Saturday, June 28, 2008
If it does happen, it is often when a very popular franchise has been purchased, or if the business has commenced activity with a pre-sold order book.
This is normally a red flag for any financier who has been approached for finance for the new business. Realistically there is seldom much chance of most businesses breaking even before the end of the first six months, and it can often take a lot longer.
A way to resolve this problem is to do your sales budgets first, and then your expense budgets. Too often sales budgets are done after the expense budget, and then made to fit the occasion. Your first sales budget is normally based on gut feeel and hopefully also some market research. Rely on it and do not change it to make sure you are profitable from an early stage. If the business takes a while to turm profitable then it is quite likely realistic. If it takes longer than you can afford to carry it or raise funds to carry it, then drop the idea and find a new idea and then start the process again. The purpose is to find a profitable business, not try to force our dreams to come true even if they never can .
REMEMBER THE PURPOSE OF BUSINESS IS TO CREATE WEALTH, NOT DESTROY IT! So please review your sales projections before seeking finance and assess their realism!!
On the one hand government expects them, as public companies to provide development capital, which is not their role, and on the othre hand, the government has created the expectation that banks will / should finance all SMEs.
Government on the other hand manages all it's development finance as though they were running a bank, using duplicate systems to the banks in deciding who to give loans to. To government does not do development capital properly, and banks do not do it but are expected to.
However, while South African banks are undoubtedly innovative in many ways, and world leaders in certain respects, they are decidedly lacking in innovation when assessing SME loan applications.
However, I do not believe they are any worse than other banks elsewhere in the world. However, they could possibly all learn a thing or two from banks like Grameen and ICICI perhaps.
This follows the assumption that because many governments in the world are attempting to reduce poverty and unemployment through the creation of SMEs, the number of SMEs requiring funding has obviously grown.
The second question that begs, is whether or not the reason that many of the SMEs who today are seeking finance and being refused, is that these government efforts are bringing people into the sphere of entrepreneurship, when in fact they are best suited to at best small business managers, and at worst survivalist entrepreneurial activities.
The final question, is whether or not the banks by now should have created a new methodology for assessing SME loan applications. The worldwide number of SMEs has grown immensely, and their contribution to the world economy is between 30% and 40%. Can banks continue to ignore this pot of gold?
There is unfortunately a certain amount of truth in the fact that SMEs are their own worst enemies, or rather the entrepreneurs who run them are. Entrepreneurs often allow their own self confidence to override their ability, and so they often ignore the warning signs until it is too late. Alternatively, the moment they see any form of positive activity, they immediately stop the corrective action, in the belief that they have solved the problem.
I recently was contacted by an SME in the media sector, on the grounds that after many years in business they still lived from hand to mouth, albeit that the business had grown. They were still negotiating with me to help them turn the business around, when they received a large order. They immediately stopped the process because they felt that the large order would now solve their cash flow problems. They had still not addessed their problems, but the big order convinced them they had.
Entrepreneurs normally are sharp enough to know when things are wrong. The most difficult part is learning to put the ego aside so that you can address the problem in a subjective manner. Do not allow yourself to fall into this trap. Remember that a smart entrepreneur fixes things or gets help if they cannot do it themselves. Act decisively and quickly, because it seldom "comes right"!!!
Unfortunately not all SME owners are entrepreneurs. Entrepreneurs are generally considered to be opportunity aware, which is why they are often instigators of innovation. These entrepreneurs through their SMEs, will often drive the innnovation forward quickly, simply because they are small and nimble and able to embrace change. The downside is often these entrepreneur will embrace innovation and then build a successful business around it. Therafter they no longer innovate.
This is the sad part for which we are all the poorer. Entrepreneurs must continue to innovate, and this is why entrepreneurs must become portfolio entrepreneurs, and build other businesses. They must maintain innovative momentum, through ongoing opportunity awareness.
So if you are an innovative entrepreneur, ask yourself whether you are still innovating or whether you have stagnated into a humdrum life of one business. If the thought of starting another new business scares you, ask yourself whether you are still the entrepreneur you once were?
This is a definition of an entrepreneur:
Your entrepreneurial spirit makes you no more than this:
A heroic soul born desperately in need of adventure. To you ... a crisis is an opportunity, a moment is an eternity, a rule is a tyranny, a process is a purgatory, a joy is an ecstasy, a daydream is a vision, a hazard is a playground, silence is suffocation, and completion is death. Add to this brutally expansive spirit the overwhelming need to risk, create, and express, so that without the creating of music or poetry or books or businesses or buildings or something of meaning, your very breath is cut off ...You must create , must pour out your entire being in creation and risk. By some strange, unknown, inward urgency you do not feel truly alive unless you are intimately involved in the risk of self-expression.Thank you for having the courage to create, innovate and risk. For without your creations the world would grow dull and listless And the rest of us who are like you would not have your courageous act to lean on to inspire our own.
Secondly, and possibly on a larger scale is the "Baby Boomer Effect". The people of this generation are beginning to hit retirement age. Due to the size of this group, many businesses will need to continue accessing their services, not as employees, but rather as consultants. In the USA today, 70% of all SME businesses are single employee consulting type businesses. This is a large number, when we take into account the number of SMEs in most countries is 90+% of all businesses. In short big business will experience large skills shortages, which will lead to them having to make use of more consultants who will be SME based.
There are also those people who are no longer prepared to be part of the rat race. They now work fewer days and live more remotely. They commute to work and then retire back to the real jungle, and away from the concrete jungles they work in. So I see the SME becoming that much more important in the future in the global economy.
A quick rule of thumb is to try and start a business that will give you some real income fairly quickly, especially if your capital base is fairly small. Remember that most businesses, particularly business-to-business sales, often have a 3 to 6 month lead time. Do you have enough capital to last 6 months? If not look for a small cash only retail opportunity. This may then cover your living expenses while at the same time preserving your capital for the development of another business with greater growth opportunities.
Once the other business is up and running you can then sell off the small cash retail business or let your wife or kids run it. Remember to ensure it has immediate sales, and no long sales cycles, which invariably means a consumer type product or service. However, even this kind of business, unless a franchise outlet, is likely to become a major source of profit overnight. However, it may generate sufficient cash flow to sustain the business into the profit zone.
The harm is to your own business and your wealth creation strategy. Let me explain. Firstly, we must reiterate that starting a business is not intended for the purpose of creating a salary for yourelf, but rather to create wealth for yourself. So how does stealing the cash sales destroy your wealth?
Firstly, by stealing the cash sales, you reduce your overall reportable gross profit, as your cost of sales is higher against lower sales. This naturally leads to a lower nett profit, which means a lower business valuation when selling the business, which means less wealth has been created. As an example if you are stealing 200000 per annum, a realistic PE on that amount would be 400000 when selling the business, and could be higher.
Often however, the owners steal all the profit and only breakeven each year, thereby creating no wealth to sell. They therefore remain locked into the business and cannot leave or sell, long after they should have retired. They always claim when trying to sell, "But I can prove how much I took". Would you believe a self confessed thief is being honest, especially when he is trying to sell you something?
Finally, it does not take your staff long too work out you are stealing from the business, and not much longer to work out how they can too!!!
I have recently had the pleasure of meeting with two entrepreneurs. One is wealthy and the other is not. However, I have no doubt in my mind that they will both be in the long term. Why?They are both opportunistic! They are both looking for opportunities all the time. They are both focused on their success. They both have clear visions, and if not a written business plan, a clear mental image of one.
Talking to them both I was left with an immense sense of excitement about and with them. They sucked me in to their vision to the extent you just want to be part of it all. As an entrepreneur myself, I always enjoy to have my batteries recharged by someone with this kind of enthusiasm, and I am now running on full.
There are two aspects to every entrepreneur. What personality traits/attributes they have, and what skills they have.I have no doubt that the skills an entrepreneur needs can be taught. But the traits of an entrepreneur I believe cannot. The Iceberg Theory says we cannot change peoples' values and beliefs. An entrepreneur has a strong sense of values, such as working hard when necessary, staking it all when the decision looks right. Can we change a person's values by telling them what they should aspire too.
Perhaps not, but perhaps by explaining what they should aspire to, we can assist them in at least having the opportunity to change their values. But at the end of the day the decision is still theirs.
There is no standard test to measure the personality traits of wannabe entrepreneurs in such as way that it can successfully predict their probability of success. I think that there are possibly certain skills that determine the probability of success, but there is a certain innate driving force which true entrepreneurs have which most people do not have.
First off you have to know what is going on in the market place. So to do that you need to read, and obviously if you already trade within the industry, it is a lot easier to know what is going on in the industry. Often reading customer complaints in trade journals and other magzines, as well as internet websites that are specific to the industry, often provide an insight into customer needs. Never lose sight of the fact that innovation is generally driven by customer dissatisfaction.You need to read very widely. not only to find problems, but also to find solutions.
Remember that much innovation comes from other industries. A good example is Dell and Amazon. Dell sarted selling stuff locally in the USA using telesales and then moved to selling internationally on the internet. Amazon thought, if they can sell computers, why can we not sell books? Two very different markets - one solution! So get reading and find your next big opportunity!
Friday, June 20, 2008
The questions you need to think through and have answers to, are as follows.Do I have a good management team in place? Remember that Venture Capitalists (VC's) do not staff your business. Do I have a vision that is very big in scope?
VC's are not looking for deals to invest in much under the US$1million mark if not US$10million in som cases. They are looking to invest big money in return for even bigger returns. They are wanting a product or service with mass appeal and the ability to have a long product lifecycle, or a product or service which is essentially unique and which will command a premium.Am I prepared to sell it all in the next five years? VC's do not hold businesses for long periods. They want to get in and out, either through the sale of the business or a public offering/listing.These three questions are all that often keep the entrepreneur out of the VC funding race. Most entrepreneurs cannot answer these questions the way a VC wants them answered.These three requirements generally demand a major shift in the thinking of the average entrepeneur. Have you got what it takes?
I had the pleasure, as part of my PhD research, to interview a successful business owner, as part of my fine tuning of my questionnaire. It was a pleasure because he confirmed so much of my research to date.
Key to his success has been a vision/plan on where he wants to be down the road. He reads a lot, networks at every opportunity and has done some additional skills courses subsequent to leaving school. He funded his own business by initially working in the industry and gaining experience, and then saving until he had enough money to start his own business. He is a strong believer that the point of business is wealth creation not income creation.
Finally he said that he is extremely opportunity aware, and once he has identified a genuine opportunity, he does not delay in making the decision to proceed. He does very little without seeking out possible opportunities, and he is wired for opportunities. He has learned from his peers and through studying, and has full confidence in his skills.All this is directly in line with my research to date, as this man is undoubtedly a natural entrepreneur.This leads me to my next blog. Can we create entrepreneurs?
One has to question whether this is possible. While there is no doubt that SME' s are able to play an important part in economies, the confusion that I believe is arising, is the misperception that SME owners and entrepreneurs are one and the same thing. If we consider the USA as an example, the entrepreneur is considered in an extremely positive light. The number of SME's exceeds 25 000 000 to the best of my knowledge. However, I believe the bulk of these are not entrepreneurs. They are predominantly SME owners who bought a franchise.
The franchisor carries out the two mission critical aspects of owning a business, and which differentiate the entrepreneur from the SME owner. These are strategy and marketing. It is the business strategy and marketing which make the business unique and entrepreneurial, but the franchisee has no control over these.Therefore the owner of an SME is not by default an entrepreneur, and the fact that they might be a franchisee diminishes that possibility even further.
Therefore should governments be investing vast sums of money to create SME's, or should they be investing in entrepreneurs who will in fact create the SME's. I believe we need to become better focused on how we spend our money in order to create more quality entrepreneurial businesses.
IT IS NOT ABOUT IDEAS!!!! IT IS ABOUT FINDING OPPORTUNITIES!!!!!
What is an opportunity. An opportunity exists when in the process of doing our environmental scanning for our PESTEL analysis, we see that by applying our strengths to a current event in one of the environments, we can turn the event into an opportunity. If you do not have the strengths to take advantage of an event, it is not an opportunity. An opportunity is an event that you can benefit from by applying your strengths.
The problem is that most SME owners do not do a regular environmental scan. We are all exposed to the environment around us all the time through a variety of media including newspapers and television. You cannot escape it. The question however, is whether or not you simply observe, or whether you observe in the context of business opportunities.
Do you read the newspaper and think, "I could make money out of that"? Someone who does is opportunity aware, an entrepreneur. If not they are merely SME owners. Ideas are also confused with innnovation. In doing our environmental scanning and observation we often see problems portrayed. Innovation is the task of finding solutions to problems that a particular market has. It could be the product that needs to be innovated, or perhaps the process. Either way, innovation is about changing existing products and/or processes to solve problems.
Finally, successful businesses are built on solving problems, ie. meeting the needs of the market. Ideas that are generated in a vacuum are simply that - ideas. They will not make money. Needs and problems make money for the entrepreneur who solves them.
Strike the word idea from your entrepreneurial dictionary, as it will merely lead to disappointment
Is this person an entrepreneur? I would tend to say no. Although they are entrepreneurial in many other ways, I believe that to knowingly ignore the figures is like attempting economic suicide. It is merely a question of whether or not the cut will go deep enough to kill the business.
While all entrepreneurs will have an ability to often work on gut feel, as this is merely a decision based upon internalised knowledge, I believe that once the "gut" tells you the plan is good, it needs to be verified and understood.
So please all you entrepreneurs out there, verify your gut feel, and run the numbers to be sure you are correct, and also to understand the real impact on your business. Your business may just depend upon it.
Friday, June 6, 2008
Yes, but it is only part of the whole. The fact is that competitiveness is about the human, financial and equipment resources in the business, and how they are utilised. It is about your leadership skills. the training your staff receive and the organisational structure and culture. It is about efficiency, communication, pricing, customer care, stock control and everything else that happens within your business.
Too often we try to emulate our competitors, and then wonder why we did not achieve what they did. It is because it is not about a one single component, but rather all of the components and how they interact with each other. It is about your own personal recipe, which requires you keep fine tuning it until the taste is perfect. Then you have your competitive advantage.
But competitive advantage is seldom understood in this way and is always focused on a single attribute by many SMEs and entrepreneurs. Do not try to focus on one attribute, but rather try to understand the interaction and interdependency of the business as a whole. So broad based competitiveness is critical to the SME.
At times the impact is short term and other times long term. In South Africa the racist policies have resulted in SMEs being unable to grow simply because they cannot find suitably qualified staff, and they cannot employ whites with skills as they then face the probability of legal action. As a consequence, approximately 20% of the white population left the country in 2007.
This has also impacted on big business, as our lack of electricity has clearly demonstrated.In Botswana legislation has focused on protecting local citizens against non-citizens. This has lead to highly uncompetitive businesses. They are protected by law and have developed a sense of entitlement. The first thing the citizens rely on is not local market knowledge, but an appeal for even more protection.It is time governments stop this practice. They are not helping, but simply skewing the markets even further, resulting in even greter hardship for their citizens.
- new fuels for motor cars
- alternative power generation for electricity such as solar energy, wind energy, wave energy and geothermal energy for warming water instead of electric geysers.
- geothermal heating will be used to warm homes
- there will be new systems for refrigeration and air conditioning using old technology
- they will grow a wider range of fruit and vegetables locally in greenhouses to reduce the damage done in transporting these items around the world
- clothing will move back to natural fibres such as leather, wool and cotton- organic food will be an important issue in the future
- music CD’s will be out
- computer hard drives as we know them will be out
- wind up lights, radios, clocks, and a variety of other items will be in again particularly, but not only, in rural areas
- the cable telephone is going out, particularly in rural areas, and will be replaced by wireless systems such as GSM and CDMA type cellphones
- the Internet will play an ever increasing role in our lives including television delivery
- there will be revolutionary changes in sea and air travel, which might even look like a return to the early days
- security will intensify a lot. Travelling will initially become more difficult, particularly for developing countries, until they can comply with new passport requirements which will require the inclusion of a microprocessor chip that contains biometric data such as eye scans, blood details, DNA details and more. This is due to terrorism. Homes and cars will become more secure and home entertainment will become more and more important.
- as home entertainment becomes more important, so too will getaway type holidays to remote but secure locations closer to home
- AIDS and TB will continue to ravage developing countries. There will be many opportunities to solve the problem for government of AIDS orphans. If they are not looked after they will become a roving band of murdering thieves, as they fight to survive in a society that has not cared for them. Set up homes to care for them and educate them for their future and yours.
- facilities for old people and also for frail people will spring up everywhere in developed countries due to the baby boomers going into retirement
- SMEs will experience enormous growth and many large corporate businesses will downsize once they build the necessary trust relationships with SMEs for outsourcing. Banks will make a large shift in attitude and volume of lending to SMEs.
I stretched myself into new areas and did some consulting for an SME agency of another government, which I really enjoyed. I was highly commended for the quality and detail of my work and guaranteed more business. I have since tendered for 14 other tender jobs for 2008, so here is hoping.
I have set clear and very large goals for myself for the next 3 years and I am looking good to achieve them. I achieved those for 2007 (Thanks Bridget).
I had a great time lecturing a postgraduate Honours group at the local university on Global Business. A small challenge as many were HR students, but it was great fun converting them from cost centres to profit centres in the business. Chen and Li from China were avid students and interesting people to talk business with.
I got to relax this Xmas and read a bunch of books, so my book list is also updated. Any one of them would make a good read. A friend lent me a copy of the Kiyosaki Cashflow game which I played with the kids. I think the younger one is ahead of the game on this passive income story, and he is devouring the Trump book at present. Damn and he is only 13. Wish I had that kind of start, but that is progress.
He starts high school (boarding) this coming year. The eldest is 3 months into his law degree in Bristol UK, and hopefully he will excel like he has the ability to do. He will also be rowing and should do well as he has the build and the powerful upper body from kayaking in South Africa. I really love and hate to see them grow up. So only one kid at home (Poor Bridget).
2008 has big goals so it will be a tough year, but remaining focused on the activities and goals should make it happen.I would like to wish all those who read this the best for Xmas and the New Year, and to those for whom this is not applicable a good and prosperous 2008.
For those who want a more African theme to SME's you can find my other blog under http://www.evancarmichael.com/African-Accounts/1492/summary.php . I write both blogs on a weekly basis. They are generally different but on rare occasions there are similarities.
All the best
Short term cash flow definitely comes from solving current problems.The problem with current problems is that there is a lot of competition, which means you need to differentiate your business somehow, make it unique in the marketplace, bearing in mind that price is seldom a differentiating factor. Instead product and service differentiation are required. Or a unique approach to sell the product. This is what makes it difficult. Finding a unique way to differentiate your business.
So for short term cash do current problems, and for medium and long term cash do the future problems.
The use of solar and wind power is going to become very important at a home owners level. This will also see a return to older methods of heating and cooling, in order to reduce the power consumption of the home. These technologies are already being resusciated in the construction of large buildings, so why not smaller homes too?
An effort to reduce the need for power, and to generate a certain amount of own power, could see a significant drop in the need for power from external generators such as utility companies. Initially this will be driven by "green" people, but over time it is more likely going to become a cost issue.
Go look at www.shellfoundation.org.
I believe a similar issue will arise around water and sewage. Many of us allow enormous amounts of rainwater to go to waste, and our toilet systems consume vast amounts of water. By installing a system to recycle sewage so that it creates water for the garden and also an inert compost, we can once again reduce the need for water.
These technologies are not new, but definitely underutilised. Now is the time to start building brand in these areas as these will be long term trends and not short term fads.
Thursday, June 5, 2008
I suggested at the request of a reader of the blog, that they need a decision system to assist them in decision making, so that they do not make decisions with their hearts, but rather with their minds. Ideally this is better suited to a decision tree. Maybe someone who is reading this can give it back to me in a graphic format which I can paste onto the blog.
1. Is this a recurring cost ie. Is it going to be paid every month or is it a single payment?
2. If a recurring payment then it is to be funded from working capital.
3. If you have insufficient working capital, then you may need to consider an overdraft facility with your bank or a short to medium term (1 to 3 years) loan from your bank if they do not offer overdraft facilities, depending on the country you are in.
4. If a single payment, is the payment amount for an item that will be used for a period longer than three years?
5. If the item is a consumable item, such as tyres for a vehicle, then pay for it out of working capital.
6. If the item is an asset such as a computer, manufacturing machine, vehicle etc, then it must be considered for purchase as an asset and should be considered for purchase using asset based financing.
7. If the bank or an asset based finance house will finance it, then it is quite likely something that should be financedI hope this is of help and welcome questions. It is rather difficult to do something this potentially complex in a short blog.
But they are very important thoughts more often than not.Gerber's e-Myth has so far given me two thoughts.
Firstly there is the importance of starting businesses to sell them.
Secondly there is the importance of good systems. It was the second one that gave me a wake up call. A friend of mine who I do not see often enough, will invariably tell me how, many decades ago, he was always so impressed with how well I ran my systems, and I have been his role model ever since.Gerber made me realise that I have grown cocky with time, and I rely less on systems than I used to. In other words I have become sloppy.
Gerber gave me a timely wake up call. I have already started getting my systems in place. How good are your systems?And that is why I love to read. Reading alerts me to what I am doing wrong. I normally know what I am doing wrong, but often only subconsciously. Reading makes it conscious thought, and that leads to improvement.
This one is not a motivational speaker. Yes there is a bit of the ra-ra, but there is a lot of good information here. This is someone who talks about the realities of SMEs. This is someone who I agree with, and whose book so far has been really great.
He says that the sole reason for starting or buying a business, is so that you can sell it! Now this is something I have said for a long time and having done 30+businesses since 1982, lived it. I have written on this topic before, and stand by what I have said. You create more wealth through business sales than through drawing a salary from the business. In South Africa, even with the new capital gains tax, it is still the case. I am sure in your country much the same situation exists. Do the numbers people. Prove to yourself whether there is more money in selling your business regularly or not?!
One must question why, but it is interesting. I believe that there is a lot of grudging respect for people who own their own businesses. I know of many people who feel frustrated by the fact that they remain in employ. However, they just cannot make the break with a "secure" job, and enter the world of entrepreneurship. Consequently they are extremely frustrated and often resent others who have made the break. There are however still many who have a lot of respect for those who have done the deed.
My one brother has never made the break, despite desperately wanting to own his own business, and having had a number of small businesses on the side where he did make profit. A friend of mine too had always been employed, but had never had entrepreneurial tendencies or desires. Two retrenchments in a row left him with no choice. He now has an incredibly niched business, making branding irons for cattle farmers. I understand he is doing better now financially, than when he was an employee. Life is strange.
A serial entrepreneur is someone who buys and / or starts a business, and then moves on and sells it, and then repeats the process. However, a portfolio entrepreneur, as the next stage, owns multiple businesses at the same time.
A portfolio entrepreneur requires a fair amount of skill to juggle these different requirements on his or her time. It is not a simple process and ideally, to start with, the entrepreneur should ensure that the two businesses are in the same industry, as this will allow the entrepreneur to then gain the necessary skills in managing two businesses simultaneously.
Key success factors here are partners and delegation. Failure to do take partners, and more importantly the delegation of duties, will surely lead to business failure, and quite likely a nervous breakdown. There are always exceptions ot the rule, but ideally you need someone to do the work. At this level you should be focused on strategy and possibly top level sales.
I personally love the sales part, and therefore focus on strategy and sales. Work to your strengths.Give it a try. It is fun and challenging. It is exciting and as you begin to diversify it is incredibly stimulating. Just remember the cash flow consequences or you can lose it all.
Wednesday, June 4, 2008
SMEs tend to ignore the working capital needs of their business, and instead look at their bank balance, when they need to purchase an asset. A month later they cannot pay their bills.
This is linked in a way to a culture of "pay cash" that many older entrepreneurs have. These are the people who lived through the 1930's depression, and avoid credit. They too have had an impact on their children, the baby boomers, who to a lesser degree take a similar approach.
SMEs need to pay more attention to the different financial needs they have, and to then use the correct source of funding. Cash is not always the best answer, just as much as credit is not always the correct answer.
Next time you need an asset, talk to your accountant. There are a lot of factors that influence the decision, such as gearing, cost of capital, opportunity cost. If these terms are strange to you, then talk to your accountant when making the decision.
The growth of Personal Businesses will increase exponentially over the next few years. These are businesses which have no payroll, which in the USA is already at an incredible 70% of SME’s. What would cause this increase? There are a number of factors.
Baby boomers will be leaving on retirement and taking their skills with them. As they form such a large part of the population they will need to be used as consultants and outsourced operations for larger organisations.
In South Africa whites who believe they have no future in large organisations due to affirmative action legislation, will continue to leave to start new businesses, causing a further skills shortage in these businesses, leading to a similar situation as for the baby boomers.
In developing countries, skills shortages generally due to the skills drain to developed countries, poor education systems, emigration, AIDS, TB will also result in a further move to personal businesses, as those people with skills find themselves in demand. They will quite likely see massive increases in their income streams as a result. Consequently these people will become time shared by a number of companies.
Women hitting their heads on the glass ceiling will similarly move into their own businesses where there are no limitations. Youth want their own business rather than a boss, and also want the perceived benefits of owning their own business, which includes a more relaxed life style and improved quality of life from controlling their own destinies. Emigration and immigration will lead to the further globalisation of SMEs as emigrants and immigrants restore links with the networks in their previous domiciles, and create new business opportunities for themselves, as they generally find it easier to do so than trying to get a job in their new country.
The Internet has made the road warrior SME owner a reality. Similarly it allows and creates further opportunities for economic decentralization within large organisations. Why do banks need branches? Why can we not withdraw and deposit at our local supermarket if we really need cash, especially with Internet and cellphone banking.
SMEs will most definitely play a bigger role in the world economy in the future. The question is whether you will be one of them.
I find it interesting that a 22 year old entrepreneur believes mentorship to be a very important aspect of his business. At that age very few young people want advice from older people, but perhaps that is why he is successful.
The other side of the coin is that very few older entrepreneurs use mentorship either. Too many have too much pride. I love to bounce ideas off other people and get their input. I am sure there is a link here between people who are change resistant and who do not like mentorship.
The truth is that most of the entrepreneurs I meet are terrified of people "stealing their ideas", and consequently live inside a coccoon which leaves them isolated from some valuable input.
These people then practice until they are confident and then leave their jobs and launch the business formally. I have seen this a lot in South Africa, but not in the complete form. Rather they stay and have 2 incomes. If the husband and wife are both doing this, and I have seen that quite often, they now have 4 income streams.
There is an obvious ethical problem with those who stay in their jobs, but I suppose it is a reality that is hard to overcome.
Personally, I believe that these type of people could be highly successful if they applied themselves full time to the running of their own businesses, and that they are wasting their talent in this way.
A wide variety of formats exists but the one I have found covers all the critical success factors in business is as follows. This is the one I use and teach my clients and students when lecturing.
* Business model
* PESTEL analysis
* SWOT analysis
* Marketing plan
* Human resources plan
* Financial plan
* Harvest plan
Business model - How will this business make it's core profit. It helps to keep the business focused on the key areas and not get distracted.
PESTEL analysis is the external environments which we need to understand, in order to know what their impact on our business might be. They must be considered in the local, regional, continental and global context. The acronym applies to the Political, Economic, Social and cultural, Technological, Environmental and Legislative environments.
SWOT analysis is the internal analysis of the entrepreneur's and the businesses Strengths and Weaknesses, and then using them to consider how the environmental issues will impact negatively as a Threat or positively as an Opportunity for the business.
Marketing plan is the plan on how to grow your business. Read Philip Kotler for more assistance on this subject.
Human resources plan looks at what people and skills you will need to achieve your growth, and allows you to plan for how you will get the skills/people.
Financial plan looks at the financial implications of the marketing and human resources plans.
Harvest plan looks at who will want to buy the business in the future, what the buying triggers will be and what you are likely to want to sell for. This then allows you to decide at what point you will sell the business and harvest the wealth you have created.
The main reason is that growth can create problems in a business. Cash flow problems and capacity problems. So why do it? From a personal perspective it is simply because growth is essential in order to create wealth. From a government point of view growing businesses grow the GDP and employment opportunities.
Growth can be a threat to your business, so plan ahead and ensure you are geared for an enormous growth spurt. Growth in a business is driven through the marketing plan. Growth has to start as a conscious decision to want growth. The question is once you have decided you want growth, how do you get it?
There are a number of choices. Do you want to :
• Sell more of the existing products to the same customers
• Sell new products to the same customers
• Sell the existing products to new customers
• Sell new products to new customers.
These are your options. The more you combine the options the greater the growth. So you need to choose the correct option for you. For those of you who want a more detailed understanding of this look for Ansoff's Model.
Key issues of growth are the impact of growth on cash flow, working capital requirements, staff requirements, skills requirements and infrastructural requirements such as office space, warehouse space, furniture vehicles etc.
Do not be scared off. It simply needs planning. Go for it and grow your wealth!
It is simply a case of not thinking ahead. Business ownership must not be seen as a source of salary for you as an entrepreneur, but rather as a means to create wealth. To create wealth you need to convert the value you have created in the business, into cash.
So when you start a business ask the following questions:
1. Who will want to buy this business?
2. Why will they want to buy the business?
3. What do these businesses normally sell for?
Remember that often we initially start a very small business that does not have the capacity to grow big. So we need to keep selling the business and buying/starting a new one that has the capacity to grow even bigger. This way we can grow our wealth.
It is a business, not a family member! Plan for how you will harvest from the business you have created. In many countries the tax on selling a business is classed as a capital gains tax, and is either not levied or levied at a very low tax rate. I have started or bought 30+ businesses over 25 years. A few failed, but the rest have been sold.
When I suggested selling his business he was initially horrified. “I do not want to retire and live off the interest. I am not sure there is enough”. I then suggested that he reinvest the money in a number of smaller businesses and properties and build them up again. Alternatively use the capital to buy a bigger business which would provide large capital returns and growth potential.
It took him a while and a lot of discussion to accept the idea, and then only I think because I said that he would be financially better off if he did.I just find it amazing that so many business people see their business as the beginning and the end of their business careers, instead of just the beginning. Each to his own I suppose?!
However, sit down some time and work it out. You will soon see that buying and selling will create more wealth for yourself than retention. This is a generalisation but often does hold true. So check it out for yourself!
Tuesday, June 3, 2008
There will inevitably be research for both arguments. However, my personal belief is that while there may be many successful businesses who did not have a business plan, I believe that the reality is that we are in fact referring to a WRITTEN business plan when this statement is made. I think a written business plan may not be crucial, but I am sure that all successful businesses had a plan, albeit that it was merely a mental plan.
Most successful owners I have met had a clear vision of where they were going. That to me is indicative of a plan.
There are many business owners who are highly successful, yet they have never had a business plan. Similarly, there are many businesses that have failed because they never had a plan.
There will inevitably be research for both arguments. However, my personal belief is that while there may be many successful businesses who did not have a business plan, I believe that the reality is that we are in fact referring to a WRITTEN business plan when this statement is made.
I think a written business plan may not be crucial, but I am sure that all successful businesses had a plan, albeit that it was perhaps merely a mental plan. Most successful owners I have met had a clear vision of where they were going. That to me is indicative of a plan.
However, a disconcerting component of these interventions is that none of the interventions are documented nor researched afterwards to measure actual success, in order to allow for extrapolations and future utilisation of the more successful interventions. Interviewing a senior South African government researcher on business matters, he acknowledged that much the same occurred in South Africa.One has to query whether these developing countries are really serious about improving the lot of the bulk of citizens, or whether their SME interventions, which normally focus on micro business, are not simply a gesture and a sop to the poor, in order to retain votes at what is in effect a low cost.
Very few developing countries appear to invest in selective interventions to assist the existing formal sector SME's, whose growth is most likely to grow the job base.A good example of a country who did it correctly appears to be South Korea, who have invested heavily in the formal sector, and compare them to other countries who were "developing" at the same time. I say appears, as I have not formally researched this viewpoint. Africa in particular needs to wake up and look for positive models elsewhere, even among those countries they like the least, as there are lessons to be learned out there!
It appears that many of them feel it is a risk to talk to friends or business acquaintances because they are worried that their ideas mights be stolen. I have never in 25 years seen someone steal an idea. Why not? What entrepreneurs forget is that we are all unique, and therefore we are all independent in our thinking. What is also important is that we all have a passion for our OWN ideas, seldom each other's ideas.
It requires an investment of passion for most entrepreneurs! If we talked a little more about our ideas and problems to our friends and acquaintances, we might in fact be very pleasantly surprised by the outcome.
Even as a consultant, they are nervous to speak to you.However, invariably once they open up, the flood waters break down the reserves and they talk like someone possessed. The find it refreshing, releasing, informative, and a great sounding board. Try talking to someone other than your spouse or partner about your business, and just see what a difference it makes.
The SME client wants to grow his business and believes that he needs bigger premises to be able to lay his factory out better, and to have a more "acceptable" (upmarket) showroom than he has now. The SME manufactures a product that is a niche market product, aimed at the higher income groups, and in many cases the "old money" income group. The product could possibly be classified as a luxury product.
His wife feels they need to invest in a property, in order to create an income stream to form part of their pension.The natural conclusion they have drawn is to put these two separate issues together, and they now need to buy their own factory. However, to do so will increase their monthly "rental" costs five fold. It took an hour of discussion to get them to consider that they need to view the two decisions in isolation from one another, and that the main goal of the SME business is actually to increase sales, while the personal goal is to create a passive income through a property investment.
They are now going to assess their options for these two very separate and diffferent goals independently of each other.
But the interesting part of the story for me, is how they initially did not see them as separate.
This is a failing of many entrepreneurs and SME owners, and often leads to them making bad decisions in their personal life in order to achieve a business goal. I know I have done the same. Have you?While faith in oneself is paramount to entrepreneurial success, it should never allow decisions to be made which are to the detriment of your family. It is a difficult line to draw and follow, and as financier to our own businesses it is difficult to say no, but we must learn to temper our decisions with a dose of personal and family care! Failure is an ugly thing for the entrepreneur and his family.
Whenever I do public appearances, I ask people in the room how many different newspaper or magazines they read a month, and the average is 3 (the same newspaper read every day counts as 1).
I use the Google Alerts tool to send me all the alerts on SME and Trends. Over the year end, trends become a centre of attention, and so I have received many alerts. These alerts covered trends across many industries, from food, to IT to clothing and a whole lot more besides.
Now I am not in all these industries, but I am in some. So for some of my own businesses I gained an insight into the coming trends for 2007. But for my clients who are in the other industries, I gained an insight into the opportunities for their businesses.Today, even if you do not read a lot, using a business tool like Google Alerts makes it easy to know what is going on in your industry. Can you afford not to use a tool like this?I believe not. So get out there, click on the Google link and get yourself up to speed. Use this fantastic opportunity!
Monday, June 2, 2008
In fact I often see IT adverts in South africa where they are advertising say a switch "with 50 ports - ideal for the SME". It is time the IT industry spent a little money to understand their market better.
As the USA is the largest market, and many manufacturers are based there, everyone uses this as a yardstick.This leads to equipment which is way too big and too expensive for the bulk of the international SME market This is why manufacturers are battling to sell their products and SMEs have no clue as to what to buy.
Most SMEs have no IT skills and are often intimidated from purchasing IT products as a consequence. While the USA is a very big market, the rest of the international market cannot be ignored, and manufacturers need to acknowledge and understand this. Furtermore, in most countries the largest number of SMEs have less than 10 employees. Perhaps they will then market better products in a more attractive way to "small" SMEs. For example a business in a box IT solution. You simply buy a "box" which allows you to grow up to "X" number of workstations, and includes relevant numbers of software licences for wordprocessing, spreadsheets and accounting software. Why not include a VOIP telephone exchange solution as well?!
It is a market with simple needs and low IT skills. It cannot be that hard to corner this market with a true SME solution.
However the report stated that quite the opposite was true. Debtors in a bizarre way judge the SME as a partner by how vociferously they collect their debtor outstandings. The more aggressively they do so, the more likely they want to partner with the SME, as they perceive these SMEs to be more likely to succeed.
Practically speaking I can only concur with this. My experience has shown that a no nonsense low tolerance approach to debt collection generally has won me more contracts. The exception to the rule are those businesses who are in fact on a downward trend themselves and who in fact you do not want as a client anyway.It is critical that if possible you utilise a service which checks your debtors out before they get given credit, and if the deals are large enough, insure against their loss.
So get out there, stop the credit to bad payers, find the harshest solution to debt recovery available to you in your country, (maybe start the process to liquidate the debtor), and start to enjoy business.
Business is only fun when you have the cash to run the business. Cash flow problems are extremely debilitating.
As an entrepreneur myself, I too am guilty of the same mistakes that most SMEs make. I like to believe however, that I have learnt from my mistakes.
Most business plans from SME owners are poor to say the least. Why? They read too little, they are terrified to share their knowledge because it might be stolen so they operate in isolation, they are convinced that a discounted price is the secret to their success, they are scared of change, and they have no desire to grow their businesses.
In other words the biggest stumbling block to their success is themselves. To be fair this is not the only reason they battle, but it is a major contributor.However, there is no doubt in my mind that SMEs have more control over there busienss lives than they know or accept.
We will review these and many other issues as time marches on.