Cheaper to Buy a Business Than Start One From Scratch
January 30, 2006
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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.
Nothing New Except a New Perspective
January 30, 2006
In an essay by Richard Edelman the power of peer-to-peer marketing communications has been measured.
The most profound finding of the 2006 Edelman Trust Barometer is that in six of the 11 countries surveyed, the “person like yourself or your peer” is seen as the most credible spokesperson about a company and among the top three spokespeople in every country surveyed. This has advanced steadily over the past three years.
Meanwhile, “friends and family” and “colleagues” rank as two of the three most credible sources for information about a company, just behind articles in business magazines. Again, in the US, the “colleagues” number has jumped from 38% in 2003 to 56% in 2006.
The article goes on to say, “The Edelman Trust Barometer shows clearly the deep trust void facing traditional institutions including business, government, and the media.”
My take away from reading this article is that the “credibility void” in business, government, and the media while at an all-time low also offers an opportunity. An opportunity to involve your employees, customers, and fans to communicate your company values and mission.
Without this support a small business will struggle to make a positive impression on its key markets and stakeholders. Look what the echo boomers (baby boomers kids) are doing:
Teen Market: There is sharing of content because now we can do it easily, quickly, and colorfully. The Pew Center for Media noted that 60% of US teens have created and shared content on the Internet.
Practical Steps
- Be Open: Explain to customers and employees what is happening in the business.
- Encourage Participation: Encourage employees to blog, podcast, and participate in ’shared spaces’ like MySpace, Near Time, and others.
- Referral System: If you do not have a methodical, systematic way to garner real introductions and personal referrals you are missing out on a huge business opportunity.
These are the types of systems and processes you will incorporate into your business using my coaching system.
Answers from the Author: Tips and Traps When Buying a Business
January 26, 2006
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.
- Cheaper to buy a business than start one from scratch because the seller has already paid those costs.
- Reduced risk of failure. When you buy a business you get a list of established customers, established cash flow, shorter time to market.
- 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 quicker all because they did a little extra work upfront.
What are some of the common mistakes people make when buying a business?
Buying a business is like falling in love. Initially you are cautious and wary, but as you begin to dance, you realize that you like each other, then excitement builds and you start to overlook important details. As the song says, “Slow down you move to fast.”
What are some of the important trends in business and buying a business?
Entrepreneurship has exploded in Canada and the US. 17 per cent of baby boomers state that they plan to start a business in retirement and even more boomer business owners plan on keeping their businesses well into retirement. Buying a business reduces the risk on their retirement cash when compared to starting a business. A start up has no customers, no cash flow, and has to setup from scratch whereas a established business has proven systems, cash flow, and relationships with existing customers.
How do you finance the purchase of a business?
You can finance in one of three ways: use a bank, get investors, or my favorite seller financing. Bank financing can be used if you have a great credit, personal assets you are willing to pledge as security after you make your own investment in the business. Typically, a bank will want to see you invest at least 25 per cent of the purchase yourself. Depending on where you live there may be other assistance available through government sources or programs. Investors or venture capital might be an option except that you will give up a portion of your equity and in some cases they will want majority control.
Seller financing when well structured is often the best option for both the seller and the buyer. The seller ends up saving a lot on taxes that would otherwise be paid to the tax department and as the buyer you get financing without typical bank encumbrances and if desired the ongoing advice and support of the seller.
Should you buy a business in an industry you have not worked in?
No. You do not know what you do not know. If you have a specific type of business you want to own - go get a job working in the kind of business you want to buy. Two things happen, you get to learn about the business on someone else’s dime and if you don’t like it, you quit and move on. It is much harder and more expensive to exit a business you own than to quit a job as an employee.
Do you have any other books?
My second book Tips and Traps for Writing an Effective Business Plan is due in stores in September 2006.
What is the difference between a business coach, life coach, and other professional advisors?
Generally professional business advisors simply told you all of the ’stuff’ that you should be doing. While the information may have been good, oftentimes life gets in the way of implementation, and you continue doing what you have always done.
That’s where personal effectiveness (life coach) comes in: time management, goal setting, and other personal effectiveness strategies ensure that you actually make things happen.
Personal effectiveness has its limitations. I am sure you recognize that a positive attitude and passion are great, but if you don’t know the first steps to take (as well as make sure those steps are in the right direction), you will be positive - but broke!
That’s where business effectiveness (from a business coach) comes in - a business coach will have many programs and strategies to improve your profits, make you a better leader, help you to systemize tour business, and help you maintain a better staff!
Not only will you know what to do, but you will also take positive actions every week that will literally drive your business forward!
The reason that this process always works is relatively simple. It combines the best learning of both personal and business effectiveness through the ages. Successful people have a lot in common. Successful businesses have a lot in common. Most business coaches have relevant experience and are trained in how to help you implement a combination of these powerful lessons.
In the News - The Edmonton Journal
January 24, 2006
On page F2 of the Edmonton Journal today, January 24, 2006 was a story “There’s no need to begin at the very beginning” introducing my book Tips and Traps When Writing a Business Plan to the Edmonton market. To see the story, click the image below.
Buying a Business? Avoid the Valuation Trap
January 24, 2006
I was speaking to a reporter yesterday, he was interviewing me about my book, Tips and Traps When Buying a Business. I have to admit that I mishandled answering his question I was not prepared for the way he asked the question.
He said: “You speak about valuation but you do not provide hard facts about valuation.” And I responded by saying that I dealt with the valuation topic by providing explanation about business valuation methods. But he was not really satisfied with that answer.
After hanging up the phone, I thought of how I wish had answered his question.
He wanted to know if there were any rules of thumb about business valuation and of course there are industry norms and methods used by accounting firms. I have seen valuations range from one or two times annual earnings to as much as seven (7) times.
Buying a Business Is Unlike Anything You Have Ever Done
I think our shopping habits from other large purchases ??? say a house ??? lead us to try to figure out ‘how much business we cab afford’ to buy. Like a candy store and say “I would like to buy $100,000 worth of that red one.” I realize this example is extreme but I use it to make a point.
The price matters not if you cannot afford it. How do you know if you can afford to buy a business? You could base it on how much money you have to invest or how much you can invest and borrow the rest from investors or a bank. Wait, that is the worst way to make a decision on whether to pursue buying a business.
It is About What You Can Do With the Business
It does not even matter how much the owner is asking for the business because you will not buy it if you cannot afford it. The only way you will really know if you can afford to buy the business or not, is to write a business plan. If your business plan shows you can make money plus repay the loans and you really like the business ??? buy it.
I had a customer pay seven times annual earnings to buy a business. The circumstances were unique, the buyer had no cash and the owner financed the purchase 100%. Did he overpay for the business, probably, but if you were selling it and taking some risk you would want to be rewarded for the risk right?
Where else could you find someone willing to finance a 1.5 million dollar purchase for someone with no money?
In this situation, the buyer was a key employee and made the owner a lot of money working for three years while the owner got a chance to ‘test drive’ the buyer. I say the buyer earned the 100% financing through sweat equity.
Before You Run Out Pitching Sellers to Finance 100% of the Purchase??
I want to say that you can afford to buy any business that makes money and makes sense from a business perspective - but that requires a bit more of an explanation. Here is the real important lesson. Buying a business is a complex decision with many variables that could make a significant difference between making a ‘buy’ or ‘no buy’ decision.
If you rush into making a deal I guarantee that you will overlook something, either pay too much or find out something you’d wish you had known before you signed on the dotted line.
Buying a Business is a Technical Decision - Not an Emotional One
I have calculated that there are at least 467 factors that go into making a business succeed. If you want to buy a business without paying too much or ending up with an albatross, take your time. Time is the great equalizer.
The seller has been with the business for years and that gives him or her a significant advantage. He will know the recipe to the ’secret sauce’ and knows where the bodies have been dumped. (I apologize for being so graphic but you get the idea) To get the advantage back in your favor, you need time ??? time to observe the business through at least one full billing cycle - and you need structure.
Structure? Structure? What is Structure?
Bringing structure to buying a business is all about the ‘process’. The process I recommend is to write a business plan before you sign on the dotted line. I have read lots of books and articles that talk about writing a business plan immediately after taking you get the keys. I only coach people who are buying a business ??? so I have no distractions or conflicts ??? the only thing that matters is you the buyer.
My book will give you the structure, process, and coach you through the process to buy a business. It also includes a guide on how to write an ‘Acquisition Plan’ a.k.a. business plan. If you are diligent and work the process, write a business plan, you will know exactly how much the business is worth ??? when is the best time to have that information? Before or after you sign on the dotted line?
I have to warn you. My view is not a commonly held viewpoint because it involves work and slows buyers down and sales people, brokers, and sellers will want you to make a quick decision. Resist! My book will give you tips on how to handle yourself, sell the seller, and how to get the time you need to properly evaluate buying the business in question.
You Can Pay Me Now or Pay Me Later
You can pay me now and buy the book or pay me later to help you fix the mess you got yourself into, I hope you choose to pay me now and buy the book. It is an easy read and will open your eyes and give you the information you need to maintain control and make a profitable business decision.
Move Beyond Mindless Dribble and You Too Can Innovate
January 16, 2006
I do not know how many times I heard someone, media, or big business say that ‘people do not like change’. It is not true, we love change and for decades the media has dictated what we will hear and watch. They have pushed images and sound bites at us hoping to catch our eyeballs. They package it within a container of questionable content. Content that has been declining in value for decades.
These are the same media hacks who for decades, have been telling us that we hate change. That is just a big pile of horse manure!
We Love Change and I Can Prove It
People adapt. Since the beginning of days we have been adapting and changing. It all began with the creation and use of primitive tools. We learned how to use fire and ultimately harnessed electrical energy. Where would we be without it?
- Invention of the wheel
- Electricity
- Printing press
- Telephone
- Television
- World-wide-web
To Innovate is to be Human
Bottom line, we have been constantly adapting as we introduced new methods of doing things. That is the definition of innovation. We love to change things and entrepreneurs love to shake things up more than most any single segment of mankind. What is different for business owners in the 2st Century is it is much more difficult - not impossible - just more challenging to innovate following centuries of constant change.
If Someone Shows You an Innovation, Will You Recognize It as an Innovation?
Would you recognize an innovation if it was handed to you? According to Wikipedia, Apple computer did because the iPod was not invented inside Apple…
“Tony Fadell first conceived the iPod outside of Apple. When he demonstrated his idea to Apple, the company hired him as an independent contractor to bring his project to the market, putting him in charge of assembling the team that developed the first two generations of the device. Apple’s Industrial Design Group, working under the direction of Jonathan Ive designed the subsequent incarnations.”
Top marks to Apple for recognizing a winner when it was offered to them!
Innovation is About Ideas, Not Technology
To often we fall into the trap of thinking ‘technology’ when we hear the word ‘innovation’. Innovation is a remarkable human trait.
We have always sought improvement by being creative and changing how we get things done. With the advent of the Personal Computer, innovation has increasingly involved the use of technology but it all begins when someone has an idea.
What We Can Learn About Innovation from the Computer Industry
In the early days the computer industry was a counter culture fueled by innovation. When Steve Jobs went to work at Atari after leaving Reed College, Jobs renewed his friendship with Wozniak. They developed computer games for Atari and got much of their inspiration from the Homebrew Computer Club.
In 1974 Steve Jobs innovative idea of a personal computer led him into revolutionizing the computer hardware and software industry. When Jobs was 21, he and a friend, Wozniak, (see Passion and Curiosity Begets Innovation) built a personal computer called the Apple.
When the two Steve’s started computers were massive monsters with vacuum tubes and today the iPod has more computing power and memory than any of those early computers.
- They had a Vision: a small box that ordinary people could use.
- Creativity by the Boatload: to build their computer Wozniak had to solve many problems that had not previously been attempted, they invented the 3 inch floppy drive for the Apple II with Amdek.
- Windows and the Mouse: they reintroduced the windows interface and mouse technology that has since set the standard for all software applications interfaces.
As I listened to Steve Wozniak recounting his time at Apple what struck me was the sheer passion and possibility thinking that seemed to ooze from his pores. I do not know the man but I do not think he ever doubted that he would be able to solve every challenge and problem. It is all about thinking about what is possible.
Since then the personal computer has been the technology platform that has provided an impetus for change and innovation. Technology is the enabler and great equalizer. Just compare the growth in cellular technology and cell phones with the frozen and depressed wired telephone market in the last 10-20 years.
I do not know how Apple has been so consistent with innovation but major innovations are not planned, they are discovered while looking for something else, an adaptation or modification while looking for a solution to a specific problem - that is the beginning of change.
Creativity Begets Change
To be creative is to breathe; it is a natural human experience to adapt, learn and adjust. Every major breakthrough was an accident, not a plan but an accident that happened while looking for something else.
The more we try to keep things the same, the more we get comfortable and stop growing - is when we begin to experience complacency and the status quo. Complacency sets in and has huge inertia that prevents us from moving.
A good example is the telecommunications industry, which has been depressed for at least a decade. Now with the availability of Voice Over IP we can communicate without using a typical telephone.
The world-wide-web was an innovation that built upon the Internet. While looking for an improvement between colleges and universities a long distance network was created and the Internet was born. Later, the world-wide-web was created as a natural offshoot.
You will never innovate staying in your comfort zone. Innovation and inventions are often initially greeted with skepticism, fear and caution. Yet someone, somewhere took the risk and got out of their comfort zone otherwise there would not be an Internet or World-Wide-Web.
Remove Your Blinders
- What ideas, inventions, and innovations have you recently dismissed outright?
- What ideas have you been sitting on because of your own insecurities and doubts?
- When was the last time you heard yourself or someone you know say something like ‘people do not like change’?
Stop accepting the mindless dribble that we have been spoon fed and start thinking for yourself. You have a choice. You can make a choice right this minute to change your mind.
You can start by thinking about what is possible. Revisit your old ideas and investigate what you would need to implement your idea, then start researching to see if someone else has already created part of what you need. Then you can buy it from them to move your project forward or maybe you pull a ‘Woz’ and just create what you need.
I wonder what you might be able to achieve if you believed? What are some of the silly things that stop you from believing in yourself and your ideas? Change your mind.
Carpe Diem!
How Small Business Owners Can Cope with the Culture of Perfection, Procrastination, and Failure
January 14, 2006
Entrepreneurs are smart people that just like others fear failure and can get stuck because they are afraid of making a mistake and not getting it right. Perhaps they are tad on the perfectionist side and have a need for just a ‘little bit’ of control and they tend to be a bit of a procrastinator.
The Gruesome Twosome
Put a procrastinator and a perfectionist on the same project - they will expend incredible energy nit getting anything done. The perfectionist says “You know, I don’t think we have it just right yet.” And then the procrastinator states, “I am so glad you said that, I was feeling the same way!” They both end up validating each other without getting anything done. That’s the challenge of being self-employed - a little perfectionist and a little procrastination - we need to learn how to manage both.
Problems are Really Failures in Disguise
No inventor ever got it right the first time. Thomas Edison failed over 1,000 times until he got a light bulb to actually work. When asked about the failure he would say, “Well, that is one more way I have discovered how not to build it.”
Who ever said you could build a business without failure? Someone who has never tried it that’s who! In the leading colleges and universities they teach creativity to engineers and discuss that you cannot be creative without failure.
We need to change our view about failure because every problem is an opportunity.
Being Creative Requires Getting Comfortable with Failure
Being creative means thinking differently and being willing to try new things. We need to become more childlike because in our early years failure was not an option - we would just keep trying again and again.
I remember when my son was trying to get dressed and put a button into a buttonhole. The concentration was incredible and he just kept trying until he got it. I did not dare interrupt him or rush in to do it for him. When growing up there are so many firsts, so many failures and we celebrate the effort! Why do we stop doing that for ourselves? Learning how to do something always involves failure.
Business development is very similar to human development. When the baby is first born it requires a lot of care and feeding - the same is true of a business. As the child develops it needs to learn how to walk, talk, and get along in the world - sounds a lot like how a business matures and grows doesn’t it?
Upside Down
Have some fun and be willing to play with your ideas. Start by turning your ideas upside down. Ask yourself these questions:
- What happens if I turned this business upside down?
- What would be different?
- How would it affect the customer?
- What impact would it have on the business?
- Where are the opportunities?
- What parts of this can I use to innovate my business?
Answering these questions, playing with the ideas, and getting creative will change your context and perspective. The contrast allows you to see your business in a new light.
This is what I call the ‘Power of Contrast’ when you can hold two completely different viewpoints at the same time - which will allow you to examine all the assumptions you have made about your business and turn them completely upside down. You will gain fresh insight into how you can restructure and innovate your business.
The key is to try lots of different things and keep what works. Yes, there will be failure - ideas that do not work - as long as you do not bet everything you have on any single idea you simply discard it and move into the ideas that do work. Problems are simply opportunities in disguise.
New Employee Indoctrination and Training for a Small Business
January 13, 2006
These first few months are crucial to setting a standard and expectation of performance. The best you ever see an employee is during the job interview then after they are hired it can easily slide downhill from there, unless you set clear expectations and standards.
I highly recommend that each new employee be placed on a three-month probationary period. This provides them with the opportunity to demonstrate their skills, capabilities, and competencies. At the end of the probationary period a decision is made to extend permanent employment or dismiss them.
If you make a decision to extend a permanent position to them I recommend a formal performance evaluation to review their performance, areas where of improvement is needed, and then a plan for improvement is agreed upon and signed by the employer and employee.
Setting Expectations = Leadership
Employees want to do a good job and they also want control over their job - which is in alignment with the expectations of every business owner. Work provides a number of rewards for the employee including self-esteem, structure, and pride of a job well done.
Your employees will rise to meet your expectations whatever they happen to be. Not being clear of your expectations is the same as delegating the leadership and control of your corporation to the employee(s).
Setting of expectations is the single most important leadership principle to practice especially if you ever expect to manage and operate your business without you having to be present ‘to keep an eye on things’.
The Psychology of Setting Expectations
Meeting your expectations will drive an employee to grow, expand their knowledge, skills, and cause them to pay close attention to the details that you care about (read expectations) if you clearly define what you expect them to achieve.
Without setting expectations they will get comfortable and complacent. The longer an employee is on your payroll the greater the chance for entitlement, complacency, and contentment. Their performance may actually be pretty good, answer these questions:
- Could they do better?
- Are you tapping into their full potential?
- How would they benefit when their performance improves?
- How would your company benefit?
- How would you as owner benefit?
If you want to inspire excellence and move beyond ‘good to great’ you must tap into their hidden and as yet untapped potential. You do this by setting expectations and that is leadership.
Leadership Standards
Leadership sets the tone, standards, and is a good predictor of business growth because to the degree that your employees and you are able to grow so goes your business. The current business and competitive environment demands innovation and creativity that is why the growth of your business is tied directly to your personal and professional development and that of your staff.
High growth individuals will thrive on meeting and exceeding your expectations because it gives them the opportunity for personal achievement and growth. This is the ideal employee because their own personal internal standards drive them to excel which is a prerequisite if you want to become a Remote Control CEO and have the business work for you instead of you working in the business.
Initially, you might get some ‘push back’ especially from long-term employees because you are pushing them outside the ‘comfort zone’ you had a hand in creating. Do not apologize for making changes or pushing them to achieve their personal best - appeal to their noble characteristics, qualities, and morals.
As employees ‘buy’ into meeting your expectations they transition from needing to be managed to being self-motivated and self-directed. Then all you need to do to manage them is to continuously review their performance and set new expectations.
Examples of Expectations
- Customer Satisfaction: resolution of customer concerns.
- Set a Quality Standard: A low incidence of redo, repair or rework.
- Personal Productivity: Efficient use and management of time.
- Behavior and Deportment: conduct themselves with professionalism; your standard can be either formal or informal depending on your environment and culture.
- Systems, Policies: Use of specific company Systems and compliance with company policies.
- Problem Solving: Using creativity in problem solving and design.
- Planning: Ability to plan projects and tasks
- Use of Time: Monitor Time Spent versus Time Budgeted
- Understand and adopt company priorities They have the ability to work as part of a team and work effectively with others.
- Communication: Have excellent oral and written communication skills including listening, and getting their own points across.
- Personal Initiative: They show personal initiative to solve a problem before coming to you seeking a solution. That they are able to tell you what they have done to solve the problem and why they need your help.
- Technical Skills: be as specific as you can in the standards and performance you expect from them for example, specify the conventions you expect them to follow, how you expect them to remain current with technology. Institute a regular meeting to research, review, and discuss technology in your industry with any eye to upcoming trends.
- Job Description and Performance: create a job description that ties together all your expectations of workplace behavior, responsibilities, and performance.
- Performance Review: set regular dates for a formal performance review, compensation, and benefits.
Article Series - The Remote Control CEO
- What is a Remote Control CEO?
- Six Inches of the Most Expensive Real Estate In the World
- Outsourcing: Hire Your Customers
- New Employee Indoctrination and Training for a Small Business
- CEO Radar: A 360 Degree View
- Experience Flow
- IBM - Expanding the Innovation Horizon: Global CEO Study 2006 - United States
- How Irrepressible Entrepreneurs Transform Their Business and Life
- World Class Beliefs, Roles, Habits, and Behaviors of a Remote Control CEO
- What Are Your Business Goals
- Un-Retirement: Small Business Trends: Baby Boomer Entrepreneurs and Work Life Balance
- Have a dream? Get The Mindset of a Champion
- Listen To Your Heart and Soul by Eliminating Noise
- Budget for Thinking Time
Apple does the Intel Proud
January 13, 2006
I have been a closet Mac Geek since 1995. I have had both PC and Mac but these days my PC never gets turned on.
With the latest developments from Apple, there has never been a better time to switch from a PC and a Windoz system.
There were so many announcements Jan 10 MacWorld it is hard to know where to begin. My last purchase was a iMac and iBook in 2003 and it still amazes me how stable and reliable OS X and the software that runs on it really is.
On the software front iLife 06 now includes iWeb (easily create web pages, blog etc.) plus the updates to iMovie, iDVD HD, iTunes, Garage Band and iPhoto are really stellar because of the incredibly tight integration with all Apple software products you can easily create a podcast, videocast, website, and a blog.
Best of all they just announced the new iMac running the Intel Dual Core, which runs 2X faster than the latest PowerPC with a new high-powered graphics card on the 17″ model. The 20″ model runs over 3X faster. The machine comes complete with a built-in webcam, remote control, Front Row, and the iLife 06 package. Oh, and they also have a new laptop called MacBookPro.
This is the first time in eight years that I have written about Apple development and announcements. All my clients run PC’s and I do not want to be an Apple snob, but really if you have the ability to choose what type of system to purchase, I highly recommend the Apple System.
Since OS X I have had no problems trading files with my PC clients as Office accepts Mac documents and vice versa. There are over 15,000 software applications. Anything you want to do on a PC you can do on a Mac. Plus you can have your Apple computer connect with a PC network/server and share files including Office.
I run no virus software and have never had an Apple computer down due to a virus, worm etc. since I have been online with my Macs since 1995.
Windows on the PC clearly own sthe desktop PC market, Apple certainly is the design and innovation leader.
If you have any questions, feel free to contact me.
Todays Quote
January 11, 2006
Breaking an old business model is always going to require leaders to follow their instinct. There will always be persuasive reasons not to take a risk. But if you only do what worked in the past, you will wake up one day and find that you’ve been passed by. - Clayton Christensen interviewed in Business 2.00 magazine.
How The Click Economy is Vulnerable to Manipulation
January 11, 2006
I saw a post recently with a headline like “How Adsense Lowers Site Self-Esteem” which caused some bloggers to react emotionally. It started me thinking about my intentions - then I ran across this compelling post from Roughtype.com
The economic incentive for the content producer therefore is not to produce content that simply engages a large or demographically attractive audience, but to produce content that (a) attracts an audience likely to click on a valuable advertising link and (b) increases the odds that such lucrative clicks will actually happen. Google talks a lot about the “relevance” of its ads, but relevance is a byproduct. Google is building an extraordinarily sophisticated machine for manipulating consumers - for increasing the odds that you or I will not just view or read but click.
It got my attention because I have had ads on and off my blog. I always struggled with the concept of advertising on a business website. I struggled trying to make sense of it as a business model for website owners.
The problem I see with Google’s Adsense is that it is entirely dependant on the volume of traffic you enjoy and if it becomes a major source of income - all from one source - it is dangerous because should you ever experience a drop in your traffic volume, your income will drop like a rock.
In most cases when traffic drops off, it takes quite awhile for it to come back and there goes the easy income you have come to enjoy and sometimes rely on to pay your bills.
I Got Caught
I got caught in that trap in 2005 due to a stupid but innocent error on my part - duplicate content. So I cleaned it up and six months later the traffic has started to come back. What I learned as a result was quite unexpected.
I made low four figures and we enjoyed spending the cash that the clicks on Googles ads created, except for one thing. I came a stats watcher and focused on sending people away from my blog instead of concentrating on writing solid content and building relationships.
If you have been a long-time reader you know the changes and iterations this website has been through. I literally had ads everywhere on the site tweaking and manipulating content to increase clicks.
Building a blog comes as a result of providing value to the readers when you I advertising all over the place I felt like I was doing it on the backs of the readers.
I rationalized it by saying that the clicks were a way for people to leave something in my ‘tip jar’.
But what bugged me was that advertising on the blog seemed to stifle readability and community. At the very least it was an extra level of noise that the readers had to endure.
Google’s Education To Maximize Clicks - Is It Sending the Wrong Message?
I attended Googles tele-seminar and purchased ebooks on how to milk every dime from my site/blog. The agenda for Google’s tele-seminar was to increase your clicks and thus increase your income. This is the beginning of the manipulation of the consumer. It is the dream of every advertising executive to have a consumers undivided attention and then be able to track their behavior because then you can ‘optimize’ (read manipulate) the results to meet their own ends.
The argument is that the ads ‘help consumers’ find goods and services within the context of their interests. But the model unravels the moment that consumers start to ignore the ads.
Be Prepared for the Click Economy to Loose Momentum
That time is coming and I recommend that you be prepared to endure a drop in revenue or diversify the source of income from your blog or website.
Google has created a ‘click economy’ where people only make money when someone clicks an ad. Google is in control and they can ban your site, change how much they pay publishers because there is no accountability.
With Google being a public company what do you think they will do once click-through start to slip? They simply take a bigger piece of the pie and pay publishers less. When shareholders start to scream for the dividends they used to enjoy - Google will have to start managing the bottom line more aggressively.
This will only be bad news for publishers because he that writes the checks controls the ‘click economy’ and in this case Google writes the checks. A business where you have no control over your profit margins is not a business model it is better known as gambling.
More hints that big changes are coming:
- Is the ad bubble leaking? FTD changing strategy.
- The Perfect Tollbooth, commenting on ‘Search Engines as Leeches on the Web’
Its Time to Stop Surviving and Focus on Thriving
January 10, 2006
While conducting an industry and competitive analysis of other business coaches and consultants (for my business plan) I ran across the website of a business coach using inaccurate statistics indicating that 9 in 10 businesses fail in the first year. It is simply not true!
This is not the first time I have seen this but I am sick and tired of small business web sites falsely reporting that 9 out of 10 small businesses fail in the first year. Had I not been researching my book, I might have been guilty of the same oversight.
A Myth Busted
I just finished writing my second book ‘Tips and Traps For Writing an Effective Business Plan’ and my research which is revealed in my report Stupid Tricks By Business Owners where I prove that the outlook for starting a business is much better than the 9 in 10 false statistic. In fact, Dun & Bradstreet (D & B) data shows a much different picture:
- 76 percent of new businesses were open after two years.
- 47 percent after four years.
- 38 percent after six years.
Not totally satisfied to just accept the D & B stats, I went one step further to see if I could confirm the D & B stats were accurate. I was able to compile my own statistics from U.S. Government Sources and found that the D&B stats were actually very close to those reported by the U.S. Government. I have been thinking about these statistics ever since, yesterday it hit me like brick…
The Greatest Risk of Business Failure Lies Between Years Two to Four…
The reason the 9 in 10 myth is so popular is that it supports the belief that starting a business carries great risk, which it does. However these statistics reveal that there is more risk to the owner of a business between the years of two to four than a startup. For example:
- Startup to Year Two: 24% of businesses fail.
- Year Two to Year Four: 38% of those who made it past the second year closed by the fourth year.
- Year Four to Six: 19% of the remaining businesses disappeared.
The potential for business closure is greatest in the middle-age group, years two to four. But we cannot ignore the reality that after six years 62% of the businesses that started six years earlier ceased to exist.
The Odds are Better in Las Vegas
A 38% chance of succeeding in business past the sixth year is not that great. In some cases entrepreneuers would be better off taking their chances in Las Vegas. In his book, Jump Start Your Business Brain, Doug Hall shares the probability of winning a game in Vegas:
- Slots: 32%
- Horse Racing 41%
- Blackjack (as usually player) 45%
- Roulette 47%
- Blackjack (perfect strategy and card counting) 50%
He goes onto to say that 68% of the people who gamble play the slots, which have the lowest probability of winning. Doh!
Making the Transition from Surviving to Thriving
I believe that the proliferation of these inaccurate statistics has cultivated a ’survivalist mentality’ in the business community where survival is viewed as success.
The thinking of the average business owner needs to shift from survival tactics to creating a plan to thrive. The difference it will make in your business is huge, not only will it change the way you view your business but it will also change your strategy and tactics.
When your goal to just ’survive’ the odds are against you. When you focus on developing a business plan to thrive it will cause you to focus on what you can do to prosper and flourish. Which will always create a better strategy than just trying to survive.
Time Management, 7 Steps to Achieving the Results You Want
January 7, 2006
Articles mentioned in the show:
Music by P.W. Fenton and The Second Ward. He also has a podcast at: http://digitalflotsam.org/
Download the Show: Podcast length, 47 minutes approx.
Time Management, 7 Steps to Achieving the Results You Want
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43.6 MB
You can also listen and subscribe on
podcasts.yahoo.com
I also have my own ODEO channel, you can visit
My Odeo Channel (odeo/a9164f98a21aae28)
My Tips and Traps When Buying a Business Book available in Borders, Barnes and Noble in US and in Canada in Chapters, Indigo and Audreys Books in Edmonton. Also available at:
Podcast: Time Management, 7 Steps to Achieving the Results You Want
January 6, 2006
I just published a new podcast Podcast length, 47 minutes approx. at: Time Management, 7 Steps to Achieving the Results You Want.
You can also listen and subscribe using Yahoo, Odeo, and iTunes (search Business > Management > Buying a Business Podcast and subscribe via podcasts.yahoo.com. I also have my own ODEO channel, you can visit My Odeo Channel (odeo/a9164f98a21aae28)
4 Character Traits Of Successful Entrepreneurs
January 5, 2006
I had a conversation with a client recently that made me stop and think about my own performance and attitude. Our conversation centered on why some people seem so much more successful than others do.
What we discussed was a few simple character traits that seemed to contribute to their overall success:
- Drive Hard: a sense of urgency. They seemed to have a very high commitment to achieving their goals. It was more than just not accepting NO for an answer. These people seem to have an internal vision or knowledge. Something that drives them. It is not fear — it is the pursuit of the idea and a healthy dose of faith. They have the faith to believe or know that somehow things will work.
- Work Hard: these people also seem to posses a compulsive drive. They see the goal - a vision, sense of what can be achieved. They are so focused and committed to the goal that it seems they will let nothing stop, hinder or interfere. Truth is they are so committed to achieving the goal they see nothing else.
- Play Hard: having fun while doing business is good. After working hard, they take time to look after themselves, enjoy life and have some fun. It is a sign of good mental health and indicates balance.
- Finish Well: anyone can start well or sprint. These people finish what they start. They leave nothing left undone. They have endurance. They might appear to be perfectionists - actually they just want to finish what they started. And finish it well!
The difference between success and failure is often just a short distance away - the finish line! When you run a race, why quit 10 feet from the finish line? The truth is you need endurance to finish the race. All you might need is a little encouragement to finish well.
Surround yourself with driven, focused and passionate people. Ask them to mentor, coach and keep you accountable. Because, you are going to work hard and put in the time - why not maximize the results?
Carpe Diem! Seize the day!
23 Chapters: Tips and Traps When Buying a Business (TOC)
January 1, 2006
This page provides a good introduction to my new book and a detail Table of Contents. Buying a business is a five part process as shown on the momentum flywheel graphic on the right.
Buying a business requires the investment of a lot of time upfront before you invest one measly dime! In fact, 50-70% of the ‘work’ in buying a business is completed before you get to the fifth and last phase of actually buying the business.
That is where the “Tips and Traps When Buying a Business” book shines.
Not only will it help you understand the process of buying a business, it will also help you make good use of your time by being able to eliminate poor candidates and focus on the best business opportunities.
First timers and experienced entrepreneurs will find this book invaluable. This book will impart the reader with all the information, knowledge, and structure needed to to locate and investigate potential businesses, identify the right kind of business for you, arrange financing, hire professionals, and save on fees.
If you already have your eye on a specific business this book will help you determine the value of the business, how to minimize your risk, and a step-by-step process to guide you through the many tasks of buying a business.
Chapter 1: Get Control of Your Future
- The Key to Buying a Business: Preparation and Organization
- Dangerous Liaisons - Believing Your Own Assumptions
- Beware of Your Emotions
- Planning Reduces Risk
- Personal Sacrifice, Priorities, and Results
- Six Phases of Business Planning
- Learn How to Write a Business Plan
- Selling Yourself - Hone Your Communication Skills
- Prepare Your Resume or CV
- Filing System
- The Electronic Method
- Building Relationships
Chapter 2: No Guts, No Glory: Things to Consider Before Buying a Business
- What Is Your dream?
- Face the Brutal Reality
- Maintain Perspective
- Prepare for Failure
- Evaluate the Business Potential
- Thoroughly Review the Business You Want to Buy
- Investigate the Industry
- Success Factors
- Basic Business Skills
- Personal Issues
- Types of Businesses
- Which Type of Business Is Best for You?
- Franchise
- Starting a Business from the Ground Up
- Buying an Existing Business
- The Benefits of Buying an Existing Business
Chapter 3: Uncovering the ‘Right Stuff’
- Finding the Right Stuff Questionnaire
Part II: Locating a Business to Buy
Chapter 4: Working with Professional Advisers
- The Team
- You Are Still the Decision Maker
- Advisers Provide Perspective
- Working with an Accountant or CPA
- The Deal before the Deal
- Business Brokers
- Informal Advisers
Chapter 5: Finding a Business That Fits You
- Businesses Are for Sale for a Reason
- Finding a Business That Fits You
- Selecting the Type of Business
- Learn More about the Industry
- Other Things to Consider
Chapter 6: Locating an Acquisition Target
- Create a Profile of Your Ideal Business Acquisition
- Tapping Personal Relationships to Locate a Business
- Locating Businesses That Are Not for Sale
- Market Analysis
- Competition Analysis
- Identify Trends in Sales and Profits by Market Segment
- Market Size and Market Share
- Local Market Information Online
- Importance of Estimating Market Share
- Market Area
- External factors
Part III: Determining the Value of a Business
Chapter 7: The Goodwill Controversy
- Goodwill Is Subjective and Controversial
- Impact of Goodwill on the Price of a Business
- Accountant’s View of Goodwill
- A Business Owner’s View of Goodwill
- Every Successful Business Has Goodwill
- Creating Your Own Goodwill Up Front
- Seller Financing
Chapter 8: The Art of Business Valuation
- Value of Hard and Soft Assets
- Value of Market Position
- Evaluating How Much to Pay for a Business
- Common Valuation Methods
- Use Multiple Valuation Models
- Other Considerations That Impact Value
- Understanding Appraisals
- Limitations of the Analysis Process
Chapter 9: Uncovering Hidden Assets - The Human Factor
- Employee Information
- Be Cautious in Your Communications with Employees
- Get the Information You Need by Listening
- Pay Attention to Attitude
Chapter 10: Selling the Seller - Gaining Cooperation
- Beware Your Comfort Zone
- Discard Fear, Be Confident
- Free Money
- Build Rapport
- Negotiate, Do Not Demand
- A Healthy Ego
- The Person Listening Controls the Conversation
- Read Body Language
- Understanding the Seller
Part IV: How to Minimize Your Risk
Chapter 11: Show Me the Money: Understanding Financial Statements
- Following the Money Trail
- Introduction to Financial Statements
- The Five Types of Financial Statements
- Retained Earnings, Stockholders’ Equity
- Goodwill
- Cash-Flow Analysis
- Fair Market Value
- Liability Accounts
- Asset Accounts
- Net Profit
- Gross Profit
- Net Worth
- Appraisal
- Financial Analysis
- Business Plan
- Generally Accepted Accounting Principles (GAAP)
- Professional Advice
Chapter 12: Prepare or Repair - Create an Acquisition Plan
- The Acquisition Target
- Your Business Goals
- Operational Information
- Legal Structure
- Products or Services
- Industry Analysis
- Marketing Strategy
- Operations
- Implementation Plan
- Financial Plan
Chapter 13: Business Finance
- Financial Information You Need to Organize
- Your Accountant’s Functions
- Financial Projections
- Your Financial Plan
- The Purpose of Financial Projections
- Gather Historical Information
- The Art of Financing Your Business
- Loan Officers, Loan Committees, and You
- The Loan Officer’s Role
- Qualifying for a Line of Credit
- Using a Line of Credit
- Where Should You Go for a Loan?
- Emotional Traps
Chapter 14: Does Your Business Plan Pass the Acid Test?
- Market Size and Market Share
- Finding Market Size the Easy Way
- Estimating Market Size - Doing It Yourself
- Sensitivity Analysis
Chapter 15: Approaching Business Owners - Who Are You? Why Should I Care?
- Make Sure You Are Organized
- Before You Approach the Owner
- The First Meeting
- Practice Professional Detachment
- Matchmaking Made Easy
- Getting the Seller’s Attention
Part V: Buying a Business Step-by-Step
Chapter 16: Understanding the Seller’s Situation
- The Seller asYour Single Biggest Obstacle
- Move Negotiations Along by Helping the Seller
- Move from Necessity Thinking to Possibilities Thinking
- Understand the Psychology Driving a Business Owner
- Shift Your Style to Mirror the Seller’s VAKOG Preferences
- Keeping Notes
Chapter 17: Preliminary Negotiations Begin
- Let the Seller Talk
- Information Gathering Questions
- Potential Pitfalls
- Balancing Risk and Rewards
Chapter 18: Overcoming Roadblocks and Obstacles and Identifying Deal Breakers
- Review and Organize Your Notes
- Roadblocks, Obstacles, and Deal Breakers Defined
- Overcoming Obstacles and Roadblocks
Chapter 19: Finding Solutions and Preparing a Letter of Intent
- The Letter of Intent
- Do Not Use Templates
- Binding Provisions
- Nonbinding Provisions
- Other Considerations
- Preparation Checklist
- Advanced Communication Tips
Chapter 20: Due Diligence - Verifying Information
- Take the Time to Verify Everything
- Prepare a List of Required Materials
- The Clock Starts When?
- Due Diligence List of Lists
- Create Your Acquisition Plan
Chapter 21: Executing a Deal
- Buying with Confidence - Review Your Work
- How People Make Decisions
- When in Doubt Refer Back to the Letter of Intent
- The Final Sales Agreement
Chapter 22: The Transition: Making the Business Yours and Boosting Morale
- The First 90 Days
- What Is a Communication Plan?
- A Morale Boost
- Seller’s Remorse
- From Corporate Culture to a Sense of Community
Chapter 23: Case Studies
- Auto Repair Shop
- Successful Business Owner Diversifies
Appendixes
- Appendix A: Business Dictionary
- Appendix B: Business Plan Writing Guide
- Appendix C: Due Diligence Checklist
- Appendix D: List of Legal Agreements
- Appendix E: Net Worth Statement Worksheet
- Appendix F: Transition Checklist
- Appendix G: Web Links
- Appendix H: Resume Guide
Sincerely,
Greg Balanko-Dickson, LPBC
Questions, inquiries, and suggestions are always welcomed, please call me at 1-866-281-8281 or email me at gregbd at gmail dot com
13 Stupid Tricks by Business Owners
January 1, 2006
Truth is some of these are stupid things business owners do to self-sabotage themselves. Some of them are true, a few myths, and some are my observations of the silly things I have done or seen done by other business owners.Names have been withheld to protect the guilty.
1) Fact Or Myth? Start-Up Businesses Have High Failure Rate 9 in 10 Will Close In The First Year?
There is a myth from the 1990’s that stated 9 out of 10 businesses close in their first year. The US Small Business Administration still gets calls every year from people looking for the unknown source of the 9 out of 10 sound bite. The myth persists partly due to a widely held belief that business closure is always considered a negative event.
Dun & Bradstreet (D & B) data from the same period shows a much different picture:
- 76 percent of new businesses were open after two years.
- 47 percent after four years.
- 38 percent after six years.
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Getting the Price Right
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