Is That Dashboard Enough?

“You’ve got to be very careful if you don’t know where you are going because you might not get there.” – Yogi Berra

Over the years, I have been amazed as to the number of entrepreneurs I encounter that use shortcut methods to get a feel for how their business is doing financially. Many today explain they have a “dashboard”. I believe a well-designed dashboard can be an invaluable tool for an owner but it should not be an excuse for not having timely, complete and accurate information. Without that, you can end up like Yogi said. A quick story.

Years ago, I was auditing a small but well known public company. The chairman was a sharp businessman, but the market had gotten away from his company and for the first time in years, they lost money and were in debt. I had my typical closing meeting with him and was told in no uncertain terms, the numbers were wrong. He asked, “If we lost $1 million, why do we have cash in the bank?” Though taken aback, I quickly showed him the balance sheet with $2 million of debt. He looked at it, thanked me and gave his “blessing” to the numbers.

Recently, I had the same experience where an owner of a business I knew asked me to visit because his numbers did not seem right. He had cash but his CFO indicated he was losing money. I quickly looked at his financials and did a back of the envelope calculation showing how the changes in receivables, inventory and payables had actually generated cash though he was in fact losing money.

Both had used a version of dashboard reporting (in this case, cash on hand) to assess their financial results. These shortcuts have their drawbacks. The other issue is that in an early-stage company today, there are non-financial type measures that an owner must manage. Unique visitors to a site, return visitors and costs to acquire customers are not in the financial records but can be a solid indicator of the health or future health of an enterprise.

So some simple advice. You should work with your internal or external financial staff to determine what data works best for you to run your business. If you are a more mature business, you need a balance sheet and cash flow statement (they are easy to create) to go along with your income statement to better understand your financial workings. Just using cash balances or average order size (another client used this) is not enough and can be short sighted.

If you are emerging and pre- or early-revenue, develop those metrics that provide the right insight into your business. Those who are in this space can help you and while that data is important, keeping track of how your cash is used (your “burn rate”) is also a critical piece of information.

You may hear from colleagues that they do not waste time on such mundane matters and getting a “quick read” on your results is the path you should follow. While I agree that timely information is paramount, insufficient information is not acceptable. And if your competitor is doing a better job of obtaining and acting on solid information, you may lose in the end. So don’t just settle for dashboard reporting because it is fast and easy; make sure it really can tell you what road you are on.

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Quick Test: Should I Form a Startup?

“You can do it!” – line made famous by Rob Schneider in “The Waterboy.”

Being a big fan of the entrepreneurial space, I love to encourage people to get involved in new ventures. Forming something new or making what is there bigger and better can have a profound change on the world, and being a part of that is both exciting and daunting. I talk to owners every day and for those just starting out with an idea, I have a little test that I use to see if they should be encouraged or just continue to dream. Keep in mind a true entrepreneur knows the difference between an idea and an opportunity – thank you, Jeff Timmons – and you have to determine early on which of the two describes your journey.

So here is the quick, five-step test:

  1. Do you have a viable, unique idea? A baseball mitt for ambidextrous players may be unique, but viability may be a question. You should also be able to create a logical one page summary of your idea. It is amazing what happens when you have to put something down in writing. If you doubt this, try this little exercise – write down what you would like written on your tombstone.
  2. Do you have some money? Regardless of what you want to do, it will cost money. You may be able to minimize the cost, but you need to have some available money to get started. When I went into my own consulting business, I knew the most frugal way to incorporate, register, get a website and business cards, etc. but it still took a few bucks.
  3. Would you like to do this for the rest of your life? Next to sleeping, we spend most of our time working. If this is going to be your “job,” do you really like it? And please make sure you are not running from something, like a job you hate, but to a life you will enjoy more.
  4. Can you take the heat? Being the boss is the good news and bad news. Every new hire is another family you are responsible for so you have to be ready for that role. The road is full of stories about the team and sharing responsibility, but in the end, the buck will stop at your door and some people are not built that way.
  5. Can you make money doing it? Having your own business is great, but you need profits to pay salaries and make it worthwhile. This can involve difficult decisions on resource allocations. Be ready for that eventuality.

So there it is. If you have answered yes to these questions – and I think they all have to be yes answers – then you are ready to seriously commit to forming your new venture. Harness your passion and enthusiasm and get started. Just keep in mind that “you can do it.”

Don’t Let Excuses Prevent Success

“I coulda had class. I coulda been a contender. I coulda been somebody, instead of a bum, which is what I am…” line by Terry Malloy (Marlon Brando) from the movie “On the Waterfront”

I am lucky; every day, I get the chance to meet bright, enthusiastic young entrepreneurs just beginning their journey as well as those who have mastered the art of being a business owner and are enjoying the fruits of their labors. Whether they are just starting out and are driven by the hope of success or reflecting on their accomplishments, whether they are young or mature (I hate old), they all share one common trait – – they never let excuses hold them back. Every obstacle is only a challenge; every failure a learning experience. Unlike Terry, they never lamented over what could have been; they made their way and remained focused on what they wanted. So, a valid question is why do I wax nostalgic at this point? Like most ideas I share, the roots are in the commonality of my experience.

Many of us who offer guidance to entrepreneurs try to be as practical as possible. We all create lists of dos and don’ts. I am guilty of this as well; my blogs include the Top 10 Points of Focus for Success as well as the 10 Reasons Why Startups Fail. We believe that making it simple and formulaic somehow makes it easier to comprehend and perhaps spurs a reader to action. But as one of my favorite clients used to say, “Says easy; does hard.”

So in keeping with this, simple is better approach, I offer the following for your consideration. Most accept the theory (I know I do) that most problems can be solved with a combination of three resources – – time, money and people. We can always use more of each to help us through the day, but I am discouraged when I see entrepreneurs falling back on the lack of resources as an excuse. Just some examples.

I met with a startup tech company that was looking to raise money. Table stakes here are developing a Minimum Viable Product (MVP). They apparently had the capability and resources at hand to achieve this milestone but were so focused on the “raise” they did not take the time to take this important first step. Needless to say, their timeline to raise funds (if they ever do) is now much longer. Their view; investors just don’t get it. If I only had the time…

Entrepreneurs at all stages can always use additional money. When the topic comes up, I am sometimes amazed at the responses when I ask two simple questions: how much do you need and what for? Believe me, I have heard more than one lament as to how fussy or ignorant potential investors are for asking. Really?

Mature businesses often do not take the time to recruit/develop the next generation of managers, and then are shocked when they try to exit and potential buyers shy away. I hear how potential buyers just “don’t appreciate the value I have created.”

So if this sounds familiar, I suggest you take a deep dive and find out what is really preventing you from getting to the next level. We all know that with additional time and money we could have “been something,” but isn’t the real question, “How come so many others are?”

Franchising – A Road to Entrepreneurship

Junior: “We goin’ Sizzler, we goin’ Sizzler,” – dialogue from the movie “White Men Can’t Jump”

Sorry, but when I thought about franchising, this was the first thing that came into my mind; that ought to tell you something.

So, the purpose of this blog is not to convince you to open a franchise or promote any particular brand (I do have clients in this space) but to give some pointers about exploring franchising as an avenue to becoming a business owner.  Some points to consider:

If some of the surveys that I see are correct, a higher proportion of people would prefer to own their own business than work for someone else. We all have theories behind the reason for this. I think the biggest is that most don’t see a long-term bond between employer and employee.  I was at EY for 35 years until I retired; I am not sure today’s generation sees that in their future.  Many view themselves at risk as a business changes versus the stability of the “old days,” so the theory goes that if I am at risk, then let me be where I feel I can have some control.

While many would like to own their own business, they do not know where to start.  Strategy, marketing, funding, execution, etc. are all great concepts but can be overwhelming when you have to start each with a plain piece of paper.  Enter the concept of owning a franchise.  A good franchise arrangement provides the following:

guidance – an operating plan with details on strategy including execution procedures

branding– a name and approach which has been proven before

training – on how to operate your business and make the most out of it

marketing and sales – proven techniques that have worked before to promote your business

It all sounds so good because in many respects, some of the typical risks in starting a business have been mitigated.  But, when it comes to considering how it may work for you, my thinking is that there are two different approaches.  The first is an investment approach. You invest in a location with the idea of opening a second or possibly more.  You may “work it” in the beginning to learn the ropes but in the end, you hire location managers, spread your overhead over a number of locations and look for return from the underlying operations. The second is what I call a lifestyle business.  You work one location to bring in a salary and perhaps a little profit, but you just look to pay back what you borrow.  In either case, you can become an owner with appropriate rewards.

There are two final items you should consider.  First, there is a Federal Disclosure Agreement which a Franchisor must file.  You should get it and read it for any franchise you are considering to study potential risks like excessive turnover and burdensome fees. You are usually committed to minimum fees for a long period of time once you sign so consider this carefully before you do.  Second, how do you get out?  If it doesn’t work out, what is the market to sell out?  Is it a closed market and can you expect some terminal value when you decide to leave?

Many entrepreneurs have found their place in a franchise operation.  Perhaps you can become one of them.

 

Start Up Phase Over – Now What?

“Communication breakdown.  It’s always the same Having a nervous breakdown Drive me insane”

Lyrics from Communication Breakdown by Led Zeppelin

One of the real thrills of being an advisor to entrepreneurs is getting the chance to watch a fledgling startup evolve into an early stage growth company.  Like an adolescent moving on to adulthood, you suffer through the pains of minor failures and rejoice at the success maturity brings.  As is usually the case, after witnessing this phenomenon hundreds of times, it is easy to make some observations about what seems to have worked.  While many facets of an evolving entity are involved here, these are my top five focus points which seem to foster success when they get into the sight of an emerging entrepreneur:

  1. Communication – you can probably guess from my sighting above that first and foremost, there has to be a focus on communication.  Expectations are higher as you reach this stage.  What you expect from others, the ability to talk to every employee every day and other techniques that were your modus operandi begin to get challenged.
  2. Build your team – you by now realize you can’t do it all so finding the right people to help execute your vision is key. This is another “says easy; does hard” challenge. Use all the tools you can from word of mouth to social media to attract the right talent. Do not skimp on the time you spend in this area. It is your most important task.
  3. Direct vs. do – instructing others instead of doing it yourself requires a different skillset. It means planning and setting goals so others can help to move the business forward. Letting go a bit becomes the biggest barrier to success but soon you realize you can’t just cram for that exam the night before and ace it. Not enough hours in the day for that approach.
  4. Establish processes– yes, as non-entrepreneurial as it sounds, those that are successful in executing a growth plan follow processes. There is a reason places like Zappos achieve their levels of customer satisfaction – there are tested processes to cover every situation
  5. Formalize measurement– you can’t just look around and see what is happening anymore. You need formalized goals and ways to measure progress against those goals. You can’t see product going out the door if your distribution center is now hundreds of miles away.

So, as you take your journey to success, reflect on these points of focus and never lose sight of the “culture” which is your company and which in many ways, helps to determine not only what you are but what you will become.  Have a great trip.

How Do I Know It Is Time To Get Out?

“Well come on an’ let me know

Should I stay or should I go” . . .  lyrics from The Clash

Many established owners in mature businesses confront this dilemma at least once in their business lives.  In many cases, they are hoping that others will make the decision for them but unlike this classic Clash song, usually there is nobody to tell them; it is a question they have to answer for themselves.

“Getting out” has a different meaning depending on circumstances.  If you are the owner of a successful business and have a functioning management team in place to take over, that is one scenario.  If that is not the case and you are just at the start of this decision cycle, that is a whole different ballgame.  I will leave the former case to another time; let’s talk about someone considering an exit and cover the more common reason for doing so.

In his 2000-Year-Old-Man character, Mel Brooks pointed out countless times how fear motivated individuals.  In fact, he attributed the origin of dance to fear.  What better way to neutralize a potential enemy; grab the hand so they can’t hold a weapon and keep their feet occupied so they do not kick you.  Mel may have been on to something as fear is what has driven many of my clients to “get out.”  Just a few examples:

  • Disruption – a new “kid on the block” who has a more effective and economical product.  I had an industrial products client who was a specialist in transistors until they heard of something known as solid state and sold out before the new technology came to dominate the marketplace.
  • Paradigm change – while I only saw a small portion of the impact, how do you think Borders and Barnes & Noble felt when this upstart called Amazon began to rear its ugly head in their market?
  • Succession plan failure – I have had the chance to nurse more than one client through the painful process of realizing they had no successor – – no family member or management leader who wanted to take over the business or worse yet, family members who the owner was convinced would lead their legacy right into bankruptcy. In many cases, those owners took an “offer they couldn’t refuse.”
  • Not fun anymore – many of my owners truly enjoyed the daily challenges and rewards of “working” their business and making those tough decisions. But when the fun went out of it and it became constantly stressful – – maybe even to the point of impacting their health, they made the call that it was time to do something different.

Let’s face it; this is not an easy decision.  If there is one tried and true piece of advice I would give, it would be to develop some outside interest (golf, grandkids, volunteer work, travel, etc.) that will give you something to “go to.”  The reason for this is simple; if you do not have something to “go to” you will never leave because “going from” something can feel like failure and as we all know, entrepreneurs do not fail.

Keeping a Broad Vision

Scene at The Olympia Restaurant (from SNL skit)

 

 

 

 

 

 

 

Patron: I’ll have a grilled cheese.

Gus: No grilled cheese – – Cheeseburger

Gus: What do you want to drink?

Patron: Coke

Gus: No Coke; Pepsi

Probably one of the most difficult concepts for an entrepreneur to get his mind around is maintaining a broad vision. The concept of broad implies a wide ranging view while vision seems to suggest a certain focus. Seems to be an oxymoron – like jumbo shrimp. We encourage entrepreneurs to maintain that open view while continually harping on staying focused and this conundrum can drive the average business owner out of his mind. So let’s explore this a bit further.

Many of us remember the scene above from the famous SNL routine with John Belushi. You had to admire the tenacity of focus; but you were never going to get any form of potato other than chips, no entre other than a cheeseburger and no drink other than Pepsi. Pure focus like this can certainly define who you are but does it limit the customers you want to reach? Let’s consider another scenario. Why did Steinway and Yamaha have such different levels of business success? Some would simply point to a broader vision. While Steinway focused on producing pianos, Yamaha saw itself in the keyboard business. So when electrical instruments came along, electric pianos and organs were a natural extension of a broader vision.

Apple and Starbucks are also often sighted as companies who look beyond the utility of the products they deliver to a much wider view; focusing instead on the user experience to expand the appeal of their products to a much wider audience. In his book Start with Why, Sinek encourages us to continually look at the market through the eyes of our customers to always understand the true why of their purchase behavior. In essence, keeping a broad vision with focus.

I have seen this issue many times particularly with software development companies. They develop a great platform and in an attempt to demonstrate its capability, they build an application. Now that is all well and good until the application (versus the software) becomes the focus. Let me give you a real example. In the 1980’s, (“a long time ago in a galaxy far, far away”) I had a client that had developed voice recognition software. Now I know it is popular today, but trust me in 1980, it was revolutionary. They decided to demonstrate this capability by installing the technology in a phone (remember pre cell phone days.) Being the accountant, I wondered why someone would buy a phone for $350 where they could pick up the receiver, say “home” and have it call home automatically when they could push the button on the phone that said “home” and get the same utility. Apparently, the market saw the same thing, so instead of using the money they raised to improve the technology and license it to others; I watched them go out of business with an inventory of high priced phones nobody wanted. They saw the phone as focus; I saw the software as vision. Put another way, I saw the Olympia as an eating establishment with personality – – not just a cheeseburger factory.

So when it comes to your vision, please work to make sure it is broad enough to create sufficient opportunity and not so focused as to preclude your ability to fully develop your vision.