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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.
The Economic Impact Of “March Madness” from The Vantage Weekly
by Jamie Gorman on March 22, 2011
As I was enjoying the first couple rounds of this year’s NCAA Tournament and thinking up a great blog topic using basketball as a metaphor for business, Monday’s issue of The Vantage Weekly came to my inbox. My good friend John Stewart gave me special permission to repost the Management Impact from this week. Thanks John!
Subscribe to The Vantage Weekly for a practical perspective of the economy and great advice for business and investors.
The Economic Impact Of “March Madness”
The Madness in March extends well beyond the court action of the NCAA Basketball Tournament. We chuckle after hearing reports on the losses in worker productivity from time spent on all things “tourney”. In fact, Challenger, Gray & Christmas estimates the losses in productivity to be between $1.8B and $4.0B, but it’s nearly impossible to confirm and weigh against generated revenue.
One offset to lost productivity is the revenue from added consumption. The economic impact to the hosting cities for first weekend games is estimated at $4M to $6M each. The Final Four weekend is worth an estimated $13 million to it’s host city, though there is variation depending on the city and the contestants.
In their 2003 study, “An Economic Slam Dunk or March Madness?”, Matheson and Baade did the math and found that the men’s NCAA Division I tournaments since 1970 actually provided only a slight economic gain to host cities in opening rounds while the final four lost money. However, this seemed counterintuitive so we took a quick glance for ourselves. Estimates from the Indiana Department of Revenue show that 2006 Final Four host Indianapolis (Marion County data) had average annual tax revenue growth of 45% in March and April of 2006, which slowed to about 10% in 2007 and was -1% in 2005. They also hosted in 2010, but it’s very hard to control for economic conditions. In other words there was a clear and significant direct economic impact from spending. Also, indirectly more people would be hired temporarily and revenues would be raised by local government on local projects in preparation, which would also boost local economic activity. Of course this is much more difficult to measure but does help.
It’s not just the basketball that’s competitive. One estimate states that 70 cities bid for the 39 spots to host the 2011, 2012, and 2013 tournaments. Being competitive requires cities to invest 100’s of millions for facilities and other NCAA standards for hosting. Amortizing these expenses and accounting for the losses in productivity shows a quick offset to the aforementioned gains. We may never actually know with any precision the real economic impact, but we do know it’s arguably one of the greatest annual sporting events. And, although productivity might fall briefly, the happiness it brings may just be better in the long run! Enjoy.
Thanks John for a great post! I forgive you for kicking my butt in our bracket competition.
Please visit Sigma College of Small Business for your small business education, management services and social media needs.
3 (maybe even 4 or 5) Ways to Promote Your Weekly Networking Group with Social Media!
by Jamie Gorman on October 11, 2010
If you are part of a weekly networking group, I want you to print this post and hand it out at your very next meeting! After all the time and effort we spend networking and building relationships at these meetings, it’s just silly that we don’t leverage social media better.
1. Get Social!
Social Media can help you be a better network group. Think about all the things we try to do in our networking groups-learn each other’s business, build trust and credibility and refer each other. Social media helps with each one of these, and has the capability to explode it by ten if done properly. But you have to play to win! The more of your group that uses social media to leverage the group, the bigger the potential.
2. Be Shareable
Just like it’s not enough just to join a weekly group, you have to participate, build trust and add value. The key to a good network is to be with a group of people that you trust and can recommend, or in social media “share”. Your network must be shareable! The members of your group should learn what, when and how to post. I look for things from my network that I can share, but I won’t share just anything just like I won’t recommend anybody. Who I recommend and what I share reflect on me and my credibility, so I encourage my network to give me something shareable.
3. Connect, Friend, Follow, Join, Subscribe and…, well do those first!
As your weekly networking group gets themselves online posting shareable content, challenge them to connect, friend, follow, join and subscribe. Start a list to pass around during the meetings to make sure everyone knows what services each member is using and how to find them online. You may even want to start a LinkedIn Group that you can use to pass on information among yourselves. If you are really dedicated to the weekly networking group you should at least be connected to each member on LinkedIn, subscribed to each person’s blog, be on every email list, follow everyone on Twitter and “Like” all Facebook fan pages.
4. Pass it on, I said PASS IT ON!
The best weekly network groups recommend each other to their friends and other acquaintances. The best social media networks share posts, comment on each other’s blogs and forward their email newsletters. Make it a habit to monitor the posts of those in your network and share the content with the rest of your network. During your 60 seconds each week, make it a point for each person to share important items from their media calendar so the rest of the group is ready to share. If every person in a 15 person network has 100 people in their social media network, 1,500 people can get an important post! Sure beats the 10 or maybe 20 people that would get it by one-on-one interaction.
Ok, it was 4.
If printing out this article and passing it around isn’t enough to get your weekly networking group, get some help as a group. Schedule a couple sessions with a professional that can help everyone in the group get better at social media. Sigma College provides these types of workshops that can be customized for your group, contact us today to find out more.
5 Steps to a Better (or just “a”) Business Plan
by Jamie Gorman on October 7, 2010
Over the last few years I’ve had the privilege of working with several smart, passionate, dedicated business owners on their business plans. Along the way I’ve carved out my own techniques and methods for business planning for small and medium business clients. The Sigma methods are outlined here, but no matter how you do it, make sure you are taking steps now to make sure the business is going in the right direction.
Step 1 – Revenue First
Some might argue and want to start with vision, mission, goals, etc… This is good for larger companies, but a small business needs to focus on revenue first! They need to know where it’s coming from, how it is generated and whether they can make payroll next month. Businesses that don’t have a handle on near term revenue can’t focus on anything else.
Start-ups – even if you have capital and don’t need immediate revenue to eat, focus on revenue first because the capital runs out very quickly!
To project revenue I will often walk through more practical exercises – how many widgets can you make and deliver in a month, how many deals can you close in a week, and how many leads do you need for each close? It’s easy to say “I can do $1M in sales” but the reality of that might require meeting with 300 people a week, so start with the actions required to sell and deliver. I have a Big Ol’ Spreadsheet (BOSS) that I use to input practical things like units, hours and miles and output sales.
Step 2 – Match Product to a Specific Market Need and Create Value
The first page of our written business plan is three sections – The Market Opportunity, The Product and Market Value. This logically steps through the gap that exists in the market, why there is demand, how the product fills that gap and lastly why people will pay to fill the need with this product. I like this exercise even for existing businesses because the market is continually changing and they need to understand how to change their product accordingly. If they don’t make this match periodically they are at risk of falling behind their industry.
Step 3 – Think Strategically
Now that the immediate business is on track we can start thinking strategically. You can add a vision and mission with some big goals at this point, but we focus more on the Five Pillars of Business Strategy:
Exit Strategy – how the owner sees her relationship with the business ending.
Entity Structure – the best combinations of corporations, LLCs and S-Corps
Value Model – description of how the owner builds value over time
Marketing Tactics – strategies and actions that get the business to its desired market position
Implementation – “Big Rock” projects and actions that need to happen for above to happen
Back in the days of SigmaFree, I presented this topic in much more detail. Feel free to check out the video if you have the time – “Setting the Course! Build Your Business Strategy”
Step 4 – Build Expenditures to Match Desired Growth
At this point it is important to look at the projected revenue and strategic decisions and figure out what it’s going to take to get there. This is where we determine how much it’s going to cost:
- Cost of Goods Sold
- Marketing and Sales Requirements
- Equipment and Facilities
- Human Resources and Contractors
- Administrative Costs
- Accounts Receivable and Payables
Detail them out to the best of your ability. In the Big Ol’ Spreadsheet (BOSS) I link the capital and operational expense budget to desired revenue if possible, and include all the assumptions so that it is easy to do “what if” scenarios.
Step 5 – Analysis, Decisions and Adjustment
Once we have all the data together and put into the BOSS it’s time to run the numbers. The initial focus is on cash flow and identifying the capital required for growth. Profitability is next since it ties into the overall return on investment for the owner(s) and investors. Then we project the company value over the projected time period.
If any of these items is out of line with your desired outcome as a business owner, it’s time to make some critical decisions and adjust your business. Business planning is a process that requires you to analyze, decide and adjust. The business plan with the BOSS are just tools to help you in the process. Putting it all together in a nice binder is a pleasant touch, but don’t lose site that it’s the journey that makes a great business plan.
Sigma College of Small Business is about educating and serving small business owners. To keep up with our classes, webinars and blog posts you can join our email list, “Like” us on Facebook or subscribe to SigmaBiz Blog. And please add your tips, questions and results in the comments section!
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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4 Facebook Tips for Small Biz from the Top 10 for Big Biz
by Jamie Gorman on September 9, 2010
Last week I caught a great blog entry from Social Media Examiner – “Top 10 Facebook Pages and Why They’re Successful” written by Amy Porterfield. The top 10 pages are pretty amazing, but they are all professionally done by big brand companies with marketing budgets most of us small business owners don’t have. However, after further review, I filtered out these four things that you can do with no budget, just some time and creative thinking!
Note: The fan pages I present as examples are managed by individuals who are running their own business. Nothing fancy, but they consistently use techniques that support one of Amy’s points with no cash budget, something we can all appreciate and learn from.
Know Your Audience!
Amy highlights for Red Bull and Jone’s Soda
As you work through your social medial plan for the month, think about what your Facebook audience wants to hear – what will capture their interest?
Susan Jacobs – Assist2Sell Real Estate
Susan is a real estate professional, great networker and a former Chairman of the Chamber of Commerce. Her audience is the network she has built over the last 20 years in the community. Knowing this audience she places a lot of emphasis on chamber and community events, using links and pictures when possible so that posts can be easily shared. Like most small business owners her personal life is very close to her professional life, so there are some content ties between her personal and business profiles that help build on the personal relationships she uses for referrals. Great Job Susan!
Use Pictures and Video
Amy highlights for Burt’s Bees (mentions in multiple others)
For anyone with a visual product or service this is the first recommendation that I make! It’s not too difficult once you set up your process, it adds a ton to each post and it enables the all important “share” link to the bottom of your post. I really wish my business was more photogenic!
Dorsey Signs and Designs
Stevi is one of my new small business Facebook Heroes because of her daily posts! Most of them include a picture and show three things: a different type of “sign and design”, the quality of her work and a mention of the business or organization highlighted.
Garden Muse/Ideascapes
I love the way Fabienne presents the stories of her work. She provides before and after pictures with little write-ups on different jobs that really make us a part of the process. Don’t you want a landscape designer who can look at your before picture and really “muse” about the possibilities, then make it happen.
Get Fans to Engage and Act
Amy highlighted in at least 7 of the 10 pages!
So do you think this is important? Amy provides several great examples – asking people to post pictures, contests, Facebook Stories, etc. Most of these are pretty cheap but take some time and planning to really get them set up and going right. What I would like to focus on here is using the content of your posts and campaigns to engage your audience.
Great Harvest Warrenton
Great Harvest in Warrenton is a place I want to visit every morning when I see their daily picture post of fresh baked bread! Pablo and his staff do a great job of engaging their audience with pictures and headlines, as well as their participation in the community. I especially like the “campaign” he started this week relating to ‘80’s music. First, it identifies with his primary demographic (those who remember the ‘80’s). Second, popular music gets people engaged. People are likely to comment and share a post for a bread called “Tainted Love”! Third, those of us who have visited the store know there is always a familiar tune in the background. I really hope Pablo leverages this campaign! BTW, Great Harvest Warrenton is a great place to cash in on your Foursquare efforts – I got a free cup of coffee Friday!
Use Campaigns
Amy’s highlight for Oreo
Every month I have my clients fill out a form with events, activities, projects and products they want to promote in the upcoming month. Then I put together a media calendar where I can lay out all the different posts for these events and activities. Once we have the big picture I look for the gaps and connections where we can use a campaign. A campaign is a grouping of messages under a single name or brand, where the name or brand catches people’s attention, ties together a couple key messages and engages your audience. When done right, like the OREO Back to School campaign, it provides a steady stream of great content. Guide your campaign ideas around the general value you bring to customers or something your audience will identify with, like Back to School or ‘80’s Music.
Thanks to Amy for a great post that really opened my eyes! Don’t dismiss the creativity, adding tabs and other things she pointed out and recommended. Most of what the big guys are doing is within your grasp as a small business, that’s the beauty of social media.
A lot of what I do is taking the success of big business and making it practical for my small business clients. My biggest recommendation in Social Media for Small Business is to start with one thing and do it well, then build on it.
- Know your audience
- Use Pictures and Video
- Get Fans to Engage and Act
- Use Campaigns
But most importantly – BE CONSISTENT! Set up a simple schedule to start and stick with it.
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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Five Social Media Tips for the Overwhelmed and Panicked
by Jamie Gorman on August 10, 2010
This scene from the movie classic Raising Arizona reminds me of a conversation between a Social Media expert and the typical small business person!
“Well you’re on Facebook, right? You’re not on Facebook, you don’t have a page? And what about Twitter, well you just have to be tweeting…and blogging, are you using WordPress, Blogspot, what, you aren’t blogging? And make sure you use Hootsuite, or Tweetdeck or you won’t have any idea what is going on!”
I often catch myself doing it with my students and clients, and then slow down when I see the eyes glaze. Because of the value of social media and the ease of linking things together and sharing, it is difficult to talk about only one media at a time. For those who are overwhelmed and panicked, here are some tips for fitting social media to you. Make sure to leave a coment with your biggest challenge in social networking!
- Some is better than none! Start with one application and build as you get comfortable. What you start with depends on the business and objectives. I like to get professional services people up on LinkedIn first and then get them blogging before digging into Facebook and Twitter. For retail I might focus on Foursquare first, followed by Facebook and Twitter.
- Learn to Subscribe and Comment. Find blogs to subscribe to, people to follow on twitter and Facebook Fan pages to “Like”. Track those with experience and see how they do it. Write comments, respond to questions and ask them questions about their sites. It’s a great way to learn and an easy way to start getting your name out there.
- Carve out an hour a day. Most social media is free, but if it’s a significant part of your marketing plan you have to put in the time. At first you will spend the hour learning more than posting, but as you get more comfortable and experienced the hour will become more and more productive. To start try spending 20 minutes learning more about social media, 20 minutes reading and commenting on other peoples posts and 20 minutes on your posts – thinking through what and when you will post throughout the day.
- Read a good book on Social Media. I recommend the book Trust Agents because it focuses more on the philosophy and strategy of social media than how to use any specific tool. What you really need to understand is how you can add value to the network you are trying to build. For the “how-to’s”, there are a ton of step-by-step blogs out there.
- Slow and steady wins the Race. Listen, you may go a couple days and not have time to post anything. It’s ok to jump back in! Even if you can only spend 30 minutes every other day, it’s better than nothing and you will see some results. Just like most other types of marketing, a little every day is better than a marketing dump every two weeks.
Don’t try to solve world hunger in your first week of social media! You will become quickly overwhelmed and likely stop after a couple weeks. Instead, pick one media app and go with it, focusing on establishing a routine and setting aside the time. You will get people telling you about a ton of other tools that are out there. Write them down for reference but make the time and get comfortable with the first thing before taking on the second and third.
It won’t be long until you shift from finding the time to network online to forcing yourself to stop so you can get some work done!
What’s your biggest challenge to social networking?
Posted in Blog, Business Networking, Marketing and Sales, Online Marketing, Social Media
Tagged business, education, facebook, gainesville, haymarket, LinkedIn, management, manassas, marketing, networking, online, optimization, prince william, small, Social Media, twitter, VA, Virginia, warrenton, web
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