Category Archives: Running a business

Make your business scalable – the Investor holy grail

Investors look for business growth

Firstly let me say what I mean by scalable. That each new customer produces additional revenue for very little addition cost.

Think of software for example, once the costs of developing and producing the first copy are met, each additional sale of the software has minimal costs. Whereas a service orientated business such as consulting is limited by the number of consultants available and each one has a significant additional cost attached.

A scalable business can grow large and produce high profits, every Investors dream.

If you are starting from scratch and have a choice of the type of business to run, think about fixed cost Vs variable costs for that business. Fixed cost will be that which you need regardless of the number of orders you receive – office or factory rent, insurance and basic salaries for example.

The variable costs are those associated with each order, such as the cost of making that product or supplying the service. It can be materials that you have to buy in for each order, assembling or manufacturing the item, or the cost of hiring and paying the wages of an additional service person to fulfil the order.

There is of course going to be some additional (variable) costs associated even with a scalable business. You’ll need more marketing or sales staff if you are growing and other additional expenses, but it’s not the main cost of each new order.

Tips for a scalable business

Build it into your business model. Make being scalable an essential part of what you do and how you operate. Don’t undertake activity that can’t be scaled even if it seems like additional revenue, if you are not able to scale it, don’t do it.
Decide what your core expertise is and outsource the rest as much as possible, that way you are not restricted on growth. You can also form partnerships with others to allow faster growth.
Automate, automate, automate. Think through the whole sales/supply chain, cheap computing power now days can make business processes for each new order very little additional cost.
Being scalable by itself is not of use unless you can take advantage of it by getting lots of new business. You will need to market yourself as heavily as you can afford. This is where Investor funds can help (if you have a compelling business model and show you know the market). Use indirect marketing to give scalability to your marketing. PR, news items, Facebook/Twitter and brand recognition all have far reaching effects.
Use the web. The most obvious scalable companies are web based social media sites, but even if you are a product orientated business you can get very scalable using the internet. Amazon are a product company, but they outsource their products and sell and fulfil using the web.
If the business is not easily transferred to the web, perhaps because it is a very hands-on service, look at franchising or licensing your product or business model. There are all kinds of businesses successful this way from fast food to grass cutting companies. The example chart on this page is for a Mexican restaurant!

Not every business will want Investment, or to grow large and that is fine, but even those can benefit from looking at the way that scalable businesses make life easier for themselves by automating and using the scalability techniques now available.

The difference between a Business Partner and an Investor

2 Business Partners – Bill Hewlett and Dave Packard

Company Partners provide access to both Business Partners and Investors so what is the difference and when would you have one but not the other?

Certainly an Investor is a business partner of sorts and can bring many of the benefits of a business partner. A Business Partner could in some circumstances end up investing in the business, so here is my take on the similarities and difference:

Business Partner

Hands-on
Brings additional, complementary skills
Sometimes useful contacts
Will share in the profits of the business
Likely to own some share of the business, or be given the opportunity to buy or earn shares
More commitment and “skin in the game” than just an employee
Primarily brought in for their expertise and ability to add value when working in the company

Investor

May be hands-on, but often not.
Skill set frequently is in business planning, finance and strategic direction
Normally valuable contacts are available
Will share in the profits of the business
Injection of funds (to be used to grow the business) in exchange for equity in that business
Doesn’t want to run the company, but will expect involvement in major decisions and report on progress
Primarily brought in to provide funds, advice and contacts

If you need another pair of hands with essential expertise go for a Business Partner, if you primarily require funds and contacts, go for a Investor. Both will provide a sounding board and be able to provide advice.

Ignoring the future – Should business owners have pensions?

I talk to a lot of owners of businesses each year who are putting all their time, energy and money into growing their business and have no plans to use any of that hard fought cash to pay into a pension.

Does it matter? Most recognise that trusting the government to provide for you in your old age is pointless, but most also believe that they will be all right when the time comes.

Because:

Many consider that the business itself will be the pension. By either continuing to earn revenues from it well into retirement, or selling the business at the time to raise funds for a pension.
Some say they will pay into a pension when the business is more established and can afford it.
Others believe the time for retirement is so far away that it’s not worth worrying about at this stage.

While I can agree with the financial pressures on a growing business could justify points 1 or 2, those who refuse to think further ahead could rue the missed opportunity to have a game plan for when they get older.

Although I’ve not seen the statistics for business owners, it is thought that half of all self-employed men and two-thirds of self-employed women have no pension arrangements. That is a bit scary.

What your business premises say about you

Original Harley Davidson Headquarters

Unless you are running a business that must have a high street store, many Start-ups begin in a bedroom or garage and as they grow expand into larger more business specific accommodation.

However can you really engage with customers if you are working from home?

It depends on the type of business, much can be done on-line, by telephone and if you need to meet up face to face, there are hotel lobbies. These can be extremely helpful to a young business and are used to business meetings taking place, with coffee and tea easily available.

Yet there is a feeling that being taken seriously requires “real” offices. Certainly there is a hierarchy of premises that come with a business’ success. When I worked for various large computer companies they grew from small beginnings to marble stair-cased headquarters:

How businesses grow

Is it absolutely needed to take on the expense of a rented office when you are just starting out, or are still relatively small? No, sometimes money can be used better to grow the business and some home businesses may never need a separate office.

But there’s the rub, you get categorised as a small, perhaps part-time business.

Taking the plunge as a young business in moving into dedicated office space can have significant advantages, instantly a foot-up on image perception, room for assistants/colleagues to work with you, a place to invite customers or business partners and an ability to concentrate on only work while there.

We all make value judgements every day and when thinking about joining, working with or buying from a business it is natural to look at the trappings of success that surround that business.

Ideally, get your own dedicated office space as soon as possible, but only you can judge when the time is right, or if it is appropriate to expand into more lavish surroundings.

Don’t make this mistake in your first conversation with a potential business partner or Investor

Investor listening You don’t know when you might bump into or be talking to a useful contact, business partner or even potential Investor. This first conversation is your best chance to impress and could determine whether you get a second more detailed conversation or meeting.

So grab the chance to explain your business, or idea, in a way that is clear and compelling.

Sounds easy, yet this is where otherwise excellent entrepreneurs make a big mistake. They are not prepared and simply ramble on in every direction. Think about it, can you tell me about your concept in a way that I will really understand and allow me to be excited about joining you as a business partner or Investor?

Some entrepreneurs are very good at this and you may be one of them, but the majority of people I talk to make a terrible hash of it. When they finish I am none the wiser and couldn’t honestly recommend them to the business partners and Investors I meet.

You’ve heard of the now clichéd Elevator Pitch where you describe your business in the time it takes to travel up in an elevator to a prospective customer/Investor. Well that concept came about because it was a useful way of visualising what was needed. So don’t be too quick in dismissing it as old hat.

Here are my top tips for engaging interest in your business when you first talk to a potential business partner or Investor. This is not an investment pitch or a presentation, but simply an opportunity for a quick conversation with a potential ally in growing your business.

1. Think about the situation and how much detail you need to go into. Is it a chance encounter with someone at an event, or a telephone call with a business angel where you have time to prepare?

2. Don’t start spouting words at machine gun pace, never giving pause for questions, or even noticing that you’re on entirely the wrong track of what was asked. Use your empathy and listen. Use the feedback you are getting, visually or by asking “is that what you meant”, “does that make sense” (if on the telephone).

3. Prepare an explanation of your business. Write it down and then practice saying it out loud. Writing the explanation down forces you to think about it and ensures it flows logically. After you have talked to someone about your business, reflect on how that went and make adjustments. You’d be surprised how many people don’t.

4. Have 2 versions – one that may take just 30 seconds which gives the whole concept in a nutshell and a second version that allows a bit more detail taking a few minutes.

5. This is what potential business partners and Investors want to hear:

Who you are, your experience and your knowledge relevant to making the business a success.
The market area that you are in and the size & potential of that market.
What your company/business/project/idea does. Clearly – so that there is no misunderstanding or confusion. This needs trying out on people who have never heard of your activity.
What problem does your business solve for clients/customers? What advantage does it give them? What desire or aspiration does it allow?
What is your uniqueness, how do you compare to your competition?

The listener should now have a initial understanding of you, your business potential and the market, if it is appropriate you should also add what you are looking for in order to grow that business. A Partner, a Mentor, an Investor, contacts, sales help or whichever you need.

Remember, experienced business people and especially Investors have heard it all before, don’t boast, don’t over-hype, be professional and have a couple statistics in mind to throw in that supports your claims – it will impress.

With good planning and thought you can make a favourable impression with whoever you meet – you never know where it may lead.

5 ways to be a success this year

1. Work on your brand and image.

Success breeds success and perception is reality. The reason these truisms exist is that they are, well…. true.

What do people think when you communicate with them? Do they want to be a part (either as a customer or an Investor) of your successful and dynamic business? Perhaps you’re not quite there yet, but do all you can to give that image to people.

Branding is often just thought of as logos and letter-heads, a catchy tag-line and corporate colours. It’s easy to get bogged down in working on these and miss a couple quicker paybacks of having your own company email address (it’s not professional for a business to be using gmail/Hotmail) and a simple but high quality business card (the cheap ones are not worth having).

Most businesses now have a website, they’re inexpensive to produce and can instantly be a way of conveying your brand and image, so think about having one well designed. A local web designer can do a far better job than the free sites that come with purchasing a domain name.

For established companies, rethink how you are perceived. Ask customers and importantly potential customers what they think of when your name is mentioned. What do they like, what would they change? Get a pair of fresh eyes to look at you.

2. Give better customer service than your competitors.

Customer Service is now being seen as the number one differentiator in this era of everyone having very competitive pricing.

Good customer service needs to be built into the image of your company; it is a positive brand characteristic and will pay back with repeat business and recommendations.

It also needs to be built into the fabric of your business, from the attitude of yourself and your staff, to the systems that you put in place to support it.

Think of how John Lewis continues to do well, while others fail. Amazon has a great customer service for an on-line company. They’ve made good service a part of who they are.

3. Get help from your peers.

There are people who have already overcome the same problems you have, or may have contacts that you need, or insights into what works and what doesn’t. They can brainstorm ideas and help with strategies.

Where do you find them and isn’t it worrying to give potential competitors information on your business?

This is where you have to choose the make-up of your group wisely; there will be entrepreneurs and businesses that are not competitors but have the same issues as yourself. You can also sign an agreement where you keep each other’s information confidential.

As to where; Mastermind groups (look it up on Google), Network events, local Chambers of Commerce, Small Business Federation, and even banks run such activities for clients. There are also commercially run groups, often catering for executive level participants which provide well organised meetings and coaching, although they do tend to charge quite high membership fees. You could also set up your own group. If you do so, lay out some agreed upon rules.

4. 90% of success is turning up.

Do it. Yes stop prevaricating and do it. Dreaming of starting a business? Thinking that you should look at your costs? Wondering if you should do more PR or marketing? Just do it.

“I have never met the person who went out to do what they really dreamed of, and then regretted it, regardless of whether they later succeeded or failed.
“But I have met many people in later life who wished they had taken more risks to follow their dreams” – Simon Woodruffe (Yo! Sushi)

General George S. Patton: “a good plan violently executed now will be better than a perfect plan next week.”

5. Employ the best people that you can find.

This has constantly been the most given advice when successful entrepreneurs have been asked about lessons learnt.

Now if you are the sole owner of a young business, struggling to cope and having to do everything yourself, you may think that any warm body would be a plus.

However, even then it’s worth getting the best that you can afford at the time, which means investing some time in your choice.

“When picking your team, work with people you like, and give them massive respect.” – Simon Woodruffe. But I would be careful taking on friends, they may not be the best choice for skills and what will happen if goes wrong.

There are of course many more things that you can do to make this the year when your business takes off, but it’s better to focus on a few actions and make them happen, than a lot of possibilities that never get done.

Are you ready for investment?

Being investment ready is key to getting funding. Yet when talking to entrepreneurs they often have not taken the time to think it through.

You are up against a lot of competition for business investment. Some may be better prepared than you to give the potential Investor confidence that his investment will be well spent and payback a healthy return.

So what can you do to be ready for an Investor and how can you give yourself the best chance against the competition?

Business Plan. Okay there is a ton of information on this available, including on this site so I’m not going to go into how to do a plan (see the links below). Just to say that you will benefit from having one:

Putting a plan down on paper forces you to think through what you are doing. The market, your offering, sales & marketing, putting together an experienced team, the business model and finances
It provides a basis for discussions
Shows Investors that you are professional, serious about the project and are thinking of every aspect of the business
Investors cannot see everyone; they will want to first have a few pages (Exec Summary) of a business plan and then follow-up the ones with which they are interested.

Getting started on a Business Plan

Structure of a Business Plan

If an existing business:

Make sure that what you are doing at the moment is profitable, if not profitable show why it will be
Build your revenue with a sales drive to show the business to its best effect

For start-ups:

If based on a new type of product, make a prototype
Show it is not just a good idea, but that it will actually sell by getting positive customer comments, or letters of intent to order.
Produce a market survey that supports your product or service. Don’t simply say “everyone I’ve asked likes it”.

Be able to explain in a couple of sentences what your business does, its advantages over the competition, how it will make money and who its customers will be. Have evidence to hand to support your numbers.

Know what you are going to spend any investment on. Make sure that it’s not just to pay you a salary, or all thrown at marketing.

What role will you expect the Investor to take, some are looking for an active role in the company, some only expect to give advice, very few will consider just giving funding and stepping back completely.

How will the Investor get a return? A sale of the business, a buy back of shares, interest /dividend payments? Over what time?

Look at government Investor incentives. In the USA there are quite a few States that are trying to attract businesses, basing your company in that area can give tax advantages to the company and potential Investors.

In the UK there are the EIS (Enterprise Investment Scheme) and SEIS (Seed Enterprise Investment Scheme).

These are attractive to potential Investors and may make the difference in choosing your opportunity or someone else’s. A quick way of getting a foothold on to these incentive schemes and be able to show Investors the potential, is to get a statement from the Inland Revenue (HMRC) that your business is likely to qualify for the scheme called a EIS Advanced Assurance

Finding investment is not necessarily quick. Realise it will take time and energy. Be persistent and turn over every stone to find the right investor that understands your market and is excited by the team and opportunity that you have.

The right management team for funding

Company Structure Many of the people that I’ve talked to recently are individuals, they have a need for funding to start-up or to get greater growth, so they are talking to me about finding investment.

After asking about what they have done to prove the concept and reduce the risk to an Investor, the next thing that I ask about is who is behind the business.

From an Investor’s viewpoint they will want to see that whoever is involved has the capability and experience to make a success of the investment, they don’t necessarily have to have a comprehensive and large team behind them.

It some cases the Investor may in fact want to become active in the business and so will be looking to see where they can add value. If for example the Investor has a financial background, a business where the owner is an expert in the market and product, but could benefit from additional business skills would be an attractive fit.

There are Investors though, who whilst willing to contribute experience and contacts would not want to be involved in the day-to-day activity. They ideally would like to see all the bases covered by a solid team of experienced and talented people with a strong commitment to success.

By “bases” we are talking about Product/Service development, Sales & Marketing, and Administration/Finance.

So if you as the owner of the business have one of those areas covered, you should be looking to have brought in partners or employees to cover the rest.

There has also been a trend in recent years for fast-growth businesses to bring high profile Chairman into the company. These figureheads add credibility to the venture, help with their advice and will be experienced in talking to people such as Investors.

Even at a more modest business level bringing senior people in as Non-Execs to add authority and experience can be positive to Investors. It reassures them that the business has the talent to grow with some help, but not requiring a lot of their limited time.

That may of course be less attractive if the Investor has ambitions to be an active part of the team themselves, so consider what your potential Investor’s preferred role may be and that could shape how you present your team.

Having said this about building a team for investment, if the business is one that looks destined for high-growth, Investors will bring in specialists and experienced people to fill any gaps. But for the majority of businesses a little thought on shaping the management team will give credibility to an investment proposal.

Sales and Marketing Plans

Whether you’re writing a business plan, or simply want to make sure that your business has customers, you are going to need a sales plan and a marketing plan.

Yes need. Not optional, not nice to have – need.

First let’s get over the instinctive dread of the word plan. It doesn’t have to mean a formal document, but it does need to be written down. Writing forces you to think and you can’t get away with the woolly thoughts that are there when this is only in your head.

Notice also that I separated the two. People use the phrase sales & marketing, but they are two complementary areas of your business activity. You can write them separately or joined together in one overall plan.

When I talk to entrepreneurs they can chat for hours about the features of their product, but ask how they will sell it, or how people will find out about it and a there is a vague response of “oh that’s what I need money for, to advertise and stuff”.

It’s far more interesting to think about the product or service than about the practicalities of how you will sell them. Until the business fails because you don’t have customers. Or you don’t attract investment.

So what is in a sales and a marketing plan? Which do you do first?

Start with the marketing plan, because part of that is defining who and where your target market is. You’ll need to know that in order to sell to them. I wrote an article about this: How-to-Market-Smarter

The contents and emphasis will vary depending on the type of business, it’s complexity and of course the market it operates in, but in general a marketing plan will have:

A description of the market you are operating within, think about the geography and demographics. You can include how the economy affects this market. A cut-rate supermarket does better in a difficult economy for instance.

Who are your competitors, their pros and cons. What is your strategy for competing against them?

Who you are selling to, your ideal customer. As mentioned in my article above, it should be broken down into segments.

Branding, values, colours, logo – the message you want to communicate. Cheap and functional or premium and exclusive, this is where you decide what people think when they hear your company’s name.

Products and services with pricing strategy – no need here to go into depth on every product functionality. Rather the strategy of what type of products and services.

Lead generation – this includes PR, advertising, web sites, referrals, direct mail, attending exhibitions, giving local talks, networking… Be specific, don’t just say for instance you will advertise, give a list of publications and the dates you’ll appear.

Marketing costs – put together a spreadsheet showing the costs of each of these marketing activities.

Once the marketing activity is generating leads, how will you turn those into sales? This is the sales plan.

Sales strategy – do you have your own sales force, will you have distributors, is your business web based only or perhaps a high street shop.

Sales process – how do you qualify the leads generated, how do you engage with them, key sales messages,

Service experience – how will you later follow them up, retaining customers and encouraging them to buy again.

Sales forecast – compile a spreadsheet by month for the year (plus a year 2 and year 3 total if doing a business plan for investment). Broken down by product or service category. Sometimes it’s hard to forecast for a new business but you must make a stab. Note down your assumptions of why you forecast those numbers, so when it proves wrong you know why and can adjust it.

It takes time and we are all busy, but there is no alternative, you can’t run a successful business without a sales plan or a marketing plan.

Use technology in your business or fail

In a previous work life, I used to give presentations on technology and as a way of lightening the tone of what could be a heavy session, I showed a cartoon. The caption read “In a moment of inspiration Dave the repairman connected the air-conditioner to the Internet”.

Now, what’s funny about that you may ask? These days everything from fridges to toasters (yes you can buy one) get the Internet treatment.

Well, at that time the only device connected to the Internet was a computer and then not every computer. The workhorse of computing was called a mini-computer and it looked exactly like an air conditioning unit. Connecting it to the Internet would be impossible; we used to laugh at the absurdity of the cartoon.

How times have changed. I’m older now and the latest trends in technology don’t automatically include me. I have to consciously make myself aware of what is happening and how that impacts what can be produced as a product, offered as a service, or affect the way a business operates.

Unless designing an iPhone app, or working on a new type of web site, many entrepreneurs that I talk to have not included technology in their plans for the business.

That would be a mistake, because undoubtedly your competitors will have built-in the latest technology and it may be the edge that differentiates your business from the others.

5 ways technology can give you an advantage:

Build it into your sales plan. Either by selling on your own web site (eCommerce), or using Amazon or Ebay who will help you set up a shop within their sites.
Have a plan of using technology to help your marketing and PR. This is increasingly important. You can advertise using Google Ads, place “how to do” videos on YouTube and use social media web sites such as Facebook, Twitter and Linked-in.
Buy a web domain name that describes your activity. It depends on your type of business but whilst “Johnston International” sounds good you’ll only be found on search engines if someone types that name, however have a web site called “handbags.com” or “cookbooks.co.uk” and you’ll be found more often.
Once you have your own domain name use it to have your own email address. There is nothing less professional than using hotmail or gmail as your email address for a business, it screams small-time amateur.
Automate your business processes as much as possible, all the way down the supply chain, from how you order goods or services yourself, to despatch of goods and customer service. Use modern accountancy packages. Communicate with your customers by email, again automated where practical. This is an area that will save you money, speed processes up and free your time.

Don’t use excuses such as I’m too old for all this, I’m more of a people person, I don’t understand and in any case I’m too busy. Your competitors will be eating your lunch.

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