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Setting Profitable Prices Makes Rookie Entrepreneurs Nervous

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Setting a price you are comfortable with has more to do with your perception of the value you provide customers and is dangerous because to be proftiable you will likely need to price your products and services at a price that makes you uncomfortable. If the price you charge does not make you a bit nervous - that you are charging too much - you are likely leaving money on the table.

1. Setting Your Price - Volume or Profit?
2. Beating Your Competition at the Pricing Game
3. Nice Trumps Price
4. Buying a Business? Avoid the Valuation Trap
5. Turn Down The Volume, Turn Up The Value
6. 4 Sales Tips That Make Selling Simple!

What are your challenges to pricing your products and services? How do you arrive at your price?

Perhaps you just need to learn how to market and sell your products based on the value they provide instead of trying to compete based on price?

Entrepreneurship that is Beyond Belief

Why and how to suspend your disbelief, get moving, and eliminate the possibility of failure.

As mentioned in my previous post Beating Back the Small Business Winter Blues I have been seeing a lot more of my clients experiencing the ‘blues’. Today I want to probe this topic deeper to show you how to break free from the blues.]

Disbelief Expects Little

Are you nurturing a healthy dose of doubt and disbelief? Perhaps you think that you are just being realistic or have thought something like, ‘If I do not expect too much I will not be disappointed.’ In terms of setting expectations this type of thinking does not set its sights very high.

When you fail to set appropriate expectations for yourself and your business you are really telling your subconscious not to expect much. This can breed a feeling of uncritical satisfaction and smugness - a twisted sense of satisfaction with yourself or your achievements - otherwise known as, complacency.

I am not complacent!

I can hear the chorus of denial because every serious business owner knows that he/she cannot afford to become complacent but knowing that does not prevent anyone from falling into the trap of complacency.

Complacency starts when you begin to experience a little success after all your hard work and you feel proud. You begin to reward yourself and experience a sense of pride and satisfaction having achieved something your worked long and hard to achieve. Congratulations and remember that is where a wave of complacency can sneak up on you.

The Ocean of Achievement and Complacency

The Ocean has a natural rhythm made up of waves separated by the gentle waters. There you are in enjoying your vacation, sitting on the beach overlooking the sparkling ocean in its entire splendor.

When I go to the beach I go into the relaxation zone where I relax and tune out everything except the beach, ocean, and horizon. I love it because I am totally relaxed, mellow and always come away refreshed.

Like the ocean, achievement and complacency have a natural rhythm. They are quite similar except complacency begins with satisfaction whereas achievement ends when something is successfully completed.

Satisfaction is the Entrepreneurs Red Flag

I am not suggesting that you cannot enjoy your success, quite the opposite. Make sure you reward yourself and acknowledge your achievement. Just watch for feelings of self-satisfaction, smugness, and contentment.

Pay attention to your thought life, the tone and the feelings. Perhaps you feel you are owed something in reparation for working long hours, not taking a salary to make sure you can pay your suppliers or make payroll, or going the extra mile. That is not anything special it is simply you doing the right thing.

Marketing and advertising has convinced us that we are entitled to a life of luxury, peace and satisfaction. We have been trained that stress and tension are bad. Too much stress for sustained periods is unhealthy but I think that tension can become the entrepreneurs’ friend if you learn how to make it work for you.

Recognize Tension and Manage It

Sir Issac Newton’s Third Law of Physics states ‘Every Action has an Equal and Opposite Reaction’ for example stretching an elastic band places tension or pressure on the opposite end but because each end of the finger is resistance keeps it in its place until you remove the resistance and the elastic band pushes back - the bigger the tension the bigger the push back.

Push back or tension in yourself or your business is something that should make you sit up and pay attention. Unlike Newton’s Third Law of Physics, there is no guarantee of equal and opposite return. No guarantee that the harder you push the better your results - unless, you pay attention to the friction or push back and learn from it.

Pay Attention to The Tension

If I could give a gift to every entrepreneur and business owner it would be the ability to learn from your actions. To be able to recognize and translate the tension they feel into the opportunity to learn, grow, and improve - because then you cannot fail, you simply maneuver and make adjustments based on the push back (tension) you sense. You cannot fail as long as you stay in the game and make the necessary adjustments - the only way you can fail is if you quit.

I have not failed. I’ve just found 10,000 ways that won’t work.

- Thomas Alva Edison, inventor

Retirement Careers and 50 Year-old Entrepreneurs in Business

The media suddenly seems to have noticed that entrepreneurs and business owners are having second careers and starting or buying businesses. The last two days our local cable news channel has been talking about retired people taking on second career or business in retirement.

I spoke about this in my book Tips and Traps When Buying a Business and insurance industry surveys have documented this new trend over a year ago.

In USA Today an article titled Older entrepreneurs face special considerations which came via Business Opportunities Weblog and I thought this article would make good reading for older entrepreneurs and business owners. It contains five points to consider when evaluating the risk associated with owning a business plus pointers if you want to start a business from scratch.

The Facts

The U.S. Bureau of Labor Statistics reports that:

• Professionals older than 55 are the fastest-growing segment of the workforce.
• By 2012, those workers will constitute 19 percent of the labor force, up from 14 percent in 2002 and the rates of self-employment rise with age.

Conclusion

So what is happening that the 50+ work force is making the transition to self-employment as part of their transition to retirement. The American Association of Retired Persons (AARP) recently found those age 50 and above account for 40-percent of the self-employed in past years.

If you are 50+ and thinking about making a change, starting or buying a business you are in good company.

Beating Back the Small Business Winter Blues

I have been noticing lately that the small business bogging and business communities are a not quite as active lately and when I speak to my small business bogging buddies they seem to be a bit down in the dumps.

We Had a Winter That Was More Like Spring

It has been a really great winter in Western Canada, yesterday was the first day of spring and three days ago we got two-feet of snow. Typically, March is a snowy month and in normal years there is definitely a tension in the air while we wait for spring. Considering the unusually warm winter (felt like spring during winter) and lack of precipitation we can definitely use the precipitation.

Taxes Due?

Some years I can see a real drop off in visitors in March and especially after the mid-March filing deadline. Tax season seemed to slow things down. Regardless, these observations are anecdotal at best and self-indulgent at worst. If you need some help with your taxes see Tax Mama, she has the info to help you out.

What Do You Want?

Before you can get what you want you first need to know what you want. You can set some new goals but if you are feeling the effect of the winter blues maybe you would like a bit more of an emotional pick up.

Give Yourself a Pick Me Up

What activities do you normally enjoy? When was the last time you allowed yourself to have some fun? Take some time off and just fool around doing something totally frivolous and self-indulgent. Make sure it is something you will really enjoy and then do it.

Pause, Reflect, Plan, Act

After you have had a chance to pause, rest, and have a bit of fun reflect on the past year and answer these questions:

• What do you want to experience more of this year?
• What do you want to experience less of this year?

In order to experience these things, ‘What needs to change?’ Make a note of the changes and translate them into goals. Then find someone who you can share your goals with that will be supportive and with their assistance, answer these questions:

• What resources will you need to experience these goals?
• Where can you locate these resources? Who can help you?
• What do you need to do to prepare (or change) and get ready to set yourself up for success?

Create a step-by-step plan, try my 7 Steps to Achieving the Results You Want.

Celebrate

You got this far and should feel real good about your progress, congratulations! Sunshine is just around the corner and so is a turnaround!

Setting Your Price - Volume or Profit?

Via WaytoGrow.com Mary links to a post at MarketingProfs.com by Nick Usborne How to determine the best price for your product. It offers another perspective on the pricing issue. I recently linked to an article titled How to beat your competition at the pricing game which points to The Price is Wrong by Tom Tualli at Forbes. Both are worth a read and offer a slightly different perspective.

Who Needs Money to Start a Business? Got $8,000?

I hate it when business writers use statistics without providing the proper context. It casts a dark shadow on small business success.

Forbes blog cites a paper from Erik Hurst an associate professor of economics at University of Chicago’s Graduate School of Business research seems to debunk the myth that access to capital or liquidity stimulates entrepreneurship.

In the short interview on Forbes.com Hurst states they found the average investment to start a business was $8,000. Neither did getting an inheritance or increased equity due to rising home equity have any measurable impact on starting a business. Hurst surmises that, “Money does not seem to create the ability to become a business owner.”

This Study Fails to Provide a Accurate Context

I was not surprised that the study found an average investment of $8,000 because in the last decade the number of small, small (no employees) or solo-entrepreneur firms skyrocketed.

The other statement that caused me to discount the entire study is Hursts statement “And small businesses fail at an alarming rate.” in my recent article It’s Time to Stop Surviving and Focus on Thriving I quantify the actual failure rate and here. Both the Forbes author and Hurst failed to quantify or provide an adequate context to the history of business startup.

The Facts

I reported in Entrepreneurial Activity Soars the number of U.S. Businesses grew from 7,200,770 businesses in 1992 to 20,038,163 in the year 2000 (source: 2000 U.S. Census) and a little over 8,000,000 had no employees.

The part that I think Hurst gets right is that they found an average investment of $8,000 which tells me that in the last decade or so, solo-entrepreneurs startups were created solely to employ the owner. Most of those would be service-based businesses that require much less capital. With a good computer, Internet access, a desk, and phone - you have a business. Business start for a lot of reasons but not because people have a bunch of cash laying around - they started a business because they wanted to create something.

Why did you start your business?

How to Suspend Disbelief and Doubt to Create Certainty and Conviction

It’s the most hideous thing - businesses with great potential and massive self-doubt - seems to be building momentum.

MP3 File

The small business community has a reputation for optimism. Yet I have begun to notice a significant level of doubt and disbelief in the entrepreneurial community. Perhaps it is just that time of year awaiting the arrival of spring or post tax season blues but self-doubt can become a real handicap to starting or growing a business because doubt telegraphs uncertainty and a lack of conviction. There is nothing that will dilute the marketability of your business quicker than a lack of conviction.

Overcoming Your Lack of Conviction

If you have doubt about yourself, outlook, or your business, your most important task is to fix it by uncovering what it would take for you to feel more confident. This will require some reflection but you will be rewarded with clarity and confidence.

The First Step is Awareness

You may not even be aware that your confidence or conviction has slipped. Do you find yourself jumping into a new project with plenty of enthusiasm only to get stuck before completion? You might even have a number incomplete projects and find yourself doing anything but what you know you need to be doing - otherwise known as procrastination.

The 30 Second Diagnosis

Have you in the last 30 days have you felt like:

1. You are not clear about what you need to do.
2. Have unresolved issues.
3. Your idea feels too risky.
4. You are unsure if you still want to do this anymore.
5. Your business turned out to be a lot more complicated than expected or discovered that it will cost more than you anticipated.
6. Your vision is non-existent or unclear.
7. You were not sure how to proceed, take your next steps or get into action.

Can you identify with any of the above statements? If so, you will find the next exercise worthy of your time and energy. I created the Performance Bridge to help business owners identify and overcome their roadblocks.

Overcome Roadblocks, Create a Performance Bridge

Now that you are aware that there could be issues blocking your performance you can address it head on. Before you jump into the Performance Bridge you need to know a few things. I created the Performance Bridge to be used as a facilitated process with a coach - if you are an analytical and detail oriented person you will take to the Performance Bridge like a duck to water.

For everyone else, you need to trust the process and be prepared to dig to uncover your roadblocks. You might want to find a buddy who will do it with you. That way if you get stuck, your buddy can provide you with feedback and ask questions to get you moving again - whether you have a buddy or not, feel free to email me and I will help you out.

For those that would like to fast track the process or need a quick turnaround I provide Performance Bridge support and coaching by appointment.

Audio Commentary

This is an audio comment relating to my original post that was at How to Suspend Disbelief and Doubt to Create Certainty and Conviction.

Get Your Facts Straight WSJ Startup Journal

Via Business Opportunities Blog: In a generally good story, Kelly Spors makes a error in her material facts. The error in material facts is when she states:

“Other studies have shown that as many as nine out of 10 start-ups don’t last beyond five years.”

This statement is a complete myth and cannot be supported with any research. I would challenge Kelly Spors reveal her source of the ‘other studies’ that support her unsupported factoid. It is a disservice to the small business community to recycle unfounded myths.

Better News: The article is not entirely inaccurate. When I researched business failure statistics for my book Tips and Traps When Buying a Business, I then published 13 Stupid Tricks of Business Owners. The one statistic that she used and whose source she cites, comes from the SBA:

“Only 44% of start-ups survive four years, according to the U.S. Small Business Administration.”

I have been able to confirm that the SBA stats to be very close to those published by Dun & Bradstreet. So with two sources, that information should be fairly reliable.

We should be able to expect more from the WSJ and Startup Journal, shouldn’t we?

Attracting Talent, Developing Leaders - Creating a Corporate Mystique

Business owners will need to begin making big changes to compete effectively in attracting talent. The workplace is now beginning to feel the impact of changing demographics, lifestyle, and competitive factors – the standard salary and benefits packages no longer cut it. Today, I want to extend that discussion a step further – giving employees a real reason to believe – to identify in a common cause.

The Real Reason to Believe – Identify with a Common Cause

Being able to articulate a ’cause’ to rally the troops gives them a reason to believe in the company and its mission. It is like magic when the emotional buy-in rises beyond hyperbole because they see the company ‘walking the talk’ and it becomes the manifestation of achievement.

Manifestation of Achievement

They see it in the way people are promoted from within and the company’s commitment to developing leaders. The challenge for business owners and managers in a fast moving company is filling the leadership gaps without going outside – because going outside can demoralize staff.

Whereas, an internal promotion that is based on performance demonstrates the company’s willingness to reward for those who succeed. Plus it illustrates that there is an opportunity for personal and career growth.

Building a Real Reason to Believe - Shared Values, Principles and a Common Cause

The Real Reason to Believe answers the questions:

• As a company, what do we believe? Am I proud to be working here?
• Is there a future for me in this company?
• If I stay will I get ahead?
• Will I be treated fairly?

For an employee to be ‘sold’ on your company they need to know what the company is all about. The real Reason to Believe is a refined sense of customs, characteristics, attitudes, and behaviors that make your company and team unique.It makes it exciting to come to work because ’something is happening’ and the future looks bright.

Think of it in marketing terms, ‘Sell the Sizzle’ - let them have their cake and eat it too.

Quick Action

• What is your company doing that the competitor doesn’t and why is it important?
• What are your values? Do the employees know these values?
• How long do your employees have planned to be with you? Are you afraid to ask?
• Do you live up to their expectations? If not, what can you change to make sure that you set realistic expectations?
• When was the last time you discussed leadership and personal achievement with your staff?
• How do you live up to their standards? Do you expect more of your employees than you do of yourself?
• When it comes to your business, what are you as a business owner passionate about? Do your staff also believe in it?

The Entrepreneur’s Secret Weapons - Do you use them?

Vision, passion, clarity and focus… the Entrepreneurs secret weapon!

Four Weapons

1. Vision: The Bible says that without a vision the people perish. Of all the qualities that an entrepreneur must possess, vision is a prerequisite. A compelling vision creates an energy most often viewed by observers as passion. If you have ever met people who are passionate, they leave no doubt about their intentions. They are clear about what they want, where they are going, how they are going to get there. They make it clear how you fit into their plans.
2. Passion: What creates passion? I believe it is a unique combination of emotion, intense drive, love and a devotion or deep interest to some concept or activity. For passionate people, it is something they enjoy and have a deep interest for.
3. Propensity to Act: The nature of an entrepreneur is to act first: try the idea out and then figure out why and how it worked. Many entrepreneurs initially fail. However, on some level the passion drives them. They have a deep intrinsic drive that keeps them focused on learning, testing and working at getting it right.
4. Clarity & Focus: Another indispensable quality is clarity of focus. They are able to direct their attention on clear concise goals and objectives they KNOW are going to create the results they need and want.

Quick Action:

Why not decide right now to work at becoming passionate about your business? Then perhaps your answers to the following questions will be the catalyst to your making a difference in the life of someone else today!

Try answering the following three questions. I dare you to answer the following questions and try not to feel more passionate, excited and focused about your business!

• What do I care about? Is my work, life and pursuits contributing to something that I care deeply about?
• Values: Do I have a clear set of values, principles and knowledge upon which I am willing to build my business and life around?
• Plan: Do I have a clear picture or plan for living out my passion? Who can I talk to that will provide me with support? Who do I know that lives life with passion, vigor and clarity?

Changing Workplace Attitudes and Demographics Spell Challenge and Opportunity

View All Posts Tagged: Demographics

I was reading my March 6, 2006 copy of Fortune (by Worldatwork page S1-S7) and there was an advertising feature aka advertorial talking about the changes to Employee-Employer relationships. Their list of changes include:

1. Work has become more demanding on employees.
2. Employee-Employer Relationships have become less hierarchical and more transactional.
3. Employees are moving away from long-term relationships.
4. Employees have less confidence in long-term rewards and have greater short-term expectations.
5. Immediate supervisors are now the most important people in the workplace.
6. Supervising employees requires more time and skill on the part of managers.

What first got my attention in this piece was their chart of ‘Who’s Who in the Workforce’ which states:

• 61.5 million Baby Boomers (1940-1964)
• 43.5 million Generation X (1965-1977)
• 31.5 million Generation Y (1978-1989)
• 11.5 million Schwarzkopf Generation (born before 1946)

In my post about A Lesson in Demographics, Baby Boomers and Planning I explain the importance of understanding the age progression of various groups including Baby Boomers, Generation X, and Generation Y. In the next decade there will be a rapid progression and change in the workforce.

Granted, I have been out of the regular workforce (self-employed 15+ years) for a long time and do not know what it is like to ‘work’ for someone else, but my perspective is the same as my business owner clients - who can help me achieve my goals, how do I keep them motivated and engaged?

The article in Fortune does a good job of identifying the challenge that employers face:

As demographics cause a dip in the talent pool, companies are discovering they need to find new ways to keep skilled baby boomers - and often those of the preceding generation - working longer. At the same time, (employers) they have to address the needs of Gen-Xers, who are now turning 40, as well as those of the Gen-Yers, who have their own fast-paced and aggressive work style. Still to be determined are the needs of Melennials, the generation that will follow.

The market that Worldatwork is target is large international companies but their observations about employer-employee relationships are insightful.

• Flexibility: give people control over their lives, let them work where and when they want. The diversity of workforce demographics means a one-size-fits-all solution will not work. Craft individual programs and solutions.
• Individualization: the total-package approach now includes work-life, performance, recognition, career development, compensation, and benefits. Make the total-package fit the person and their unique personality.
• Performance Based Expectations: make employees earn the flexibility and benefits they want most - by meeting certain goals set by the employer. Link employees desires with performance and achievement.
• Appreciate People: develop a culture that appreciates and recognizes people and their accomplishments. No matter how much you pay, employees can still feel unappreciated and frustrated - your staff want to grow - a balanced approach means investing in their personal and professional development.

Are these changes making it more difficult for employers, absolutely. It also spells opportunity for employers who can customize and individualize a total-package approach that acknowledges the employees unique needs, lifestyle and talent

What challenges do you face recruiting and retaining employees? How do you manage the relationship with your key staff? What is your greatest takeaway from reading this article?

Winning the Exit Game: Management Buyout, Employee Stock Ownership Plan Or??

Wayne, is a native of Houston, Texas, an attorney/CPA and will be sharing his expertise and insights gained from his carreer advising owners about buisness-building, exit, and succession strategies. I know Wayne looks forward to answering your questions, please make Wayne feel welcome!

Successful Baby-Boomer Business Owners are hitting the “Exit Zone” in record numbers - often without an Exit Strategy.

Cashing out will be the biggest, most important transaction of their lives, for most successful business owners. Some will transfer businesses to their children. Most are not prepared to play the exit game well because an Exit Strategy is not a natural priority in building and running a successful business. No matter how good they are at building and running a business, most owners have no experience in selling, or transferring, one. They have not been focused on what happens when they exit their business. It’s a different game. The Exit Game.

It’s a different game…

Imagine a football running back rushing to the goal line, “touchdown ahead - just get it across the goal”. Then, the game changes to soccer at the one-yard line. No hands - kick it through the goal - guarded by a very talented goalie. It’s hard to play a new game well. But, it’s never too late to start playing to win. The difference between doing “OK” and doing really well, is in understanding the options available in today’s financial, legal, tax and deal-making landscape, and applying these options to your circumstances. What is feasible? What is best? Are there options available you have not thought of, that other people are doing successfully? There is a lot to consider, but experience helps. There are strategic buyers, financial buyers, and private equity deals for taking good companies and growing them. Sales to employees include leveraged-buyouts by management and tax-free Employee Stock Ownership Plans (ESOP) buyouts that let the management team use pre-tax cash flow for the buyout.

There are a lot of options in today’s deal-making landscape.

What is your business worth - to the buyer? No one will pay more for your business than they think it is worth. So, Is it the right time to sell? Will your business be worth a lot more if you manage certain value-drivers until they mature, or have a couple more profitable years? Do you have strong management? A business that cannot thrive in your absence has little value to a buyer. Valuations and bankers look at cash flow and equity. Are you pulling out too much for the value you expect? Can your business finance its growth, and pay for a buyout? No matter how much someone says they’ll pay, it is what you get paid, and keep that counts. Your business structure, the deal structure and financing all impact the taxes, and taxes determine what you get to keep. Tax planning is a key part of your exit strategy. The quality of the buyer, succession management, and the payout terms determine how much, or if, you actually get paid.

It’s what you keep that counts.

You can get conflicting advice from your CPA, attorney, business broker, each focusing on one aspect or viewpoint. To make a sensible strategy, someone has to pull the picture together, compare options, coordinate the financial, legal, tax and human aspects of your exit strategy. I call that a feasibility study, and recommend the exercise to all successful business owners, whether you are in the exit zone, or still marching toward it.

A feasibility study considers the options and the WAM effects – What About Me?

In a feasibility study you and your advisors work together to identify options, and work through them to see how everyone comes out. Consider the “WAM Effects” for: What About Me? Sellers, buyers, management team, customers, vendors, bankers - all have to hold together for your company, your deal, to keep its value through the transaction. It’s part spreadsheet and part board meeting, illustrating and comparing the likely options for the WAM Effects. When it’s done, you should know what to do, how to do it, and what your fall-back scenario is. It also helps you get in the buyer’s head, viewing your company, and the deal from the buyer’s side. Do you have the wrong buyer? Can you find ways to enhance the financial or tax structure, to add value without costing more money? The idea is to realistically assess your options, what is likely to work at prices and values that can really be paid; find creative ways to structure the deals for value and tax savings, so you have an exit strategy to execute for a best outcome. When your advisor knows what he/she is doing, pulling together the tax, financial, legal and business deal-making aspects in a feasibility study takes two to four weeks for most closely-held companies, and costs should be reasonable. The certainty of what to do, and how to structure things is worth a lot more than it costs. A feasibility study will help you win the exit game.

Feasibility studies can give you some surprising results.

Feasibility studies can give you some surprising results. Like avoiding the corporate double tax to keep 85% of your price instead of only 50%. A feasibility study started with a conversation that went like this: “I sold my Austin company two years ago, for cash. It was a C-Corp, and the buyer wanted an asset sale. After the corporate income and franchise tax, and my capital gain tax to get the money, I only had 50% left.”, a business owner recently told me. “Why didn’t you make an S-election 10 years ago?”, I asked. “My CPA suggested it, but we never did it. I think my lawyer said I would have more liability exposure as an S-Corp. Cost me a million dollars in taxes.”, he admitted. “So now I’m ready to sell the Houston company. It’s worth twice as much.” “Same Buyer? , I ask. “No, but these buyers want an asset sale again”. “Did you make an S-election 10 years ago?” “Nope”, And there’s a twist, some of my key employees want to buy it, instead.”

An ESOP saved enough taxes to cut the payout time in half.

We ended up selling the Houston company to an Employee Stock Ownership Plan (ESOP) in a management-led leveraged ESOP buyout. The seller got a stock sale for a 15% long-term-capital-gains tax. His payout time is half that offered by the outside buyer, because the buyout is paid with pre-tax cash flow. His buyers are the management team he has worked with for years, and he is retaining his CEO status until he is paid. This came out of a feasibility study comparing the third-party asset purchase deal with a management-led ESOP buyout of the company stock. Interestingly, the price paid by the ESOP/Management team was less than the price for the third-party asset purchase, but the seller kept more after taxes. Knowing the management team and company prospects, and using pre-tax cash flows reduced the risk of a five-year payout in favor of a keeping 85% after tax.

Smoking out a strategic buyer’s best deal.

Every case is different. Another business owner had shopped his company with a great investment banker who found a “perfect fit” strategic buyer. Problem was, the buyer wanted to pay 3.5 times earnings in an asset purchase (corporate double-tax again), half cash and half over five years, with the seller staying on five years. The price was too low. The seller expected 5 times earnings, and wanted more cash, after-tax, from the down payment. He also told me, ” I don’t know if I’m going to like my new boss, and I’m worried about getting paid”. Reasonable concerns. We did a feasibility study and it looked like an ESOP buyout was a great fit to pay him 5 times earnings. The cash up front was still low, but the tax savings from a stock sale made up for it. As we were about to pull the trigger on the ESOP deal, the strategic buyer started acting like one. Realizing this deal was about to get away from them, they came up to the same price, in cash, for the stock. So the seller got his price, all his money at closing, at a 15% capital gains tax. We did not do the ESOP, but the feasibility study smoked out the strategic buyer’s best deal, and my client was able to cash out favorably. Either way, he had an exit strategy that was a better deal than the buyer originally put on the Table.

A management buyout was the right deal.

Still another client was the minority management owner of a growing business, with the majority owners’ non-active angel-investors. The angels had been repaid their initial investment, but were ready to get cash distributions, or a buyout. The management owner wanted to buy them out. Our feasibility study turned up that the buyout couldn’t work, as long as the bank financing had a restrictive debt-to-equity ratio. Every dollar of profit had to go to equity to support the line of credit to finance sales growth. There would be no free cash for a buyout for several years. We found a more understanding bank willing to manage a less restrictive debt-to-equity ratio. Now, the company can finance its growth and make buyout payments. The management owner has 100%, and is working on her exit strategy on 5-year horizon. In all these cases, the feasibility study sorted through the options, pointing out the drivers for the deals, and helped the owners structure a more effective exit strategy and transaction. Private Equity and Strategic Buyers: Rarely, has there been as much money available, and interest in acquiring good private businesses for growth potential. Exit-minded and even growth-minded business owners should look at private equity and strategic buyers in the current capital climate. Rarely, has there been as much money available, and interest in acquiring good private businesses for growth potential. These can be win-win deals for sellers, or business-builders who are not yet truly exit-minded.

Private Equity deals are driving the current capital markets for closely-held businesses.

Private Equity deals are driving the current capital markets (2006) for closely-held businesses, and you have to consider this in evaluating any exit strategy. Are you a candidate for a private equity acquisition? Unlike venture capital of past decades, private equity buyers may buy a majority equity position in your business, but want the owners and management to keep some “skin in the game” – a continued equity stake in the future of the company. A private equity deal would largely cash out the exiting owners, provide equity incentives for retained management (which may include the selling owners) for participation in the upside. The private equity investor hopes to grow the company by providing capital, financing, management, incentives and connections, enabling management to take the company to a higher level. Private equity may reap cash flow benefits, and eventually sell the company for more than it paid. Warren Buffet of Berkshire Hathaway built a lot of value with this style of investing in businesses, and is still the yardstick for private equity success. In the last few years, a lot of financial people decided to follow Buffet’s lead, assembling many private equity funds totaling billions of dollars with a mission to acquire good private companies. These funds are scouring the country for good closely-held businesses to acquire, and take to the next level. A private equity deal often puts cash on the table for most of the equity purchased, and is frequently a stock deal for capital gains to the seller. The right private equity buyer can really strengthen a company providing more security, and a greater upside for sellers and management. Getting the right fit is the key. Private equity likes established businesses, with growth potential, a history of growing sales and profits, and the payers tend to group into tiers of annual EBITDA: $3 to $5 million; $6 to $9 million; $10 to 20 million; with each tier commanding increasing attention, financial options, and price multiples. There are few private equity funds looking for businesses below $3 million in annual EBITDA.

Strategic Buyers are more competitive, and aggressive on price than at the beginning of this decade…

Strategic Buyers are more competitive, and aggressive on price than at the beginning of this decade, as private equity has bid up the prices, and a strong economy for corporate profits have made strategic buyers bolder. Most business owners have some idea of who would be their strategic buyer, if one exists. However, there are increasingly examples of non-US strategic buyers acquiring established US businesses to enter the US marketplace, or to pick up talent and capability to serve the same types of customers in their foreign markets. A lot of valuable time, money and momentum can be lost dancing around with unrealistic options, so do your homework. While there a lot of great deals made, it’s amazing how much effort is wasted on blown deals that never could have worked in the first place. The enthusiasm for private equity and strategic buyer deals has a lot of brokers and finders stirring up interest among potential sellers of closely-held businesses, and among buyers hoping to find a deal. Often business owners and management jump into the deal-making / due diligence mode before finding out if there is a likely fit, or if they are even a candidate for the buyer. A lot of valuable time, money and momentum can be lost dancing around with unrealistic options. Looking at your goals and options, realistically, through a well done feasibility study can focus your expectations and efforts on the strategy, and deals that you will really make, as opposed to investing a lot of time and effort working a deal that never would have worked. Do your homework on your exit strategy.

What is your exit timeline? Are you prepared and does your business structure lend itself to saving taxes and adding flexibility when it comes time to exit your business?

Can entrepreneurship be taught? Buying a business podcast

In this show:

Update: Phil and I are moving the joint podcast to its own feed and podcast. Exact name and location of feed to be announced.
Plans for Buying a Business Podcast. Wayne Issacs, CPA and Attorney joining the podcast. Plans for a call in Talk Show format with listeners as guests.
Comments about the Fortune Small Business article asking "Can Entrepreneurship be taught?'

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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.

Do Tech Blogers Practice Censorship, Elitism or are They Just a Bunch of Snobs?

No blogger wants to be censored, criticized, and excluded from a conversation, especially an important conversation. The conversation was about ‘Attention vs. Intention‘. When I initially heard the discussion about this topic I thought ‘Huh?’ what is this about?

Last week I commented on a post over at the Linux Journal by Doc Searles where he brought up an important point about the The Intention Economy and how his thinking about how he is finally understanding the Attention concept (a concept by Steve Gilmor ) that has been spearheading of late. But alas, my comment was excluded or else the Linux Journal did not like my browser (Camino) and lost the comment.

Techies and Tech Blogers Need to Widen the Conversation

Regardless, it started me thinking about a perception I have amongst the tech bloging community, elitism. I understand that ‘birds of a feather flock together’but in the ‘open’ blog community censorship (aka elitism, snobbery) is atypical behavior even for a bunch of geeks.

I waited a couple of days to see if my post showed up and I can tell you it hasn’t. So am I whining? Perhaps, but I think the tech community could do themselves a disservice by dismissing non-technical comments on their blogs regardless the topic.

Without users and the support of the business community the IT, web development, and software development community would be nowhere. It is time to move beyond the cerebral discussion of attention and intention to a discussion about the related business and consumer issues. Until that happens the tech community will continue a useless cerebral debate.

I wonder how much attention this post will garner? I guess we will have to wait and see where the Attention and Intention Debate ends up.

Breakthrough The Communication and Advertising Clutter

Over the decades advertising and marketing geeks have pondered how to breakthrough the communication clutter and keep a consumers attention.

Numerous studies demonstrate that attention span of consumer keeps decreasing. This is especially true for the young adults and so-called Generation Y as their opinions and outlook can change quickly and things that were cool a year ago are no longer “cool”. They do not even use that word anymore.

For example, TV advertisers switched to 30-second spots instead of 60-second ones (with the exception of a Super Bowl broadcast). After all, what can you accomplish in 30 seconds and how much information can you push out in just 30-seconds?

The E-Mail Marketing Challenge

Well, if you e-mail to market your business you can create messages of any length, and attach a sixty-page manual if you want to, right? Technically you can but it really depends on your audience, if you are a trusted source and how relevant your content is to where they are at right at that moment.

According to the email marketing experts it should contain about 300 words (250-400 actually, depending on the topic). Exceed this limit and you’ll just lose the attention of your audience.

Well no real news here. Except, there are notable exceptions to every ‘rule’. You can exceed that length if you need to - as long as you have the trust of the reader, the content is relevant and truly unique.

Build Trust

Hey, if you are not going to have enough space to describe what you sell in details, try to connect to your audience to build trust and empathy. You may have to hire a professional copywriter to make sure your message accomplishes its mission, but it is well worth the money.

Relevant Content

Your customers want relevance from you. And since they are not very likely to read messages over 400 words, you want your content to be relevant too. Try to step into your buyers’ shoes ??? get to the question they want answered right away. Define the qualities, benefits they are buying? What is driving the need for your product or service? Price? Warranty conditions? Don’t waste space for extraneous self-serving graphics and stuff - get right to the point.

Unique Personality

You should be talking with them, not regurgitating your own technical product and service knowledge that is just noise they need a real reason to believe you.

Remember, people are different, some know exactly what they want while others are just exploring products in that particular category. Make sure you understand their intent and need for information.

Unique Content

Don’t try to please everyone with the same message. Your message should not be “overstuffed” attempting to include everything. Instead, offer hyperlinks that take your prospects to the source of information and if they want more information they can get it.

To accomplish all this your prospect needs to be able to first open your email. With all the spam filters these days it is getting harder and harder to reach your market. But alas, that is an article for another day.

Long-Term Vision: Buying a Business Podcast

This episode is a solo podcast with Greg Balanko-Dickson discussing the need to return to long-term planning via long-term vision.

A full transcrip of the podcast can be read at: Long-Term Vision

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Joy is More Powerful

I am old enough to remember being trained in the ‘art of closing the sale’ (read) keep asking them to buy until they buy or get angry and throw you out. In those days it was quite revolutionary to try to uncover the reason behind your customers’ objections. I was never comfortable with hard closing, manipulative selling and always took a softer approach.

Joy is a More Powerful Motivator than Fear

I was reading ‘Change or Die‘ over at Fast Company that ‘Joy is a More Powerful Motivator than Fear’ when it comes to changing the behavior of people regarding their health care.

The conventional wisdom says that crisis is a powerful motivator for change. But severe heart disease is among the most serious of personal crises, and it doesn’t motivate — at least not nearly enough… Kotter has hit on a crucial insight. “Behavior change happens mostly by speaking to people’s feelings,” he says. “This is true even in organizations that are very focused on analysis and quantitative measurement, even among people who think of themselves as smart in an MBA sense. In highly successful change efforts, people find ways to help others see the problems or solutions in ways that influence emotions, not just thought.”

So instead of trying to motivate them with the “fear of dying,” Ornish reframes the issue. He inspires a new vision of the “joy of living” — convincing them they can feel better, not just live longer. That means enjoying the things that make daily life pleasurable, like making love or even taking long walks without the pain caused by their disease. “Joy is a more powerful motivator than fear,” he says.

Hard Sell is Based on Fear

My challenge with most direct mail and sales websites is that they use high pressure tactics and fear to manipulate me into buying their wares. You know the kind, “Buy before March 9th and Save $200″ or even worse “You will Only Be Able To Take Advantage of This Offer Once, It Will Not be Repeated!” - come back a few days later and you find that by some amazing coincidence the dates have now been changed and you have two more days. Remember that site that said “…Offer Once, It Will Not Be Repeated!” you guessed correctly the offer is still available.

Credibility is About Trust, Not Manipulation

Scarcity or losing out can be a real motivator to buy now or get into action but these marketers are using these manipulative tactics to fill their wallets. Unfortunately, in the process they have a credibility problem. Having been exposed to so many of those types of sales pitches trust goes out the window when consumers run across that formula based approach.

Carrot vs. Stick - Trust vs. Manipulation

What I find so insulting is that these people think we are so stupid that we do not know how to make our own purchasing decisions. They are stuck in the old ‘confrontational model’ of selling that is so dated, tired, and dead. Today, the educated consumer can find a more credible supplier with the click of a button - a mouse button.

No longer do we close sales, now we ‘open relationships’ - a much nicer way of doing business. Back in the 1990’s I was introduced to ‘Consultative Selling’ and now I hear it called ‘relationship selling’. It has always been about the ‘relationship’ and the smart business owners knew that.

They are the ones expanding, growing, and hiring new staff.

In my coaching practice we have always practiced relationship selling and it is what I teach my clients, along with a healthy dose of communication skills.

Gut Check

What needs to change in the way you market and sell your goods and services? Do your marketing materials and sales team bridge the ‘credibility gap’ or do they turn it into the Grand Canyon?

Would you like to learn more about how to make the transition from confrontation to relationship selling? Call me at 1-866-281-8281 or email me, the call is free and so is my time.

Let’s have fun!

Strengths and Structure: Buying a Business Podcast

In this show Phil shares insights into how he manages his team. Greg talks about the importance of business structure. Greg and Phil discuss identifying the hidden gaps in staff training.

The article Phil talked about : http://makeitgreat.typepad.com/makeitgreat/2006/03/strengths_not_w.html

The new post Greg mentioned can be found at: http://www.sbishere.com/

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Sowing the Seeds of Greatness

One of my favorite authors is Dennis Waitley, his book Seeds of Greatness he speaks of the ‘keys to total success’. This post is about a friend and fellow blogger, Lorelle on Wordpress.

One of the things I admire about Lorelle is that she is constantly sowing ‘Seeds of Greatness’ by writing educational, practical, and well researched posts about everything Wordpress. Plus she is a great encouragement to fellow bloggers.

Today, I was humbled to read about myself in her post “Bragging on Greg Balanko-Dickson” I really appreciate her comments. Not only because of the recommendation, but because of what I learned about myself reading her commentary and recommendation of my writing.

If you have been thinking about Wordpress or blogging you really should check out Lorelle on Wordpress. Plus you will also be able to catch up on my blogging and writing guest posts.

Lorelle, thanks for being an inspiration to myself and the blogging community. You raise the bar and truly sow ‘Seeds of Greatness”.

BTW: I would appreciate your feedback about what my writing and blogging has meant to you. Check out what Lorelle has to say about me in, Bragging on Greg Balanko-Dickson.

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