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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.
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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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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Just Checked-in! Foursquare Could be Best Yet for Business
by Jamie Gorman on July 9, 2010
A couple weeks ago, I finally purchased my new Droid phone. This led to an increased frequency in my Foursquare posts – the posts you see on Facebook and Twitter stating that someone has just “checked-in”. Now that my friends and followers are seeing these posts I’m getting more questions about Foursquare, so I decided to shed some light for those that are in the dark on this unique social media application.
It’s Good for Businesses
Quite frankly, if it didn’t show some value for my small business customers, I wouldn’t be so enthusiastic about Foursquare. It’s good for business because it has the potential to send out your brand from a trusted source to hundreds of people every time a customer enters with a cell phone!
Here’s How it Works
Let’s say I am sitting at the Sigma College of Small Business offices in Haymarket, VA and decide that I need a cup of coffee and something sweet. I walk across the parking lot to Cupcake Heaven. While I wait for my tall decaf coffee and afternoon treat, I turn on my Droid, open the Foursquare app, select Cupcake Heaven from the list of nearby venues, add a note about how great the service is and “check-in”. This automatically sends a post to my Facebook and Twitter accounts and all my friends and followers see my comment and that I am at Cupcake Heaven.
So, do the math. If 5 customers like me walk into the store and each of us has 200 friends and followers, the name of that store is promoted to 1,000 people that day. Cost and effort to the store – ZERO!
Why Would a Customer Check In?
Just read your Facebook posts. I get posts from people when they wake-up, go to bed, eat, stub their toe, etc… So people will check-in just to be social. However, Foursquare offers tools for businesses to encourage customers to check-in. As the manager of Sigma College of Small Business I “claimed” my venue and can now offer specific promotions to people who check-in. Promotions can be based on number of check-ins or given to those who check-in the most – The Mayor. That’s right, if you are the person who has checked in to an establishment the most, you are given the title of Mayor, which is announced to all your friends and followers. People will definitely check-in for free stuff and a title!
There’s More!
As the registered owner of your venue, you have the capability to see who is checking in at your place and how often they are checking in – a great way to keep tabs on some of your most loyal and vocal customers. If you are a retailer or restaurant and not using this free tool, you need to put it on your list of things to check out. I’m still researching all the benefits, but this one seems to be a no-brainer, just set it up and let your customers promote your business! Did I mention FREE?
I’ll certainly be adding a few slides on Foursquare to my “Leveraging the Online Social Network” class this coming Tuesday!
Posted in Blog, Business Networking, Marketing and Sales, Online Marketing, Social Media
Tagged business, development, education, gainesville, google, haymarket, learn, management, manassas, marketing, networking, online, optimization, prince william, seo, social, subscribe, training, VA, Virginia, warrenton, web
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Why Facebook for Business?
by Jamie Gorman on July 7, 2010
This weekend I traded emails with Becky O’Brien of Optimal Wellness about my Subscribe! blog posts that described the importance and steps to subscribing to a blog. As part of the discussion I went to her blog, checked out the subscription setup and left a comment – nothing serious.
Here’s where it gets interesting…
I walked into Sigma College of Small Business yesterday afternoon and there on the desk was a little pink box with a great thank-you note from Becky. The little pink box contained a Southern Red Velvet cupcake from one of my business neighbors in Haymarket, VA, Cupcake Heaven. Now, 5 years ago I would have e-mailed or called Becky to thank her and probably told my wife and a few others what she had done and how wonderful the cupcake tasted. In the end maybe 5 or 10 people would have known how thoughtful Becky had been, what a wonderful cupcake they have over at Cupcake Heaven and the fact that I took some time to help Becky out with her blog.
The Difference with Social Media
Instead of just e-mailing or calling, I posted my thank you on Becky’s Fan page and on my personal profile in Facebook, tagging her fan page. I also mentioned Cupcake Heaven and the quality of their product. The difference with social media is that the same message that went to 5 or 10 people a few years ago can now reach hundreds of people between my friends, my fans and Becky’s fans. And it took no more effort on my part than if I had just sent an email. If I could have quickly found the Cupcake Heaven Fan Page, (I have since found them on FB) the message would have been received by all their fans as well! So the advantage is that in the simplest of transactions and communication, all three of us are promoted from trusted sources (people choose to fan, follow and like those that they trust) to a few hundred people.
And By the Way…
You may be asking the question “Why would Becky choose Cupcake Heaven, with its pink box and swirly frosting for a male business associate?” Well, it is right next door and I look like I enjoy a good cupcake, but that’s not the case. The fact is that I have been posting my visits to Cupcake Heaven for coffee through Foursquare, and commenting on how tempting the cupcakes (and ice cream) look, for several weeks! In fact I’m the Mayor! So Becky knew going in that this would the perfect thank-you gift, and it absolutely was! I was wiping frosting off my face as I walked into my next meeting.
A Lot of Hype
There is certainly a lot of hype around social media. And there are some who can fit the technology so well with their business and personality that it becomes a huge business driver. But like any other marketing tool it takes time and consistency to build success. Don’t get scared by the hype because even a simple presence and effort can become beneficial. In fact, in many cases, like the one I described above, you just need to set up the presence and let your customers and network do the work for you through their social media channels!
Posted in Blog, Business Networking, Marketing and Sales, Online Marketing
Tagged business, education, gainesville, haymarket, learn, management, marketing, networking, online, optimization, prince william, rss, search, seo, small, social, subscribe, training, VA, Virginia, warrenton
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Subscribe! Part 2
by Jamie Gorman on July 1, 2010
Subscribe! Part 1 covered the importance of getting interesting blog content brought to you in a convenient, efficient manner. Part 2 is a bit more hand’s on in showing you how to actually subscribe.
Decide where you want to see blog content
A great thing about RSS is that there are multiple ways to manage content. You can set it up in your web browser, through email or even feed it to your personal or business home page. I actually have some feeds that come up in my iGoogle home page, some that feed to a tab in Internet Explorer and some that go to an email folder in Outlook.
To determine which tool to use for feeding content you should ask yourself, “Do I want to see this post immediately, or have as a reference for later” The posts I want to see immediately, the timely information I want to comment on, are fed to my iGoogle personal page through Google Reader. Those I use for reference to search later feed to my browser or an email folder, and some feed to multiple places.
Don’t forget that following and commenting on other people’s blogs is an important part of social networking. It is how you listen and interact in the discussion, building trust and credibility with each thought and comment.
For step-by-step on three basic RSS feed techniques, click the links below. If you have any questions, suggestions or run into problems, drop me a comment. Although the directions are specific to an application, most similar apps have the same functionality.
Using Google Reader and following blogs on your iGoogle home page
Posted in Blog, Business Networking, Marketing and Sales, Online Marketing
Tagged business, classes, development, education, gainesville, google, haymarket, learn, management, manassas, marketing, networking, online, optimization, prince william, rss, search, seo, social, subscribe, training, VA, Virginia, warrenton, web
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Using Google Reader to Follow Blogs on your iGoogle Home Page
by Jamie Gorman on July 1, 2010
Google Reader is a great little tool that helps aggregate the blogs you are tracking to your Google account. The reason I like it is that I have an iGoogle “portal” page (a page that I can personalize with info I want to see) and there is a “Gadget” that puts my feeds right onto my personal home page, the one that I see first every time I open Internet Explorer. This is what I use for those blogs I want to see and review quickly and then comment, especially on blogs related to educating small business owners.
1. Sign into your Google Account. If you don’t have a Google account:
- Go to www.Google.com
- Click “Sign In” at upper right
- Click “Create an Account Now” under the Sign in box
- Follow instructions for setting up an account
Click on Settings in the upper right to add new Google apps
2. In the upper right of your Google page click on the “Settings” drop-down and select “Google Account Settings”. You can do a lot here to personalize your page and account.
3. If “Reader” isn’t listed under “My Products”, go to the “Try Something New” section and click on “More”
4. Under the “Communicate, show & share” section, click on “Reader”. This will place Reader into the “My Products” section where you can open and start using.
Open Google Reader by clicking the link
5. Open Reader by clicking on the link and you should see your Google Reader Page
Now it’s time to add a subscription.
Go to www.sigmabizlearning.com or another blog you want to feed
1. Go to www.SigmaBizCollege.com or another blog that you would like to track. Select and copy the web address, or url for the blog. (you can also just type this in to the subscription box when the time comes if you know it)
Click on the "Add Subscription" Button
2. In Google Reader click on the “Add a subscription” button at the upper left, paste or type the url into the box that drops down and click “Add”.
3. You should now see your new subscription in the subscription box on the left and the latest blog post in the reader box.
Click on the Subscription to see the latest posts from that source.
Add the Google Reader Gadget to Your iGoogle Home Page
Click on "iGoogle" at the top right to open your iGoogle page
1. Go to www.Google.com and sign in if you aren’t already. This should open your iGoogle page (if it doesn’t, click on the “iGoogle” link in the upper right) and you should see something like this. Each of the little blocks is called a gadget and you can customize which gadgets you want on you page.
Click on the "Add Stuff" link in the upper right to get new gadgets!
2. In the upper right click on the link for “Add stuff”. In the search area type in “reader” and search. This will show you the Google Reader gadget and clicking “Add It Now” will put it on your iGoogle home page.
Search for "Reader" to find the Reader Gadget and "Add it Now"
3. Now, when you go to Google.com, your subscriptions will show up for a quick review. If you click on the title a preview window pops up so you can take a quick look without even leaving the page.
Although I walked through the Google method for putting subscriptions on your home page, most other portal sites that let you customize a home page will have similar functionality.
See Related Blog Posts on RSS Feeds:
Posted in Blog, Business Networking, Marketing and Sales, Online Marketing
Tagged business, classes, development, education, email, gainesville, google, haymarket, learn, management, manassas, marketing, networking, online, optimization, prince william, rss, search, seo, social, subscribe, training, VA, warrenton, web
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Tracking RSS Feeds as Internet Explorer Favorites
by Jamie Gorman on July 1, 2010
In Subscribe! Part 1 I talked about the importance of tracking and commenting on relevant blogs and news feeds to building your online presence. Internet Explorer and other browsers have the capability to help you manage your RSS feeds and this post will walk through how to send news and current blog posts to the “Feeds” tab in Internet Explorer 8. Other browsers should have similar functionality.
If you are someone who routinely uses the “favorites” functionality in IE to manage the web sites you visit frequently, then this may be the best place to track important RSS Feeds that you want to comment on immediately. I don’t routinely use the favorites part of IE so I use this method for sites that don’t update often, or for sites that I want to track for reference when I’m developing business curriculum. Remember, in social networking it is important to follow and comment, so keep your “high interest” content where you will see it often through your normal work routine.
1. Go to sigmabizlearning.com or another blog or news site that you want to subscribe to.
Click on the RSS Icon in the upper right of the IE window
2. In the upper right of the window, in the menu area is the little orange RSS icon. If the icon isn’t orange, either you are already subscribed or the site doesn’t have RSS capability. Click on the RSS button and a “feed” page will load.
3. Click on “Subscribe to this feed” and then “Subscribe” in the window that pops up. The subscription will be placed in the “Feed” Tab in Favorites.
Access your saved RSS feed through the Favorite window on the Feeds Tab
4. To see your feeds, click the “Favorites” button in the upper left of the window and then the “Feeds” Tab.
5. Click on the subscription to see the latest post!
Remember that a big part of building credible online relationships is to listen and comment on the thoughts of others. Subscribing to interesting blogs with RSS, reading them and consistently commenting is a great way to be part of the discussion!
See Related Blog Posts on RSS Feeds:
Using Google Reader and following blogs on your iGoogle home page
Posted in Blog, Business Networking, Marketing and Sales, Online Marketing
Tagged business, classes, development, education, email, feeds, gainesville, google, haymarket, Internet Explorer, learn, management, manassas, marketing, networking, online, optimization, Reader, rss, sales, search, seo, small, social, subscribe, training, Virginia, warrenton, web
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