs to achieve the same level of sales. Then compare that to what you would have to pay for the business including the cost of the capital (or loan) used to buy the business.

If the total purchase (interest, loan repayment) is less than what it would cost to set up the business from scratch then it might make sense to make a deal. With an established business you get an established customer base, almost immediate cash flow.

Buying the Assets of a Business

The simplest transaction is to buy the assets of a business and then operate under your own corporation. Just make sure that you check to see there are no liens on the equipment otherwise you could end up losing your equipment and the cash used to buy it.

The Hybrid Deal

For every situation there are always exceptions. I have seen deals where the owner of the business sells the equipment for a negotiated price and then a separate deal is made for the customer list. You get access to customers, an endorsement from the previous owner, and the equipment but without the liabilities.

Whether you are buying assets or doing a share purchase make sure you include a non-compete clause that prevents the previous owner from operating the same type of business down the street or within a certain geographic area.

Personal Decision

Making a decision to buy a distressed business is a personal decision that requires a lot of self-knowledge, discipline, and intuition. You know you can make the business work but the real challenge will be in transferring that knowledge to paper and a business plan because your banker will want to see what you plan to do with the business.

If you plan on self-financing the purchase, you owe it to yourself to apply the same due diligence as a banker or investor because you are the investor. You need to be able to switch roles from investor/banker, business owner, and entrepreneur when needed. That is a discipline that you can learn but requires focus and the ability to switch perspective.

Reduce Your Risk When Buying a Business

Locating a business to buy is a time consuming process. By the time you find a good candidate you have likely met with the seller and will be anxious to get the deal done. Slow down. There are way more reasons to slow down than there are to be in a hurry.

MP3 File

Beware of the 10 Day Due Diligence Period

Typically, sellers and brokers insist on a due diligence period of 10 days. That not enough time to do a quality review of the business. When they push you for a short timeline they thwart any chance you have to conduct a thorough review of the business. Negotiate for a 30 day Due Diligence period, it will allow you to get to know the business, observe a full monthly cycle, and time to do some planning.

After all, if you are the right buyer, the seller should be more than willing to give you thirty days. However, if the seller is accepting offers from multiple buyers and the other buyers have agreed to a 10 day due diligence period you will have to make a decision whether or not you wish to continue under those circumstances.

Should you decide to continue, the seller is going to require ‘earnest money’ (typically 10% of the selling price) which is placed in trust with his attorney and returned if the deal falls through. Make sure you use a proper Letter of Intent (LOI) or Offer to Purchase (OTP) prepared by an attorney with experience in this area.

If you have been able to negotiate a 30 day Due Diligence period, your first step is to gather as much as you can about the business, decide if you still want to buy the business, and then formulate your plan for buying the business.

When a Business Broker is the Intermediary

If you found this company through a classified ad, online ‘business for sale’, or business broker you will want to adjust your strategy. One of the reasons sellers use brokers is to try and set up competitive bidding to ensure the seller gets as much as possible from the sale. Using classified ads (newspapers or the Internet) is not in the buyers best interest because the best businesses never make it to the market.

Before Finalizing The Deal

Before you sign and accept the Letter of Intent or Offer to Purchase take time to map out at least three strategies including:

The Deal: following the due diligence period you will need to make a decision to proceed with the purchase as outlined in the LOI, decline to buy the business, or re-negotiate some of the terms. Reasons to bail on a deal can include anything from the purchase price, payment terms, or other issues identified during the Due Diligence period.

Takeover/Transition Plan: create a plan for the first 90 days with an eye to making the transition as painless and smooth as possible. This will require some time to prepare and document your business, marketing, and transition plan.

First Year: identify the goals and objectives you want to accomplish in the first year. Be as specific as possible, most goals can be expressed as numbers: e.g., sales, percentage income by product or service group, expected return on investments. Other legitimate goals can include:

• Improve customer service.
• Renovate premises.
• Add new products or services.
• Reduce costs.

Now is the time to put your own mark on the business. Your goals should be specific and measurable.

Create two sets of goals: short term and long term. Short-term goals can range from 6 to 12 months while long-range goals can be 2 to 5 years. Create a list of goals with a brief description of action items. Since you are buying an existing business, you should put an emphasis on your short-term goals. You should include important milestones, including notifying customers of the change of ownership, special marketing campaigns, and staff meetings.

Allow yourself a period of adjustment and extra time for customer communications, meetings with suppliers, and staff.

Avoid Three Goal Setting Traps

I think there are three reasons people have a negative view toward goal setting:

Setting unrealistic goals or timelines.

Not being clear about the ‘cost’ of attaining a goal.

Not being willing to do enough work or pay the price to achieve the goal. Anyone who has accomplished great things in this world achieved their results at a price. Their achievement was paid for with the currency of dedication and consistency.

Identify the ‘results’ you want, be prepared to pay the price of hard work, and then set your goals after you are absolutely sure this is the right business to buy.

My book Tips and Traps When Buying a Business explains the process, provides the strategies, and coaches you through the entire undertaking step-by-step.

Reduce the Risk of Buying a Business

Locating a business to buy is a time consuming process. By the time you find a good candidate you have likely met with the seller and will be anxious to get the deal done. Slow down. There are way more reasons to slow down than there are to be in a hurry.

Beware of the 10 Day Due Diligence Period

Typically, sellers and brokers insist on a due diligence period of 10 days. That not enough time to do a quality review of the business. By pushing for a short timeline they thwart any chance you have to conduct a thorough review of the business. Negotiate for a 30 day Due Diligence period, it will allow you to get to know the business, observe a full monthly cycle, and time to do some planning.

After all, if you are the right buyer the seller should be more than willing to give you thirty days. However, if the seller is accepting offers from multiple buyers and the other buyers have agreed to a 10 day due diligence period you will have to make a decision whether or not you wish to continue under those circumstances.

Should you decide to continue, the seller is going to require ‘earnest money’ (typically 10% of the selling price) which is placed in trust with his attorney and returned if the deal falls through. Make sure you use a proper Letter of Intent (LOI) or Offer to Purchase (OTP) prepared by an attorney with experience in this area.

Slow Down You May Be Moving Too Fast

In my book Tips and Traps When Buying a Business I provide detailed strategies, tactics, and guidelines to help you locate, negotiate, and buy a business without using a broker or classified ads.

If you have been able to negotiate a 30 day Due Diligence period, your first step is to gather as much as you can about the business, decide if you still want to buy the business, and then formulate your plan for buying the business.

When a Business Broker is the Intermediary

If you found this company through a classified ad, online ‘business for sale’, or business broker you will want to adjust your strategy. One of the reasons sellers use brokers is to try and set up competitive bidding to ensure the seller gets as much as possible from the sale. Using classified ads (newspapers or the Internet) is not in the buyers best interest. My book Tips and Traps When Buying a Business explains the process, provides the strategies, and coaches you through the entire undertaking step-by-step.

Before Finalizing The Deal

Before you sign and accept the Letter of Intent or Offer to Purchase take time to map out at least three strategies including:

The Deal: following the due diligence period you will need to make a decision to proceed with the purchase as outlined in the LOI, decline to buy the business, or re-negotiate some of the terms. Reasons to bail on a deal can include anything from the purchase price, payment terms, or other issues identified during the Due Diligence period.

Takeover/Transition Plan: create a plan for the first 90 days with an eye to making the transition as painless and smooth as possible. This will require some time to prepare and document your business, marketing, and transition plan.

First Year: identify the goals and objectives you want to accomplish in the first year. Be as specific as possible, most goals can be expressed as numbers: e.g., sales, percentage income by product or service group, expected return on investments. Other legitimate goals can include:

• Improve customer service.
• Renovate premises.
• Add new products or services.
• Reduce costs.

Now is the time to put your own mark on the business. Your goals should be specific and measurable.

Create two sets of goals: short term and long term. Short-term goals can range from 6 to 12 months while long-range goals can be 2 to 5 years. Create a list of goals with a brief description of action items. Since you are buying an existing business, you should put an emphasis on your short-term goals. You should include important milestones, including notifying customers of the change of ownership, special marketing campaigns, and staff meetings.

Allow yourself a period of adjustment and extra time for customer communications, meetings with suppliers, and staff.

Avoid Three Goal Setting Traps

I think there are three reasons people have a negative view toward goal setting:

1. Setting unrealistic goals or timelines.
2. Not being clear about the ‘cost’ of attaining a goal.
3. Not being willing to do enough work or pay the price to achieve the goal. Anyone who has accomplished great things in this world achieved their results at a price. Their achievement was paid for with the currency of dedication and consistency.

Identify the ‘results’ you want, be prepared to pay the price of hard work, and then set your goals after you are absolutely sure this is the right business to buy.

Buying a Business - Buying a Consulting or Professional Services Business

The podcast version:

MP3 File

To listen to it on your iPod or MP3 Player you can subscribe and downlaod shows automatically by Subscribing via Feedburner

The challenge with buying a professional services, consulting, or solo practice is that the value of the business typically lies in the relationship between the owner and the customer. If the owner sells the business to a third party the seller is free and clear and the buyer is left to deal with the customers and a major trap that he/she may not have anticipated ??? the transference of goodwill.

Transference of Goodwill

In a professional service, consulting, or solo practice the symptom for this trap is when business drops off dramatically. There is no guarantee that the ???feelings of goodwill??? built up with years of service by the seller will transfer to the buyer. In fact, when faced with a new person (you the buyer) providing the service many customers will use it as a reason to justify moving to a new service provider or company.

There are a number of solutions including:

1. Negotiating a discount with the seller to offset for lost business following the takeover.
2. Conduct an aggressive marketing and sales campaign to connect with the customers and establish your own relationship with them.
3. Keep the seller on for a year or two to help make the transition appear less dramatic.
4. Hold a percentage of the purchase price in a trust account to be used as insurance against lost revenue.

Depending on the size of the business you are buying one or all of these strategies may be needed to preserve the integrity of the business and make sure that you do not pay too much.

Buying a Business - The Goodwill Controversy

When you buy a business should you pay goodwill? What is goodwill? How much is too much to pay? How does your accountant view goodwill?

MP3 File

To listen to it on your iPod or MP3 Player you can subscribe and downlaod shows automatically by Subscribing via Feedburner

Two NEW Buying a Business Podcasts Released

In the last two days I have produced two new Buying a Business Podcasts.

1. Long-Term Vision: Buying a Business Podcast
2. Can entrepreneurship be taught? Buying a business podcast

I am planning some changes so if you are a regular listener to the podcast please check them out.

P.S. I am planning a call in Talk Show for four listeners who will get a chance to get answers to their buying a business challenges and in future shows Wayne Issacs, CPA and Attorney will become part of the podcast.

P.P.S. Phil Gerbyshak and I will continue to do out joint podcast and it will move to a new feed and podcast yet to be determined. Until that happens you can still hear Phil and I via the Buying a Business podcast.

Global TV Interview

I appeared on the Global TV Morning Show on January 30th, 2006 and thought you might be interested to hear the interview where I talk about the book and buying a business.

Cheaper to Buy a Business Than Start One From Scratch

It is almost always cheaper to buy an existing business than trying to start a business. For example, it will always cost less to buy a business than try to start one in a mature industry where the players are well entrenched because of the marketing, promotion, sales and advertising investment is greater than the cost to buy a customer list i.e. buy a business. Look at the net profit (before taxes) - it is almost double.

I bet you want to know how this could possibly be done right? In my book, Tips and Traps When Buying a Business you will find the information, background, and process to walk you through the process of buying a business. It is actually quite simple.

The cost of advertising, promotion, sales reps and other marketing efforts is considerable. Take a look at a real world scenario that I extracted from a real small business. Having a good understanding of this business I was able to identify that I could reduce overhead by close to $100,000 plus:

• Eliminated the full time sales position.
• Reorganized and retrained office staff.
• Reduced owners salaries (husband and wife team).
• Reduced advertising, promotion and marketing expenses to just 37.5 % of previous expenditures.

Using these strategies I would be able to pay $750,000 to buy the business, pay-off the note in just 10 years ($750,000 @ 5% interest rate) and end up with a better before tax, rate of return than the existing business. Truth is I could probably even afford to accelerate paying off the $750,000 note and pay it off a lot faster. But I wanted to use a conservative approach for this illustration.

Answers from the Author: Tips and Traps When Buying a Business

What motivated you to write a book about buying a business?

Baby boomers, are just now beginning to seriously consider retirement options as the oldest of them start to turn 59 (as of 2005). For baby boomer business owners’ greatest problem is to figure out a way to retire and extract the equity that has built up in their businesses. That will mean selling their business to convert their equity into cash or retirement income.

This spells an opportunity for younger baby boomers and Generation Xers to buy a healthy, existing business versus starting from scratch.

What specific life/work experiences do you have that makes you qualified to write about buying a business?

I have been a fulltime business coach since 1991 and have experience in 32 industries and 100’s of entrepreneurs. This broad experience provides me with a unique perspective on the opportunity and process of buying a business.

What problem are you trying to solve or situation you are trying to change with this book?

Bridge the information gap and provide a structured process to buy a business step-by-step.

Who do you see benefiting the most from your book Tips and Traps When Buying a Business book?

The book provides beginners and experienced entrepreneurs with the information they need to maintain objectivity, negotiate with confidence, and create a plan to take over a business. Younger baby boomers (now 41) and the older Generation Xers (age 40) are in a unique position to be able to capitalize on the opportunity created by the hundreds of thousands of baby boomer business owners that need to extract the cash trapped in their corporations.

What are the consequences for business if they do not heed your advice?

Business owners (sellers) who hold onto their businesses too long will be forced to sell quickly and end up with less cash than if they had sold the business to a buyer sooner.

Why would someone buy a business?

There are at least 15 reasons here are a few.

1. Cheaper to buy a business than start one from scratch because the seller has already paid those costs.
2. Reduced risk of failure. When you buy a business you get a list of established customers, established cash flow, shorter time to market.
3. Seller Financing. If the deal is structured properly, sellers get huge tax advantages by financing the purchase, which does not affect your ability to borrow on a personal basis.

What is the difference between buying an established business versus a franchise?

A franchise is a great option if you are more of a manager than an entrepreneur because you just follow the training provided by the franchisor and will likely end up with a profitable business. Whereas, the entrepreneur will be better suited to buying an established business because they get the advantages of a franchise (proven systems, marketing, cash flow etc.) without the burden of franchise fees with a lot more flexibility.

What is the best method to find a business to buy?

It is not looking in the newspaper, web sites, or business brokers because the best businesses never make it to market and are quietly sold or given away each year. The book was written to provide you with the information, tools, and concepts to help you identify potential acquisition targets without using business brokers, classified ads, or web site directories.

How do you determine a fair price when buying a business?

This is the most common question I get asked and also the most complex to answer.

Valuation is not absolute. Valuation is simply what a company is worth to the buyer and seller of a business. In reality, business valuation is a matter of supply and demand, and the business is worth as much as a buyer is willing to pay.

Whether you evaluate a business according to the value of a third-party appraiser provides or a business plan demonstrates remember, it is at best a guess. A guess based on assumptions. How accurate your assumptions turn out to be only time will tell.

The actual value of a business is dependent on market conditions and your plans for the business. Your plans for the business can make all the difference in the world. So the answer is, it depends.

Often buyers will hear business brokers refer to the asking price for a business as a multiple, for example, 2 times annual earnings (twice the annual net profit). Certainly there are industry norms and history that brokers and sellers use to come up with a ballpark price but that does not necessarily help you as a buyer. In fact reliance on any one valuation method, may cause you pay too much. I recommend buyers use multiple valuation models to examine the price of a business they want to buy.

My book explains how to use five different valuation methods, however answering question of “What is a fair price to buy a business - requires some work on your part - and might be counterintuitive. Let me explain.

The only safe way to figure out a fair price to pay for buy a business is to write a business plan before you sign on the dotted line. The process of writing a business plan forces you to examine every aspect of the business - what is great about writing a business is that you will see the business at a more granular level and likely uncover opportunities to restructure and reorganize the business - thereby increasing its profits. Which of course makes buying the business easier and more appealing.

I have seen cases where a new owner was able to restructure the business, increase its profits and pay off the seller quicke