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But We Just Got Here! Developing an Exit Strategy
by Jamie Gorman on April 14, 2011
Welcome to our class on “How to Start a Business”, our first topic is on “Exit Strategies”! This opening never fails to get a class full of raised eyebrows, but I’m convinced that considering your exit strategy is an exercise every small business should start with and periodically review.
Starting with your company name…
…most of your decisions will be affected by your exit strategy. Let’s say you want to build your plumbing business over a few years and then sell. Using your name as the brand will detract value for a new owner with a different name. The legal entity; C-corp, S-corp or LLC, that you choose is another big decision made early in the start-up process that can be dependent on your exit strategy. Hiring employees, the value model, buy or lease decisions – your exit strategy may effect all these decisions, which is why I encourage every small and medium business to have one.
Controlled Dissolution
In a controlled dissolution exit strategy the business stays in operation as long as the owner is working. When the owner decides to stop working the business is done. This exit strategy is typical of many professionals who are the primary revenue generator for the company – a consultant who bills all the hours or a plumber who does all the labor. There is no passive revenue and the value of the business is basically zero without the owner’s daily involvement.
There is nothing wrong with this exit strategy, as long as it is a conscious decision and the owner plans the rest of the business around it. For instance, the value model is that you pull out as much cash as possible and invest in outside resources, which means the marketing strategy should maximize profitability and cash flow.
Ownership Transfers
An ownership transfer exit strategy is one in which the owner plans to sell his ownership to another party in whole or in part. The most common transaction for smaller businesses is a complete sale to another person or another company. For a few entrepreneurs with the right business concept, “going public” is a valid strategy where the “sale” of the company is to many outside investors on a public stock exchange.
In an ownership transfer exit strategy the value model is about building “transferrable” value. This is the kind of value that can be realized even in the absence of the owner. With this exit strategy the sky is the limit for your return on investment. The value of the company can be a passive revenue stream, typical of insurance agencies, or the potential for growth from a new technology, a high value customer mix or demand for a specific product or process that you own. In general owners with this exit strategy should always be looking for ways to make the business less dependent on them through solid processes and a strong work force. That will make the business much more valuable to any potential outside buyers.
Transition to Passive Investment
This exit strategy is used very often in family businesses. As the kids are able (and willing) to take over the business, ownership is sold or gifted to them over time. The owner either sells them the business and finances it over a number of years, or maintains a diminishing ownership stake as they buy ownership through the transition process. The passive income for the owner is in the form of principle and interest payments on a long term loan, additional sale of their ownership and distributions from the profit of the company over time.
This is a solid strategy when done correctly. First of all, it is imperative that the owner ensures the transition of operations is to someone competent, because if the business fails, the passive income source is done. Also, if you are dependent on distributions or dividends as an income source, make sure the new ownership is planning to make those. If they decide to put everything back in the company, your income source could dry up quickly.
Pick One and Decide Accordingly
Picking an exit strategy is not about predicting the future and yours will probably even change over time. The important thing is to have one in mind so that when you make daily decisions they are based on a long term vision, not just a gut feel for what’s easiest at the time.
Of course there are many variations and nuances to exit strategies and I’d love to hear about your experiences or struggles in deciding on and implementing an exit strategy. If you need help in this area give Sigma College of Small Business a call and we can help.
Reality?!? Come on Now, I’m an Entrepreneur!
by Jamie Gorman on February 23, 2011
Entrepreneurs are eternal optimists. Come on, you know it’s true and we should thank God for that undying positive outlook and confidence that this “one great lead” will be the stepping stone to wild success. It’s what keeps us going through the tough times, and in fairness the “one great lead” often does show up when we are persistent!
However, the experienced entrepreneurs also have a foothold in the reality of markets, industry trends and the economy. The entrepreneur in me wants to blindly say that the recession is behind us, by year’s end we’ll be back to the good ol’ days of 2006 and my business will prosper again! But the business person in me reads John Stewart’s (Vantage Economics) Vantage Weekly Newsletter. It’s a great read for anyone in business or investing because it provides a quick assessment of the economy, the economic outlook and how we should approach it as business owners and investors.
John’s most recent blog post discusses “How Much Worse Off Are We?” relative to the recessions and depressions of the past 100 years. As part of the comparison he discusses the time to recovery based on the magnitude of setback.
Some Key Points on Economic Recovery
This is the Fourth Worse – Using John’s measure of “GDP per Capita”, our latest economic downturn is the 4th worse in the last 100 years with a of -4% over the last three years. The Great Depression had a drop of -16% in it’s first three years.
Recovery Takes Time – It took ten years for the economy to recover from the Great Depression! For other more recent downturns it has taken 5-10 years to fully recover. So, everything may not be peachy-keen by the end of this year for the economy as a whole, even though certain regions and industries may do very well.
GDP per Capita
Take Time to Follow the Economy – I’ve learned from John over the last couple years that even the smallest business and investor can benefit from knowing the economy. One key area is in managing cash and assets. By the time the Great Recession was confirmed in the mainstream press, most businesses had already made spending decisions that had a very negative impact when banks stopped lending and customers stopped spending.
Sigma College of Small Business is not about creating executives for Fortune 500 companies! We are about making every small business owner a better business person. Most of this is through improving your knowledge about a variety of business areas so that you can make better, more informed decisions based on foundational business principles. Sharpening the sword.
So, where do you think the economy is headed and how will it affect your business? Comments are welcome and encouaraged!
Get four weeks of The Vantage Weekly free.
Discaimer: Sigma College of Small Business is a partner with Vantage Economics in the development of The Vantage Weekly – but that just makes it better for you!
Posted in Blog, Economy, Leadership and Management, Strategy and Planning
Tagged business, decisions, development, economy, education, learn, management, strategy
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Would the REAL Time for Social Media Please Stand Up?
by Jamie Gorman on October 13, 2010
I attended a great seminar Wednesday presented by Gina Watkins of Constant Contact and hosted by the Greater Warrenton Chamber. (Sigma College co-sponsored with CC) The topic was social media and Gina mentioned that a business owner could be effective at social media spending about 15 minutes a day! There are a lot of us spending more time than that, so I thought I would walk through where the time goes when you make social a part of your marketing mix.
Start Here!
The first slide of my social media classes is this picture of a calendar as a way of telling my students that, although social media is cash cheap, it can be time expensive. One of the first decisions in determining the role social media plays in your marketing plan is how much time should be spent building your network.
Pure Posting
Once you are all set up with your accounts and have a goal of 5 or 10 posts per week on a couple of social media sites, then 15 minutes a day is likely enough time. But don’t get your expectations up! You will likely get fans and followers from your current network, but it will be slow going building that network over months. Mixing in some time to monitor and comment on some blogs, share some posts with your network and start some discussions will be time well spent.
Set-up and Design
Setting up and designing social media pages can seem like an unending task. Every time I turn around there is a new tool, or a new app that I just have to try. And even though they are all “one-click” installation, they typically take me a bit more time. Most of the sample sites we see have had some work done. An extra tab here, a customized page there – it all adds up to extra time or paying someone. Make sure you schedule some time to keep up with the latest apps and keep your sites up to date. It’s part of being relevant and it will take a couple hours a month.
Blogging
I recommend to most of my students and clients to do some blogging. It’s a great way to show your expertise in the industry and adds great content. When you decide that blogging is a part of your social media mix, make sure you plan the required time. Depending on how often, your writing skills, the amount of research required and the pictures and links you add, you may need to schedule a couple hours per post as you get started and 30 minutes to an hour if you really get efficient. But the payoff, if you are good, is that you are putting up good content that will draw readers that will subscribe, share, etc… and build a better network, quicker.
Interacting
I have yet to read a book, article or blog on social media that didn’t stress how critical it is that to be successful in social media you need to read and comment on other people’s posts. In fact, here’s one from Techipedia | Tamar Weinberg that I read yesterday. It’s part of establishing your online presence and building credibility – really it’s being part of the community, part of the network. Plan to spend at least an hour a week just interacting with the online community. Read, comment and share the content of others.
Planning
Now, to be more efficient and add the most value with the time you have will require a plan. I give my students and clients a media calendar to pre-plan their posts. We work through a plan for their posts over the next month or so, determine the topics they should post on and even write out the posts ahead of time if possible. Spending a couple hours planning every month will make you more efficient and improve the quality of your posts.
In Summary
So the answer to the question of how much time do I need for social media is a pretty wide range. Someone who uses social media for a high percentage of their marketing mix may spend a couple hours a day, whereas, a beginner may only spend about 15 minutes a day. The important thing is that you pull out that calendar and schedule the time it will take to meet your social marketing objectives so you aren’t suprised.
Posted in Blog, Business Networking, Marketing and Sales, Online Marketing, Social Media
Tagged business, classes, education, facebook, google, learn, management, marketing, media calendar, networking, online, Online Marketing, Social Media, subscribe, twitter, web
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How Much for That Broken Pickle Jar? A Lesson on Margins
by Jamie Gorman on October 2, 2010
At last week’s B2B Builders of Gainesville, a local networking group, Vince Buono of Costco was the presenter. Vince, who usually brings some great snacks, also brought some great information. One of the things that he talked about was Costco’s operational model, a model of high volume and low margin, bringing home the message with the statement that “For every $4.99 jar of pickles we break, we must sell $50 in merchandise to pay for it”. After working with and being a small business for a few years, it hit me that most of us don’t know what it takes to make-up for a broken pickle jar in our business!
How Many Widgets Do I Need to Sell?
Did your business start something like this? “If we buy widgets from Bill for 80 cents and sell them for a dollar out of our store, it’s 20 cents for every widget!” Not bad so far, but the next critical question needs to be, “How many do we need to sell in order to take home an acceptable paycheck?”, followed by “What will it take to sell that many?”. Whether you need a paycheck immediately, can hold out for some time or can even wait to make the real money when you sell or go public, these questions must be answered. And this, my friends, is business planning.
How Do You Figure?
In my business plans I always start with the revenue – what are you selling, how much can you get and how many can be sold. It’s important to put this in real physical terms. How many transactions per day? Is the delivery truck big enough? How many sales calls will be needed? – these are the questions that help determine what you can handle on your own and when you will need capital and resources (the things that bite into your 20 cents) to make it work.
Next we figure the “Cost of Goods Sold”, the 80 cents in our widget example, to get the “Gross margin”. The cost of goods sold in your business could be for inventory, manufacturing costs or the labor hours of the person you use to get the job done. After calculating Gross Margin it’s time to project all the different costs that will be required to generate the revenue we think can be made. These costs will include paying the people we need to hire, renting space, gas to deliver our widgets, bookkeeping, office expenses, telephone – and don’t forget marketing, advertising and sales. It adds up quick and we often under estimate all the costs in running a business.
So let’s say for every widget we sell, 15 cents will be used to pay the bills necessary to generate that dollar. This leaves you a nickel for every widget before the tax man takes his bite, we’ll assume a 20% or a penny of the income goes to taxes. So for the dollar of widgets we sell, it looks like 4 cents is what we can take away. If you included paying yourself back in the expense portion of this exercise then this is the company profit, but many assume they will take what’s left over and that’s what I did in this example to make a point.
Here’s the Point!
If your business is making 4 cents on every dollar widget before you are paid and you want to make $40,000 per year, you better gear up to sell One Million widgets next year! This is an eye opener to a lot of start-up businesses who get the operation going and are growing each month but are still only at the rate of 100,000 widgets for the year and not getting any sleep. Going from our original plan of buying at 80 cents and selling for 20 cents to this high volume business model is a much different picture. It can be distressing, but the earlier you understand it the better. Here’s the point – Low margin businesses require extremely high volume, and low volume businesses require extremely high margins.
How Much do You Need to Sell for a Broken Pickle Jar?
This is an extremely simplified model, but one you need to understand as a business owner. If you need help with the details of your business model there are plenty of professionals out there. You might start with your accountant, your local small business development center or a small business consultant or coach. Or, you can give us a call and we’d be happy to work out a business plan for your you!
Posted in Accounting and Finance, Blog, Marketing and Sales, Strategy and Planning
Tagged business, business class, Business Model, Business Plan, development, education, employees, gainesville, Gross Margin, haymarket, learn, management, manassas, Margin, marketing, Net Income, prince william, profit, sales, training, VA, Virginia, Volume, warrenton
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Using Facebook for Your Events
by Jamie Gorman on August 23, 2010
Facebook Events is an application that lets you schedule your business events from a Fan Page and invite friends and fans to attend. Events can be “Public” in which case anyone can RSVP and attend or “Private”, which only allows invited guests to RSVP. Either way this app is a great way to help get the word out about your next event! Thanks to Becky O’Brien of Optimal Wellness for helping me test the process!
Add an event from your Fan Page
Sign in to Facebook and go to your Fan Page. One of the tabs should be “Events”. If you don’t see an Events tab click on the “>>” tab or the “+” to see more options, “Events” may be there if you have other tabs. Your Events tab will show and at the top right is a button to “Create Event”. This will bring up a page to enter your event information.
After you fill in the event information it’s time to invite people. Realize that the people that you are able to invite are “Friends” from your Personal Profile, not Fans. You might want to filter and select from that list or choose not to invite people at this point if it is a business event. You can always post and share from your Fan Page after creating the event. Don’t forget to add an image to your event so that you don’t get the standard event picture! When you create the event it builds and event page that allows people to post comments and see who else has been invited and who has accepted, if you click on the boxes to allow those things.
When you are done entering the event information, click the button to “Create Event”. This will bring up your new event page. From here you can invite more Friends (once again from your Personal Profile) using the link on the left under the picture. At the top there is a link to edit the page if you need to make changes and…..
Update Your Fans!
Clicking the link to update your fans will bring up an update box for your event that lets you invite your friends to the event. You have the capability to do some filtering on your list by region, gender and age. Add a subject and message then click send. Your friends will see the invitation in their news feed and have the opportunity to comment, share and RSVP directly from the post.
You can send additional updates as your event approaches. You might want to consider planning this out and using additional updates to announce speakers, VIP guests that have accepted the invitation, door prizes that have been contributed or other special news relative to the event.
Sharing Events
The best thing about social media is the ability to quickly share information. This is true of Facebook Events as well. When you see events posting to your News Feed from your network, click on the share button to send to your friends if you think they may benefit. When posting and updating your events, encourage your fans to share with their friends!
Please comment with any additional tips or lessons learned while using the Facebook Events Application.
Posted in Blog, Business Networking, Marketing and Sales, Online Marketing, Social Media
Tagged advertise, education, facebook, gainesville, haymarket, learn, management, manassas, networking, online, seo, small, social, Social Media, VA, Virginia, warrenton, web
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4 Tips for Improving Your Email Marketing
by Jamie Gorman on August 5, 2010
As part of my networking routine I join the email lists of new contacts. Yes it tends to fill the inbox, but more importantly it gives me something that I can forward as a referral for the people that I network with – it’s just easier for me. I’m not an email expert by any stretch, but I’ve seen, heard and read enough to identify some of the most common mistakes. Feel free to join my mailing list and hold me accountable to my own advice! Join Sigma College Email List
- Make the Subject a Headline – I’m constantly reminded by my friend Scot Small at RevBuilders – “Unless you are Coke, your logo means nothing – you need a good, prominent headline”. The point is that people don’t notice our names and logos (yet), they notice and open good headlines. Search WordPress blogs for articles on writing subject lines for a ton of great articles.
- Be Consistent and Patient – It may take months for people to start consistently opening your emails and discovering the value that lies within. For about 4 months after I started email marketing I heard nothing and open rates were sporadic. Eventually, after consistently emailing over a period of months, people began recognizing me by my brand and thanking me for sending out my class schedules and other information. Open rates steadied and I was able to start some A-B testing to refine. So, don’t give up!
- Content that Adds Value – Keep the content relevant and to the point. My weekly email is simply a list of upcoming classes. You may have articles to publish or events to announce, but my recommendation is that you include a headline and excerpt, or the basic facts and then use a “read more” link to your web site (you may prefer a “call this number” action). This does two things – gets them to your web site (or calling) which is likely the reason you send an email, and puts more content on your web site for better search engine optimization. Most importantly, after time, your readers will know they can sift through the headlines and pick what they want to read very quickly, rather than paging through an 800 word email to find that nugget.
- Create an Opt-in Email List – It took me some time to grasp the value of an opt-in email list. This is a list that you build through people joining online or giving you specific permission to add their name. Collecting business cards and adding everyone results in lower open rates, high “unsubscribes” and even some spam reports. Now sometimes there are reasons to do mass campaigns using purchased opt-in lists, but most small, local businesses should stick to a list that will help you build relationships and not alienate people.
Email marketing is a great marketing tool, especially when combined with other things. But, a campaign that is done poorly and forced on an unwilling audience can actually hurt your business. Make sure you continue to review, test and improve your email strategy!
Posted in Blog, Marketing and Sales, Online Marketing
Tagged business, classes, education, email, gainesville, haymarket, learn, management, manassas, marketing, networking, online, optimization, social, subscribe, VA, web
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Getting Naked: A Business Fable…” by Patrick Lencioni – Book Review
by Jamie Gorman on July 16, 2010
A great place to start is with the full title of this book!
“Getting Naked: A Business Fable about shedding the three fears that sabotage client loyalty”
Like the title, this isn’t your typical business book. Mr. Lencioni challenges all of us in the service industries to put our pride aside and replace it with the best interest of our customers. And, he does it in the form of a novel, an interesting touch for a business book.
The Story…
…is about the acquisition of a boutique consulting firm by a big corporate firm. Jack, is the man set up to manage integrating Lighthouse Partners into the prestigious, international, full-service management consulting firm of Kendrick and Black. Along the way he learns some of the secrets of Michael Casey, founder of Lighthouse Partners. What Jack later terms “Getting Naked” with the client is the technique of putting aside corporate and personal pride to be more effective and build tremendous client loyalty. I won’t spoil the end of the story for you, but will hit on the key business points – the “Three Fears”.
Fear of Losing the Business
The premise to this fear is that when we are afraid of losing the business, that becomes our focus and drives our actions. Actions driven by keeping the account are often contrary to actions focused on helping the client. An example is when we are tempted to tell customers what they want to hear rather than our true thoughts based on the experience and education for which they hired us. Although this might help keep the account for the short term, when it doesn’t work out we become part of the problem and lose credibility.
Fear of Being Embarrassed
This fear is what causes us to walk away from meetings wondering. Instead of speaking up and asking what might sound like a dumb question, or suggesting something that might be laughed at, we decide not to speak up. Patrick’s take is that naked service providers are so busy putting the success of their client first, they are willing to speak up with ideas and questions even at the risk of being embarrassed. Otherwise, you wonder what it was you didn’t understand or what would happen if they tried your idea.
Fear of Feeling Inferior
At one point in the book a group of executives are asked which of these fears are they most susceptible. For me it was this one. As a business management instructor and service provider at Sigma College of Small Business, it seems logical that if you aren’t continually demonstrating superiority, clients will start thinking you aren’t important and adding value. However, the case is made that by purposely putting ourselves in a lower position than our clients (which equates to putting them on a higher level), the naked service provider will gain trust, respect and loyalty with their clients.
“Shedding the Three Fears”
Mr. Lencioni completes the book with a set of principles for overcoming the three fears. Instead of working through those here, I highly recommend that you pick up and read the book. It’s a very enjoyable read with a great message for anyone who provides services. Caution: When reading in public, expect some strange looks and people avoiding you as they look at the title:-)
Posted in Blog, Book Review, Business Networking, Marketing and Sales
Tagged business, business education, classes, consulting services, learn, management, networking, sales, training
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“Mr. Anthony” Kornheiser Rips Washington Kastles
by Jamie Gorman on July 12, 2010
I was listening to the Tony Kornheiser show this morning and they read through a direct mail piece that Tony received from the Washington Kastles Tennis Team. The letter was a form invitation from the owner of the Kastles to an upcoming event and seemed to be pretty well done for a direct mail piece. Tony and the crew absolutely ripped the Kastle organization for it though. The problem – the letter started out “Dear Anthony”.
Boy, if you could take back a direct mail piece!
Most of us understand the methods for gathering names and information for direct mail, and that there are many mistakes in the names, titles or even gender. Where the Kastles really messed up though is that they didn’t use public relations to address the media audience separate from the direct mailing to the general population.
For those not familiar with the Tony Kornheiser show, it is a daily talk show on a local DC sports radio station. They talk some sports, but it is more about entertainment and, well, just stuff. The Kornheiser crew/posse/team (what exactly are they?) loves to latch on to a product or company, for good or bad, and use it as conversation fodder throughout the show. At the end of the show there is an email pile-on where the audience sends in their take on the day’s topics, usually dominated by the product or company in the spot light. You can imagine (or you can probably go listen) how much fun they had with a letter from a local sports group to a national sports celebrity and local sports icon that started out “Dear Anthony”.
When you are planning your marketing campaigns, especially for upcoming special events, do some public relations planning first. How would this have been different if before Tony received this impersonal, promotional invitation he had received a personally signed invitation, or even a phone call, from the owner or a public relations person? Do you know the ten or twenty media people in your industry who have the power to make or ruin your day because they have an audience? You should be communicating with these folks through public relations.
Many small business owners mistakenly limit public relations to periodic press releases about their business. PR is much more than that, and unless you are a company popular enough to be newsworthy, self reporting press releases are useless. Public relations is about knowing and building relationships with the media and providing information and resources that help them provide more value to their audience. Of course your hope is that the end result reflects positively on your business.
The Prince William Chamber of Commerce is hosting a Marketing, Advertising and Public Relations Strategies conference in September and the focus this year is on Public Relations. Wouldn’t it be great if Tony Kornheiser somehow found and read this obscure blog post and offered to come to the September 22nd as the keynote speaker! “Mr. Anthony”, you can email me at jlgorman@sigmabizlearning.com if you’re interested. It’s more likely that they read this post and publically humiliate me for my poor grammar and shameless use of their name to promote my blog and MAPS event!
Posted in Blog, Business Networking, Marketing and Sales, Online Marketing
Tagged advertise, business, development, gainesville, haymarket, learn, management, manassas, marketing, networking, Public Relations, small, social, VA, Virginia, warrenton
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