Monday, December 27, 2010

Eleven 2011 Trends for Entrepreneurs

As we launch into the new year, here are the top 11 trends that entrepreneurs need to be aware of, think about, and for which we should all prepare:

1.  Economy will still Struggle: This is the biggest question on everyone's mind. If experts in public relations and marketing were coaching me to write this blog to be popular, they would tell me to speak positively about the economic trends for 2011. But I just don't see it on a macroeconomic level, and I refuse to sugarcoat things for the sake of writing a popular blog post. I know of some entrepreneurs who are thriving and some who are struggling or who have already shut their doors. But most are treading water. And this will be the same news come the end of 2011. I'm saying it, even though you probably wanted to hear something differently.

In his post Yet More Evidence of Hunkering Down Among Small Business, Jeff Cornwall expresses concern that if entrepreneurs aren't positioning their enterprises to expand, a full economic recovery seems distant at best. But there are plenty of strong niches and unique opportunities that will continue to thrive at the hands of adept entrepreneurs.

2.  Working Capital will be King: Yes, the saying usually says that cash is king. But tough economic times have taught many entrepreneurs that their working capital is sacred, primarily because it is the key to immediate and short-term cash. Those who make it more efficient (see Working Capital - Less is Often More) will out-perform their competitors. Those who protect it from being used on capital expenditures, excessive owner compensation, and other outflows not helpful to generating immediate and near-term gross profit, will find the empowerment it brings to succeed regardless of almost any external or economic pressure.

3.  Results-Driven Marketing will be one of the biggest Difference-Makers of the Year: What happened to measuring marketing performance? Many entrepreneurs are so infatuated with marketing that they have become soft in measuring the results it generates. Some have justified spending more in marketing as a strategy to overcome the recession, and most of them are out of business now, having bled their working capital dry without a tool to measure if it was actually paying off. Marketing metrics will come back into fashion, and cost per lead and cost per customer acquisition will be numbers that successful businesses drive as low as effectively possible. John Donal Leavy has a lot more to say on this topic here: Outcome-Based Marketing in 2011.

4.  Capital Expenditures will be up: Most businesses have held off on necessary capital expenditures in 2010 for two reasons. First, they were concerned they would not get the expanded Section 179 tax deduction for 100% of their purchases, and, second, they were concerned about over-spending in a tough economy. With the Section 179 deduction increase extended through 2011 and a still-shaky economy, most entrepreneurs are deferring that pent-up demand to 2011. Don't be fooled by it, because capital expenditures will likely drop again in 2012. You can read more about this in an article I wrote for American Express OPEN Forum--Five Finance Trends Every Entrepreneur Needs to Know.

5.  Going Green will no longer be a trend--it will be an Expectation: A little ahead of this trend, in my opinion, the folks at Willoughby Design wrote: Going Green is not a Temporary Craze-It's an Expectation. If you haven't accepted this fact, your competitors will gain more traction and sustainability than you. Period.

6.  Fixed Fee and Flat Rate will win more business: Whatever it is you sell, have a fixed price for it. If your customers feels, in any way, that their cost for your product or services is variable, it will decrease your chances of getting the business. Figure out how to price your products and services and deliver what your customers need. The argument that every customers' needs are different is becoming obsolete, and so are those who base their entire business model on it. Here is just one example from an attorney who wrote about how Customers Love Flat Fee Billing Based on Defined Deliverables.

7.  Mobile, Cloud, and Social Technology will continue to converge: As these three technologies mature, they will continue to converge and become the future of how we think about and use technology. You can read just one of many opinions on this here: Convergence of Mobile, Cloud, and Social.

8.  Entrepreneurial Borrowing will move further away from Traditional Sources: It will get harder and less attractive to get traditional loans from banks. Increasing an Entrepreneur's opportunities to adequately fund his or her business is a topic of heated debate, but few seem to really get it. You can expect more innovation in getting entrepreneurs access to the funds they need in 2011.

9.  Compliance Enforcement will Increase: The IRS has $300 million more to spend in enforcement programs in 2011, and many state and local tax and other compliance agencies are spending more in enforcement as well. Plan for it, and then you'll be ready when it comes. It's becoming more likely that it will.

10.  Social Security Temporary Tax Cut is a sign of things to come: One provision of the Tax Relief Act of 2010 left me scratching my head. Everyone knows the social security system is underfunded and will be bankrupt in a few decades unless the program is overhauled. So why did Congress reduce the amount paid into the fund by two percentage points, or up to $2,136 per worker? It just doesn't make sense, unless the long-term plan is to wipe-out the cap, currently set at $106,800, altogether, to match the same way the medicare tax is currently treated.

11.  Hiring will focus on value-add, regardless of position or responsibility: Most studies and surveys say that hiring will be stagnant among entrepreneurial companies in 2011. But those who do hire will focus on the value each new employee and position will bring to the company. They will be Improving Your Business Hiring Practices and only hire when an employee is the only way to advance towards their goals and objectives.

Hopefully these trends and tips will help all of us turn 2011 into a year of prosperity and growth. To see the report card of my 2010 predictions, visit Report Card for Top 10 2010 Trend for Entrepreneurs.

Sunday, December 26, 2010

Report Card on 2010 Entrepreneur Trend Predictions

Here is a look at the predictions I made for 2010 at the end of 2009 so you can see how I did. Of the ten identified trends, I gave myself 4 As, 4 Bs, 1Cs, and a D, for an overall GPA of 3.1.

1.     The recession will not end, regardless what anyone says: GRADE=A

Although economists say the recession is over, every entrepreneur is still feeling its effects and carries some concern for an unstable economic future.

2.     Bootstrapping will be king!: GRADE=A

Many Bootstrapping-focused specialists and consultants have emerged in 2010, a bit of an oxy-moron but relevant nonetheless. Bootstrappers do just fine when capital is tight because they still know how to get customers and grow organically, which makes them the most likely targets for investment capital. 2010 proved this to be true.

3.     Solving lots of customers' needs will raise capital: GRADE=B

This was not entirely true, since companies like Twitter, who still struggle to find a sustainable revenue model, raised $200 million in funding. Other than a few of these blockbuster and very risky deals in 2010, almost all of the professional/sophisticated investments went to firms with lots of customers and the ability to solve those customers' needs in a value-added way.

4.     Business Lending requirements will increase: GRADE=C

Looking back, most of the added complexity and loan covenant tightening was in place by the end of 2009. I could only give myself a C since I was a little off on this trend, although getting loans was still very difficult for most entrepreneurs who even bothered to try.

5.     The cloud will continue to gain a share of all things computer: GRADE=B

Things continued to move that way, but not at the pace I expected. The most common, everyday manifestation of this ongoing trend was watching several entrepreneurs struggle to give up email client Microsoft Outlook only to tell me how much better Google Apps was just a few weeks later. The cloud is making it even more possible for entrepreneurs to go toe-to-toe with their much larger competitors, and win.

6.     Social media overload will drive users to the best content sources and filters: GRADE=B

This is happening, but we're still waiting for the next content sources and filters to emerge.

7.     Health insurance will continue towards high deductibles and consumer-driven care: GRADE=F

Health Care Reform had everyone concerned about making any significant changes in 2010. I missed on this one, with little change in the mix of high deductible versus more traditional health insurance plan designs.

8.     Being big will become less advantageous to being small: GRADE=A

I had the privilege of watching many small, no-name companies take on one or more of the big boys and do very well for themselves. The playing field is becoming more level, and entrepreneurs are capitalizing on these opportunities.

9.     Focus on relationships will pay: GRADE=B

This has and will always be a true business principle. Building relationships, whether online, face-to-face, through re-seller channels, or some other means, fostering and building relationships will always bring commensurate rewards.

10.    Knowledge workers will take more contract and less full-time work: GRADE=A

With Tim Ferriss' 4-hour Work Week still topping the charts, more and more knowledge workers are becoming independent. And most entrepreneurs appreciate the flexibility and focus that contractors bring to their organizations.

If you are interested in my predictions for 2011, please visit Top Eleven 2011 Trends for Entrepreneurs.

Monday, December 13, 2010

Ownership and Employment are Separate

Most business owners and entrepreneurs co-mingle their ownership of and employment at their businesses. But they are really separate things. And the more they can understand this concept, the more effective they usually are at running their business.

I was recently impressed by a story I read in the USA Today about an entrepreneur who understands the difference between employment and ownership better than most. Lola Gonzalez laid herself off to save the jobs of the rest of her employees. She still owns the business, but she no longer reports for work every day. She even found another full-time job.

How much do you earn from your business because you are employed by it? How much do you make from your business because you own it? Yes, each question should have its own answer.

One of the reasons these concepts are confused relates to the way owners pay themselves. With pass-through entities, especially s-corps, commonly used by entrepreneurs, earnings for employment and profit-taking as an owner are often combined, or at least not looked at in terms of a fair market wage for an active owner.

Here is what every business owner should do--figure out how much you would have to pay someone to replace yourself. If you are currently making less than that, then its time to figure out how to grow your business or make it more profitable so that you can at least earn what the market is willing to pay. If you're making only that amount, then you're really not getting any benefit for being the owner, other than the fringe benefits of owning a "lifestyle" business that provides employment. If you are taking home more than your wages, then you are getting the best of both worlds--a good-paying job and some financial reward for risking everything you have, including your time, to build your business.

Monday, December 6, 2010

Budget 2011, but be ready with Plan B

2010 is coming to a close, and its time to get serious about having your 2011 plan in place. And I'm not just talking about a revenue target or a net income budget. You can do so much better than that, and you'll be surprised how much it will make a difference in your business!

If you are looking for some tips on how to create a budget for 2011, then I recommend you read my recent article on American Express OPEN Forum: 10 Tips for Creating Your 2011 Budget. I'm going to expound on Tip #10 and the Bonus Tip, both of which have to do with creating alternate plans in case your Plan A doesn't work out, then making mid-year adjustments based on your best and worst-case scenario plans.

In these uncertain times, chances are better you'll either under or over-perform against your plan than you actually hitting your target right on. Of the entrepreneurial companies for whom CFOwise® serves as the CFO, their 2010 results prove this point. Even with careful, thoughtful planning, only about 15% of them varied from their revenue and income projections less than 5%. 55%beat their projections, and the remaining 30% came in below their plan for the year. So why bother to budget if it is so hard to get it right? Have I ever mentioned I love that question?

My initial answer is that if your year is any different than you planned, you have already thought about what changes and adjustments you would need to make. Just the exercise of planning for it gets you one step ahead of your competition, and it helps you understand your business model, which elements are flexible and which are not and what parts you can and need to change if your business is beating or falling short of its plan. That's why I always recommend three budgets for the year. Your realistic plan, and then your best and worst-case scenario as derivatives of that realistic plan.

So, let's imagine your company is under-performing on its budget. You initially planned to hire one new employee each quarter of the year, but sales are falling short of your plan. By referring to your worst-case scenario and your realistic budget, you will quickly determine how many employees you can hire and the best possible time to hire them.

Conversely, let's imagine you are beating your revenue projection by 20% after just the first few months of 2011. When you consider your best-case scenario would require you to purchase additional equipment to handle the increased demand, you can quickly react to your better-than-expected performance and be ready to handle the volume and take advantage of the opportunity. One entrepreneur I know calls that "making hay when their is hay to be made."

So, by having three budgets you are forced to think about a myriad of what/if scenarios and plan to accommodate them. Then, by analyzing your variances from your realistic budget each month, you are ready to make quick adjustments to maximize your results, regardless of if your year is going better or worse than you planned.