Cold Weather – Forecasting

The US is experiencing one of its Decembers cold weather blasts.  In the Pacific NW, we hit new low temp records.  The Small and Medium Business environment is experiencing some of its coldest times as well.  Not from an artic freeze but from the legislative lack of understanding regarding what business is and what it will take to really allow growth.  What increases the complexity of a business to be able to forecast budgets, manpower requirements, new product development and growth in general is the inane activities of government and a bunch of academics called economist who have no sense of reality.  The policy decisions being driven by the wrong view of economics and what drives an economy is perpetuating the cold weather that affects business forecasting.

What can any size business do in developing forecast and how is it segmented for growth in any environment or market segment?  One simple and fast method is known as the PEST analysis.  This stands for Political, Economic, Social and Technical.  There are a plethora of examples of this on the Internet but I prefer the KISS principle in all things.  With that I like the to use the relational matrix of PEST to SBSNeR which is Supplier, Buyer, Substitutes, New entrants and Rivalries.  The idea is to pull your team together and put on your Beany* copter hat and do some brainstorming.  As far as the matrix design, put your PEST on the top and your SBSNeR along the left side.  Now begin asking the simple questions about each box in the matrix to get the process engaged.  Expand your questions as the matrix is further explored.

Example questions could be:

1. What is happening with deregulation, protectionism and subsidies and how does that affect the industry the business entity is involved in?
2. What are the local, national and international economic shifts?
3. What are the social shifts related to industry, customers or suppliers?
4. What technologies are affecting the industry, how and why?

Use the results of this exercise to look at the business’s market, product set, personnel and financial model.  Then consider the results that need to be addressed in each area to meet the objectives that are defined as growth areas for the business.  Hopefully your primary growth target is increased cash flow.

An additional influence in forecasting is the question: what will happen with inflation?  We are all concerned about what the political powers will do to manipulate this indicator.  Professor Rothbard states, “Inflation, distorts that keystone of our economy: business calculation.  Since prices do not all change uniformly and at the same speed, it becomes very difficult for business to separate the lasting from the transitional, and gauge truly the demands of the consumers or their cost of operations.”  It is a challenge for business executives, especially in the small and medium business environment, to assess what this means in relationship to supplier price increases, cost of living adjustments for employees, demand by customers for price adjustments and maintaining a consistent Net Margin that will maintain positive cash flow.  Determining the influence of inflation is about looking at the complete picture of the living entity, the business, and seeing into the future the best we can.  Add this component to the PEST analysis then readjust all the variables to establish what are the goals set as growth factors for the particular business.

Forecasting is not the crystal ball activity many make it to be.  It is a methodology that is affected by numerous variables and therefore, a lot of work.  The lack of time and the value proposition of forecasting becomes the limiting aspect to accomplishing it in a small and medium size enterprise.  Yet, paying attention to it addresses several valuable business metrics that affect market knowledge, product alignment to the market and the affects of policy on future execution.  Properly done forecasting will heat up the incentive to execute to growth.

A Little Political Rant

It never ceases to amaze me that those that are in the trenches have a clear view of what it takes to restore jobs and allow individuals to develop real wealth.  The issue is philosophical.  What has happened over the last 50 years?  Simply put; instead of those elected to office really listening to the constituency, these elected persons rely on academics who for the most part have no true scientific or moral basis to influence policy that then affects the lives of individuals and the lives of businesses which are also living entities.  It is unknown to most of us that the Union for Radical Political Economics is 1,200 members strong that are academics that have direct influence on policy, especially in this present Congress and Administration. 

This organization believes and argues for the abolition of corporate profits and the elimination of pricing on eighty percent of the goods in the American economy.  We see this influence now in the attack on corporations and the interference by government in free-market exchange through Agency rules and regulations.  This is done not only at the national level but at the State level as well.  The assault on small and medium business is felt through the trickle down of egregious Federal, State and Local Agency rule making that set encumbering regulations and fees.  The constant barrage of incongruous business legislation and regulation seriously impacts how small business executives can forecast when they are wondering what is the next shoe that will drop.

The critical issue is that small and medium business owners need to be involved in the legislative process at some level.  Joining associations such as the Small Business & Entrepreneurial Council (www.sbecouncil.org) can inform business executives of national issues that will affect the elements of forecasting.  Contacting your State Legislator or County Commissioners will give one insight into local issues being addressed that will affect the business entity. 

With the fact that policy will affect business, every business needs to be involved in the political process.  Know who your elected officials are and communicate with them.  It is the responsibility of the business executive to do this for the sake of the living entity, the business.

*For the younger generation see Beany & Cecil cartoons by Bob Clampett

Exit Strategy Part 3 – Succession Planning

Funny how a discussion regarding politics and election cycles got me thinking about Succession Planning. The question that got all this really going had to do with how we raise up true Statesmen in our present political climate. Where do we find those that can be critical thinkers that act on principle and not on the dictates of a political party? The same questions are relevant to business. Where do we find and develop our next CEO, Vice Presidents, Boards of Directors and Small Business Executive/Owners?

So, we find the business entity in a moment of transition that is significantly going to affect operations. A senior executive is leaving. It doesn’t necessarily matter why but in this case; it is one of the top three decision makers in the entity. An Exit Strategy is being executed whether it is personal or that of the organization. What happens now? Let’s take a real life example; the CEO of General Motors (GM) is gone. The example being that I have defined every key person in the SMB environment as an executive and if your number one in the organization you’re most likely the CEO or President. What’s happening if you are gone? Who’s there to step in? Who will succeed you?

Succession planning is big business for Human Resources and Organizational Consultants. It is often thought of as the thing that heavy hitter and large corporations do to make sure that the good old boys keep the wraps on things. Wow, what wrong thinking that is. As we see with the GM example, the Board of Directors made a decision to remove the CEO and now are in a hunt for a new one not to keep an old boys club going but to increase the value of the company to the stakeholders.

The idea of increasing value of the business entity in a sustainable manner into perpetuity is a first principle of a Succession Plan. The basic concept for all businesses no matter what the size is should be to understand how to keep the entity moving forward with the inevitability that the most senior leadership will exit at some point for any of the reasons that I discussed in Exit Strategy Part 1. When someone heads out the door, what happens is a long conversation but the question here is – who is ready to step in?

I look at Succession Planning as an investment in critical assets of the business entity. As you know, I view a business as a Living Entity so that means there must be stewardship of that which is part of the entity. With that thought in mind, developing the individuals to succeed is critical to the growth and development of the business. Ensuring that someone will be able to step into the next role in leadership and management is critical. That is why I think that this list is some of the top reasons for a Succession Plan as part of the business entity Exit Strategy.

• It will prepare current employees to undertake key roles
• It develops talent and long-term growth
• It will improve workforce capabilities and performance
• It most often improves employee commitment and therefore retention
• It will meet the career development requirements of existing employees
• It will most certainly counter the increasing difficulty of recruiting employees externally
• If done right, it focuses on leadership continuity and improved knowledge sharing
• It will provide for more effective monitoring and tracking of employee proficiency levels and skill gaps
  

I believe that in short, Succession Planning is simply training and better yet, mentoring. I know, too simple yet very difficult to implement especially if there are a lot of ego’s in the senior management hallways. Just a quick reminder, the sustainability of the business entity isn’t just about you; it is about the longevity of the business.

OK, ego’s aside. All the HR experts and academics will agree that without a plan several things could happen to the organization such as:

• ß Loss of expertise and business knowledge
• Loss of business continuity
• Damaged client relationships
• Time and effort to recruit and train replacement employees
  

What are the basic things that should be in the Succession Plan?

• Identifying roles for succession
• Developing a clear understanding of the capabilities required to undertake those roles
• Identify top performers in all departments and make sure that they are engaged and satisfied to stay with you for a long period
• Prepare and develop employees to be ready for advancement into each identified role
• Understand the time needed to backfill the key roles
• Continually review and check the process of succession and whether planned individual development has taken place
  

You are thinking; well, I’m just a two, maybe a three person shop at best. What do I need to think about this for? I would suggest that you reconsider what Murphy can do in any business and that if you’re that entity that was just mentioned, what happens to the other couple employees if you exit unplanned? Honestly, any lack of planning leads to potential failure of the business. Without proper succession planning, the future success of the business is left to chance once the leadership is gone. Under these possible circumstances, if the entity succeeds at all, it is by default rather than planned.

Proper business continuity for sustainability is dependent on succession planning that can help prevent a business from being frozen and discontinued. If the business entity is family owned, a plan also helps avoid conflict among family member and between heirs and surviving owner-executives. Remember, that no matter the size of the business entity; it endures the same pain when it has to go through management changes. It all scales according to the complexity of the organization as a Living Entity.

If the entity is a corporation with a Board of Directors, the discussion does become even more complex when it comes to CEO and Board Member succession planning. It is even coming to the point that legislation is in effect for publicly traded companies that require succession planning for CEO’s. Ah, another discussion.

New SBE Council Report on SMB Friendly States

I have found that the Small Business and Entrepreneur Council is a great organization to be a part of. The are working hard for all of us in the SMB environment from a policy and information perspective.

They have just released a new report. Here is the first paragraph from the news release. Please follow the links for all the information.

"The Small Business & Entrepreneurship Council (SBE Council) today released its 14th annual rankings of the states according to their public policy climates for small business and entrepreneurship in the "Small Business Survival Index 2009: Ranking the Policy Environment for Entrepreneurship Across the Nation." Access the SBSI 2009 map of the states by clicking here."

For a full copy of the report follow this link Small Business Survival Index 2009 report

NCDCS is a source for the SMB environment to help understand the policy changes as they affect risk management, governance, board development and strategic planning.

Exit Strategy part 2

I am revisiting this discussion because it has become so important in today's environment and because of the the illness of a friend of mine. This potentially life threatening illness was never a part of the business plan. So now what do they do? I am reminded again through this personal challenge that most small and medium businesses don’t think about what it means to exit since the idea is to build a business. Every entrepreneur is busy spinning hats to move their idea forward with passion that the thought of exiting is so remote you might as well be in another universe. Yet, there are distinct areas that I find every business needs to consider as part of an Exit Strategy.

My life lessons in business have taught me to identify and prepare for these areas as best as practical. Since I consider every business owner an executive no matter what the size of the entity in revenues or personnel, the first area to consider is the Executive Exit.

Every Executive should be interested in leaving the business at some point. Several planned Exit targets are:

1. The attainment of some age, income level, savings acquired or other parameters that meet thought out wealth requirements.

2. The growth level or health of the business entity - sustainability.

3. The transition of the business entity to another. That being someone mentored in a succession plan, a sale or merger.

4. If the cash runs out, what is the plan? This is for self-preservation.

Unplanned Exits need to be re-emphasized and they could be:

1. Death of the executive, spouse or other key personnel.

2. Divorce of the executive or other key personnel.

3. Disaster, which could be: accidents, natural disasters, financial, market turndowns or key customer(s) exiting.

All said and done, without an exit strategy, the executive does not know how to finish the business activities which makes doing business like getting into a race with no end in sight. The potential is that somewhere along the line there needs to be an exit. The business started with and for a purpose. The Exit should be planned for, as well as having contingencies for the unplanned or unexpected.

Babies and Economics

I’ve been off line the last week since our daughter presented us with our first grandson this past Friday.  We were hoping that he would hold out until my wife’s birthday on November 4 but he was more then ready to come into the world.  Based on baby behavior and his size, we are guessing he is two weeks late.  Wow!  That gets one thinking about delivering to the customer on time.  Well, we are delighted with welcoming our grandson even in these seemingly troubled times.

During my flight to Dallas from the pacific NW I began to reread Ronald Coase essay “The Problem with Social Cost” and John Locke’s letter on Toleration.  What do these have to do with a new grandson?  I believe that the simple essence to the answers of our present political and economic dilemma can be fundamentally found in these two works for starters. 

I’ll start with Locke’s argument that a society cannot properly function without core religious foundations.  He argued that these foundations are rooted in personal understanding and Biblical relationship with The Living God.  Not only that, Locke argued that atheists should not be tolerated because 'Promises, covenants, and oaths, which are the bonds of human society, can have no hold upon an atheist'.  What this means in the context of my grandson is that there is a responsibility of his parents and me to ensure that he has a moral foundation based on Biblical principals.  This is so that he clearly understands that the meaning of promises, covenants and oaths have deep rooted meanings and are more than just words that a bunch of lawyers can manipulate in legal jargon.  There are responsibilities that have personal, societal and eternal ramifications.

This brings me to what Coase talks about in ‘The Problem with Social Cost’.  For the most part this has nothing to do with babies but it does have everything to do with pricing models and government subsidies.  Yet, in the long run, without babies we would never be able to look at the future of economic opportunities.  With that confusion running through your synaptic nerve endings, let’s consider that all businesses begin with babies.  The theory of supply and demand is most relevant in this context.  Let’s face it, baby demands and mom supplies.  Now the interesting aspect of this is that baby, especially a newborn is always in demand for any number of potential commodities:  mom’s milk or appropriate substitute, cleanup after messing diaper, sleep, warmth, attention, care and love. 

Supplying these needs for baby has driven many industries that culminate in mom being ale to supply the demand.  If one were to specify a single segment of this generalized baby industry as economic theories do, breast-feeding would be a major study.  How so you ask?  Think about the volume of production to the time cycle of demand.  This element alone speaks to the essence of core business management.  Simply – baby has to eat; usually at some set time frame (if the parents are smart and set a schedule and not let baby dictate the cycle); mom has to produce the milk and ensure that the delivery mechanisms are balanced and in good working order.  Some folks don’t understand that you have to balance out the time on each breast to sufficiently ensure milk production.  If for some reason, the mom cannot produce sufficient milk for the baby the consequences could be devastating or an alternate source for this product must be located and acquired.
There in lay the opportunity for a new venture that meets a demand.  New entrepreneurial opportunities arise from needs or wants.  Of course, if one looks at modern economic theory and its ill-fated implementations we recognize as Coase did that the true human element is removed.  Humans have been minimized when viewed in economics, law and business.  Theorist have become ideologues and in doing so attempt to formalize sociological answers as if people were cocooned in The Matrix.  This thought takes me back to reading Locke and the fact that we have to look at business and economics from the Human point of view with morality and virtue derived from an absolute source, in my world-view, the Biblical Living God.  It is interesting what fundamentals of sociological, economic, business, monetary, government and other life factors are presented in this world-view.

What having a grandson presented into my life transcends beyond the raising of my own children is that to understand business and the world around us, we need to get back to the fundamentals of life.  We are human; our western culture is formulated in the values and ethics of a Judeo-Christian world-view.  Businesses are Living Entities as I write about in my book and seminars and must be nurtured no different than a baby from conception to its opportunity to establish its legacy in society. 

Changing Business Times

The changing times of the U. S. economy are driving more individuals to look at alternative ways to build income. For years, there has been the transition in the American workforce from the single employer for life employment to thinking about multiple streams of income. This transient employee milieu began emerging as the society began to move away from heavy industry to more financial services, intellectual industry and the explosion of technology.

We saw in the 1990’s that as quickly as a new technology company was started there were sometimes mass exodus of key employees from one company to the new. The incentives to do this overcame any sense of loyalty to the initial company. We know that the younger end of the baby boomers to the present will change careers on the order of 10 to 15 different jobs by the time they are 50 years old.

With this being the case and the present economic cycle, it is only reasonable that we are seeing the increase in entrepreneurship. The Small Business Administration Presidential Reports have commented consistently that about 30 million individuals a year go into business for themselves. What that means is that there a lot of folks that are looking for honest and well-compiled information about how to do business correctly. What is happening is that the information super highway has terabytes of data around the “how to” of this or that. Yet, the consolidation of that information is not presented from a real life human perspective.

What we will continue to do at NCDCS is work hard to give a credible Life Lessons Learned approach to business. What is a business as a Living Entity and how are those participating in the Living Entity, building a sustainable legacy. We are here to be committed to you, our readers and clients. We have returned from a long-term engagement and family medical issues. We are more ready than ever to be the Strategically Whole-istic Organization that you have known us to be.

Many thanks and Blessing to all those who have been our trustworthy colleagues and friends through this last year and into the future.

Bottom Up is Smarter

So you think you’re a corporation? The questions are many and I will deal with different segments of this in the next few postings. Here are several of the basic underlying questions for today:
1. Other than filing the paperwork with the respective state and the feds, what defines you as a corporation?
2. Are you going to look for investors?
3. How are going to include friends and family into your investor strategy?
4. The nut of it all is: How have you structured your equity positions?

What really defines you as a corporation? Are you using the entity because some attorney or account told you that there were tax advantages and that your assets would be protected? Those are reasons that are valid for incorporating but what now is your responsibility with that entity? You need to understand that you are not the corporation. As I discuss in my podcast and mini-series, a corporation is its own entity. To many folks think that they are that entity and this causes all sorts of issues as the corporation matures.

It is important that the corporate organizational structure is in place. This does not matter what your size is. The hope and desire is that the company will grow. Also, you should have a Board of Directors that can contribute to the development of the company. To often the BOD of small corporations is made up of persons that cannot help direct the corporate entity in a good business manner. Take the time to evaluate what make that entity, the corporation what it should be.

Are you looking for investors? This may start out as the three-Fs (Friends, Family and fools) but a corporation with great opportunity and leadership will want to grow and increase capitalization. This requires investors. Design the entity from the bottom up so that you will not have to rework everything when you are ready to go out with a PPM (Private Placement Memorandum) or seek Angles and Venture Capital.

The 3-Fs – how they are included in the investor strategy is critical, especially if you are a Subchapter ‘S’ corp. Have you thought all of this through? There are important issues that need to be faced so that these folks understand what will happen to their value as you add round of capital to feed the growth.

Have you structured your equity positions correctly? Usually this is the place many errors are made. How did you file with the state regarding your shares of the corporation? Did you reserve enough for all the present investors? Did you issue everything? Do you know how to structure your equity position and set the value of your Intellectual Property? I have seen many horror stories created by not doing this correct from the start.

I’m asking all these questions to get your thoughts processing. I have recently worked with a couple startup corporations that struggled with most all of these issues. Let me tell you, it isn’t pretty to resolve. But it needs to be. The fact is that most new corporations don’t take the time to structure properly. Doing it is a lot of upfront work but it is worth it in the long run.

Be smart, start bottom up not top down. Set the foundation and all will work much better.

How secure is the Vail

As I was working on a couple more chapters in the book Real Life Lessons Learned for the SMB environment, the facts came to light regarding liabilities and corporate entities. You're probably asking where I'm going with this since the purpose of forming a corporate entity is to protect the members or officers from the business liabilities. Most often 'true' is my answer.

Many small businesses choose the legal entity of either an LLC or a Subchapter 'S' Corp for this idea of liability protection. Here is a concept that I want you to think about.

You are a new business that is more or less bootstrapping. You choose one of the mentioned legal entities. So far so good. Now you take your business plan to the bank or some lending facility. They do the credit check and see that the legal entity, the business, A separate Living Entity, has no credit history of its own. What does the lending facility want from whom?

Ahhh, yes! They want the officers to sign-z-papers with a personal guarantee. By signing the papers, who is libel? Correct, you the officers who signed the papers.

Today's Life Lesson Learned
Be very cautious what you sign and what the conditions of the contracts are. Do the best you can do to build basic credit for the legal entity and have all the loans or lines of credit developed in the corporation without your personal guarantee.

Hey! Where've You Been

Wow! Times seems to move fast especially when wanting to keep up with all the great happenings on the Net and life in general. So what does all that have to do with NCDCS and the seemingly Missing-in-Action for this Blog? The fact is we've been getting our Facts in order and verified. What do I mean by that? Well here's a review of some of the Facts regarding why we are doing what we're doing:

• Small business is the driving force of the economy in the US. The statistics are there and with 26 million small businesses active in the economy and 7% of the adult population attempting to start a small business every year.... Well there is a lot to cover. More on the statistics in the future...

• Most sites on the Net and books written read like text books. So when we talk to folks about the hard knocks and real lessons of life in business from cradle to grave; our perspective and discussion resonates. Heck, we're going to revamp stuff on our site as well to get it to have meaning and interest to small businesses. We've had to many comments that we look like we talk to the large corporate level of folks when our heart and intent is to make sense of business concepts with a "Napkin" approach. KISSIOMD. Oh, the acronym comes from my daughter - Keep It Simple Stupid, OH! I Mean Dad.

• Most of the business journals and local government entities don't really have a clue regarding the needs and functionality of small or even medium size businesses (the SMB environment).

• Most economic development councils are tuned into the 10% of the large businesses and don't know how to stimulate economic growth in the SMB environment.

• There are a lot of misnomers out there regarding the ins & outs of LLCs. Especially when it comes to the realm of funding and financing the entity.

• There is little thought given to the fact that a business has a personality and that the SMB environment misses this perspective altogether. That's what the book that Tom is finishing will really dig into.

So, we've been busy validating what we suspected to be true. We have a lot more that we've learned, validate and are putting into the book by Tom and seminars will really get into the nitty-gritty in a fun common sense way. Dang It - business should be fun!!

Mostly, in all candor, we've been really drinking our own medicine. Thankfully we know who turns the distasteful palatable so that we can excel and succeed.

With that, we won't leave you hanging again for such a long time. We'll be getting more moving.

Thanks for stopping by!!