Friday, August 31, 2012

Don't Hide Mistakes, Especially the Funny Ones

In recent weeks I have been thinking about humility and its role in effective business leadership. Being open about our weaknesses and recognizing and reminding others that we don't know everything seems counter-intuitive to many, yet it is often one of the main difference-makers between effective and ineffective leadership.

David Williams, a very effective business leader and CEO of Fishbowl Inventory, posted the following on FaceBook this morning:


Dave wrote three leadership thoughts he's been contemplating. Do you see what #1 is? Show you're human, selectively revealing weaknesses. Yesterday I used my weekly email to all of the employees at Aribex to follow this advice (before I had even read Dave's FaceBook post) and share two embarrassing moments that reveal some of my many weaknesses while traveling earlier this week. For your enjoyment and amusement, here they are:

Embarrassing Moment #1
So, my first embarrassing moment came when I was speaking during the press conference announcing the donation of the 10,000th NOMAD handheld x-ray system to a humanitarian outreach group. I was sharing some details from a humanitarian mission one of the NOMADs went on to a small village in Panama (so that you can understand why this is so embarrassing, I need to make sure that you know that Panama is a small country on the south end of Central America…remember learning about the Panama canal in school? Apparently I forgot.). It is a compelling story with amazing photos of the village chief in a loin cloth carrying the NOMAD in a hard-shell case and all! But, here’s the problem…when I was speaking, I somehow combined three different humanitarian trips into one. I explained about the hand-dug out canoe that carried the NOMAD over 4 hours to a remote village, but then I said the canoe traveled the Amazon river (please note that the Amazon river runs through the middle of South America and never comes near the country of Panama) in Cambodia (Please note that Cambodia is not in Panama, nor is it anywhere near Panama, or even South America for that matter. It is its own country on the other side of the world about 11,000 miles away!). Not my most brightly shining moment, by a long shot. Luckily everyone was good spirited about it and they teased me mercilessly for the entire luncheon after the press conference. We had a good time with it.

Making the speaking gaffe at such an important press conference was gut-wrenching. I initially wanted to run and hide, hoping no one noticed. Instead, I sucked up my pride, took full responsibility for it, and I think it was actually very effective at helping me come across as human and approachable in front of a group of people I had never met before...and my employees got a great kick out of it, too.

Embarrassing Moment #2
My second embarrassing moment came at the security check at the airport in Knoxville later that day. Some of you know I’ve been nursing a calf injury for over a month. One of the results of that has been that my calf muscles tighten up and become very painful when I spend a day on my feet. My physical therapist recommended that I use a rolling pin to “massage” my calves by placing my leg on the rolling pin and then rolling my calf over the edge. It is actually extremely painful, but helping me make progress to overcome the injury. I am supposed to perform this exercise two times per day, so I took a rolling pin with me in my carry-on bag on the trip. The TSA agent that saw it in my bag when it went through the scanner didn’t like it. They pulled me and my bag to the side, had me open the bag, and they searched through it until they found the rolling pin. I was very embarrassed…after all, who carries a rolling pin with them in a carry-on at the airport. Mike Heyn, Director of Sales and Marketing at Aribex, saw it all happen and was seriously considering denying any association with me. The security agent waved it around a little bit, then had a small conference amongst his co-workers. I caught quite a few “suspecting” glares from them and some of the other passengers. Finally the security person returned and told me I would not be allowed to carry it onto the plane—it could be used as a weapon and they would not allow it. Now I am out a rolling pin, I can’t keep up with my physical therapy regimen, and my wife isn’t thrilled about me using hers…I guess I’m in the market for a new rolling pin. Let me know if you know someone who can help :-)

In today's world of leadership, transparency and humility (I can't imagine these two existing independently in a leader) are critical ingredients for leadership success.

Lessons Learned:

  • When you make a mistake or a weakness is inadvertently revealed, resist the urge to try and cover it up or inaccurately sustain within others a sense that you are perfect or invulnerable.
  • When you make a mistake, swallow your pride and laugh at yourself. I've found you actually get over it a lot quicker, and people respect you more for it.
  • Don't try to take a rolling-pin on an airplane!

Friday, August 24, 2012

The Dichotomy of Leadership

Yesterday's presentation by Dr. Tim Clark at the annual joint event sponsored by four entrepreneur and business-centric groups in Utah highlighted one of the greatest challenges of leadership, and really why many struggle to be great leaders. You can read the twitter feed under hashtag UVEF, or #UVEF.

Among other things, according to Dr. Clark, identified the two main jobs of leaders. Job #1 is to maintain the status quo, keep everything running smoothly, and maintain the existing business. Job #2, on the other hand, is to disturb the status quo, to push the organization to new, innovative levels. Finding people that are good at just one or the other is tough enough, but someone who can prioritize and fulfill both roles are the leaders who have the greatest impact and add the most value.

Saturday, August 18, 2012

How Much Working Capital Do You Need?

When the bank asks why you need that high of a limit on your line of credit, or when you want to do a little scenario planning to make sure you'll have enough resources to handle growth, I recommend you turn to a ratio called Days Working Capital (DWC).

Here is what you'll need:
  • Accurate balance sheets for the past couple of years. These need to be prepared on an accrual basis.
  • Validated assumptions about how your growth or shrinkage impacts changes in all of your current assets and current liabilities. This includes accounts receivable, inventory, accounts payable, prepaid assets, short-term debt, deferred revenue, etc.
  • Validated assumptions on your revenue and profit/loss for the forecasted period.
  • Forecasted capital expenditures (CAPEX) and other investments for the period.
Now, let's jump into the seven steps to know how much working capital you need.

1. Calculate DWC historically.
The formula is actually quite simple. Multiply your working capital (from your balance sheet subtract your current liabilities from your current assets to find your working capital) by 365 days, then divide that total by your annual sales revenue.

Average Working Capital x 365
Annual Sales Revenue

Do this for the last 24 months, making sure to annualize sales revenue. The result is a decent historical range of your DWC. It might look something like this:



2. Benchmark your DWC to others in your industry.
Once you understand how your DWC has worked for the last two years, compare your findings with industry averages. DWC is not commonly published, so you'll likely need to apply the same formula to the financial information available for your industry and competitors.

3. Determine an acceptable range within which your DWC may fluctuate given your best and worst case scenario projections (OPTIONAL BUT RECOMMENDED).
To be done as accurately as possible, this next part requires the use of a financial model for your business, complete with full balance sheet modeling. If you do not have that, then you can merely estimate based on your industry averages and your own historical performance. Based on the chart above, your have experienced a 2-year low DWC of 36 and a 2-year high of 62.

If you do have a financial model, plug in your best and worst case scenarios in terms of growth, slower/quicker customer payments, and "sticky"/lean inventory. Then you can use the low and high scenarios from what you think will actually happen, whereas you will be handicapped by the assumption that nothing material in terms of your working capital cycle will change if you are only able to use historical information.

4. Subtract net CAPEX (add back any financing used for the CAPEX) and planned investments from today's working capital balance.
Next you need to analyze any future draws on working capital outside of your normal operations (for purposes of this post, I will assume our analysis will just comprise the next 12 months). This will include a subtraction of working capital funds used to fund CAPEX and other investments during the next 12 months. Your calculation should look something like this:

Working Capital Balance Today
     minus CAPEX not financed, or net CAPEX
     minus other investments
Working Capital available for next twelve months

5. Add anticipated profit margin or subtract anticipated losses during the period to your working capital balance today.
Whether or not your business is earning or losing money will have an impact on working capital as well. For the coming 12 months, either add your estimated profits or subtract your estimated losses to derive your estimated working capital available for the next 12 months. For this post, we will assume this equals $500,000.

6. Reverse the DWC formula to solve for working capital.
The next part is my favorite. By using a little algebra we reverse the forumla to solve for total working capital required, meaning the amount of working capital we think we might need during the next 12 months given our various scenarios. Here is what the formula looks like:

DWC x Annual Sales Revenue
365

For illustration purposes, let's suppose my annual sales revenue is projected to be $5,000,000. With a DWC as low as 36, my working capital required would only be about $493,000. If my DWC grew to 62, then I would need working capital of about $850,000.

7. Subtract your estimated working capital available the period from your various working capital required scenarios to determine your cash need or excess.
In the lowest working capital scenario, you would not need any additional cash during the next 12 months. ($493,000 - $500,000 = -$7,000). This seems to be cutting it pretty close. If your growth is concentrated in just a couple of months, you have some key customers take a little longer than usual to pay, or you have any other negative hits to your working capital, you likely will need more cash. In our highest required working capital scenario, we could need as much as $350,000 ($850,000 - $500,000 = $350,000). Since this analysis only looked at the high and low examples, it is very likely that the cash needs for your business during the next twelve months will fluctuate somewhere in-between.

Conclusion
Besides just using a single variable of DWC to run various scenarios, you may also want to run a few scenarios at different sales revenue levels and make appropriate adjustments to the rest of your assumptions as appropriate. Once you are done, you'll be able to clearly and confidently articulate exactly how much additional cash flow, if any, you need to keep your business properly capitalized.

Wednesday, August 8, 2012

2 Laws of Social Media

In preparation for a presentation I did yesterday about why and how people should use LinkedIn more, I thought about the governing laws that drive the why and how of my participation in social media. Here's what I came up with:

1. Social Media is just one medium to establish and build REAL relationships.
Many of the people to whom I am connected and with whom I communicate through social media are people I have met face-to-face. In many instances, they are people I associate with often in real life. The concept of buying followers that I don't even know feels uncomfortable, like paying people to be my friends. I would never do that. Everything I do on social media is to build relationships, mostly by trying to help and add value to those I'm connected to. After all, that's what friends and real business connections do, right?

2. You are the CEO of You, Inc.
I am surprised at how many people shy-away from having a an online presence. Some are humble, others afraid of the unknown. Whatever the reason, it does not discount this one point - you, and only you, are the most qualified expert on the subject of you. If you don't represent, then you're leaving a wide open space for others to do it for you. Or, even worse, little or no online presence could render you irrelevant altogether.

Every strategy or tactic as it relates to social media needs to adhere to these two rules. If they do, then you're on the right track!

Ken Kaufman

Monday, July 30, 2012

3 Must-Haves for NBA Coaches & Entrepreneurs

I listened to Jacque Vaughn, the new head coach of the Orlando Magic, talk about the three attitudes he needs each of his players to have. He's been handed an interesting group of players, and he made himself very clear about what it will take to succeed on his team. I think his list applies to entrepreneurs and CEOs of most companies I know.

1. Want to be there
This is more than showing up at work and putting in the bare minimum time and effort. Employees who want to be at work create a contagious positive inertia that rubs off on co-workers and customers.

2. Want to be coached
Sure, we all want to hire people who bring skills, education, and experience that make them effective. But learning the ropes of the new company, its' policies and culture, take time and regular feedback from leadership. 

3. Want to be great
This is my favorite of the three. Employees with personal motivation and drive to excel will always try to find ways to contribute and add value!

Thursday, July 5, 2012

Why the Recession is a Great Time to Start

It seems like a lot of what the US media has to say about the economic turmoil throughout Europe portrays the doom and gloom of several countries and an entire continent on the brink of total destruction. One result of this perception is that I've heard many entrepreneurs in the United States express fear and trepidation about expanding their businesses into Europe.

Regardless of everything we read, hear, and see, there are still hundreds of millions of people throughout the European region. They all have needs, and they are still consumers deciding where to spend their money. Some have less money than they did before, some have more, and some have about the same. They still need to eat, have access to shelter, get on the internet, purchase vehicles, and so much more. Many domestic and international businesses are still prospering there. 

If you have no sales in Europe right now, then all you need to do is get one customer and you will have grown your European business. If you add far more value than you charge for your goods or services, and if you have localized marketing and a sales/distribution channel that adds value to all parties, then it may be time to set your fear aside and realize Europe still represents a great opportunity to grow.

The big companies are spending a lot of time and resources on developing the emerging markets, where they claim all the potential growth will be. For them, this is accurate. They have penetrated as deeply as they can in Europe and other more developed nations, and they don't stand a chance to increase their market share as significantly as they can in markets that are in rapid expansion, like China. For a small business with little to speak of internationally, Europe still represents a strong market opportunity. Don't buy into the hype.

Monday, June 18, 2012

Why Accredited Investor Requirements Don't Measure Financial Sophistication

With all of the excitement about the JOBS Act and the legalization of selling equity in private companies to unaccredited investors, I have to ask the question: Does qualifying to be an accredited investor really qualify someone to make better investment decisions than someone that is not?

Here is the definition of an accredited investor: he/she makes more than $200,000 per year or has a net worth of more than $1 million, exclusing personal residence. I have met a lot of people that meet this requirement that have and continue to make horrible investment decisions. So why are income and net worth the only requirements? Probably because just about any other requirement would be too hard to measure.

The accredited investor requirements are exclusionary. Before the SEC Act of 1933, anyone could sell and buy stock in any company to anyone else. The income and net worth threshold set by the 1933 Act exclude some who are probably really smart, but the Act takes the position that it's better to exclude them and only allow those with money to lose to be accredited.

It's faulty logic, and it is at the core of the CrowdFunding movement. In January of 2013, when equity and debt-based CrowdFunding become legal, unaccredited investors will no longer be excluded from buying stock in privately-held companies that crowdfund. Unaccredited investors will have annual limits they can put into crowdfunded companies, but at least they can get into the game.

Friday, June 15, 2012

The Slingshot Business Strategy

At Yesterday's UVEF luncheon, Ryan Caldwell of MoneyDesktop shared an idea that was really powerful and relevant to everyone in the room. It's a business strategy, and the context and analogous manner in which he presented resonated with everyone in the room as one of the main take-aways.

When the space shuttle flies to the moon, it doesn't pick the straightest path to get there. It uses the earth, the largest point of leverage, or gravity, to slingshot itself to the moon more quickly and using less fuel. This means that the space shuttle doesn't actually head toward the moon when it launches. But when it slingshots around the earth, it is on a direct course.

This concept has so many business and personal applications, and it has been a big reason why MoneyDesktop has gotten traction. They started by beginning to approach some of the 14,000+ banks and credit unions in the U.S. But Ryan quickly realized that they are slow to make decisions, late to adopt new technology, and clueless when it comes to how software can make things better. His research found a much better point of leverage around which he could slingshot into all of the banks...through the software companies that build and run the online banking portals the banks use.

The main point of the slingshot strategy has a few elements to it. First, the best way to get to who you think your customers are is not always a straight line. Second, research the industry and all of the players to find your greatest points of leverage. Third, find the entrenched players, the massive parties that are too big and encumbered to change. Fourth, use those entrenched players, their mass, their inability to innovate, and their slow decision-making abilities, to slingshot yourself to your customers. Fifth, execute. It still takes a lot of work, and you need to continually pivot your trajectory, speed, and direction all along the way to make sure you hit your target!

Here are some of the tweets that tried to capture Ryan's comments:

@_KenKaufman: U may have to move a different direction first to get where u want to go #uvef #slingshotspaceshuttle

@izattapps: Leverage large entrenched players as partners. Key to capturing large user groups quickly. #uvef @RyanCaldwell

@_KenKaufman: Find a planet u can slingshot around...where can u get the most leverage, even If it's not the most logical first step #uvef #slingshot

@utahguy: Ryan Caldwell, @MoneyDesktop, use the gravity of entrenched players to achieve a slingshot affect. #uvef

@izattapps: Path to market depends largely on which players you align with and which ones you don't. #uvef

@izattapps: Not always the direct path is the best path. Long way around can leverage partners to get 10 times as much done with 1/10 the effort. #uvef

Wednesday, June 6, 2012

The Next $300 Billion Industry

Crowdfunding. Here's why:

In 2011, about 1.2 million projects were successfully funded through CrowdFunding platforms, totaling about $1.5 billion.

Projections for 2012 by industry experts reflect growth to $2.8 billion, and that's with many sitting on the sidelines, waiting for the SEC to codify the recently passed legislation that will open up the floodgates of equity-based CrowdFunding. As I write, entrepreneurs are pivoting to the most efficient business model (and they are years away from finding it) and business leaders are tackling the SEC Act of 1933 (more on that later).

So why does venture capitalist Fred Wilson predict CrowdFunding will grow to $300 billion? Among other reasons, advances in technology, social media infrastructure, and payment systems along with democratization of capital markets create a perfect storm for growth.

Technology. The ability for online platforms to create an efficient, low-cost mechanism to bring multiple small-dollar investors together did not exist very many years ago. The reality is that equity-based CrowdFunding, or the concept of raising money from people in your network, has been happening for years, but mostly without the benefits of technology and automation.

Social Media Infrastructure. People trust blogs more than brands and advertising. People poll their FaceBook friends to find a good mechanic. People have digitized their networks using social media infrastructure, meaning the crowd is already assembled and ready to "play." One interesting validation is this point: people are starting to pay more attention to and care more about their "social" credit than their financial credit.

Payment Systems. Innovations in payment systems now enable micro transactions, like $20, $5, and even $1, to be completed for a relatively low cost.

Democratization of Capital Markets. The JOBS Act, signed by President Obama in April 2012, represents the first significant innovation to a 79-year-old piece of legislation called the Securities Exchange Act of 1933. Yes, it came out shortly after the Great Depression when many individual investors had been duped into unscrupulous and fraudulent purchases of various securities. The purpose of the Act was to create the SEC, whose mission is to protect investors. The result of this is that if you make less than $200k per year and have a net worth of less than $1 million (excluding your home), you cannot invest in privately-held businesses. The JOBS Act, however, gives the power back to the people. CrowdFunding will empower anyone to allocate a portion of their investment portfolio to privately-held companies, from Startups to thriving businesses. And predictions are that the money will flow quickly and freely into these markets because entrepreneurs are starving for the capital and investors are looking for something more than the stock market returns and less than .5% interest from their savings.

Equity-based CrowdFunding is working well in the UK, Eurozone, and Australia so far, but all eyes are on the SEC to see what regulatory model they employ for this new type of security. The SEC has until Jan 1st, 2013 to issue their guidance. Then the real growth in CrowdFunding will happen.

In my opinion, CrowdFunding has an opportunity to be larger than $300 billion. Fred Wilson came up with his number based on a small percentage of just unaccredited investors's money. That's assuming accredited investors, angel groups, venture capitalists, private equity firms, insurance companies, and other institutional money managers won't put a single dollar into CrowdFunded companies and projects. I just don't think that will be the case. In fact, I could make a good case for CrowdFunding becoming a major source of deal flow for the accredited investment community, meaning the potential size of this industry could be much larger than predicted!

Monday, June 4, 2012

How CrowdFunding Became Legal in 460 Days

A 78+ year-old law needed change. Who better to take it on than 3 entrepreneurs with ZERO political experience!

After meeting Jason Best and hearing their experience, the story of equity-based CrowdFunding became even more compelling. Here is a video he and his counterparts put together to show how they made all of this happen for a lot less money, with a lot less political clout, and in a lot less time than anyone thought possible!


Friday, June 1, 2012

CrowdFunding: Breaking it Down

After attending the CrowdFunding Made Simple conference on May 31st and June 1st, I have gained a new knowledge and appreciation for what has been accomplished so far by the leaders in this industry. I am amazed at the potential growth projected for its future. But more on that in another post. As a point of basis and reference, we need to start with some of the basics.

According to Carl Esposti, the Founder of Crowdsourcing.org and a great guy, CrowdFunding needs to be understood in its four uniquely different categories.

1. Reward/Perk CrowdFunding: This is the most popular form of CrowdFunding today, and it is based on the concept that those giving funds to the project will receive something in return, usually a non-monetary perk or reward. It can range from a postcard signed by the fundraiser from some far-off country to a shipment of the product the fundraiser builds with the money received for the project. The CEO and COO of RocketHub.com participated in this conference (great guys!), and I'll be sharing a lot more detail on how this model works and how to make it successful. Other platforms of notoriety include Kickstarter.com and Indiegogo.com.

2. Donation CrowdFunding: There are many platforms that fall into this category as well, which returns nothing to the givers of funds except the emotional connection to a cause or program with which they have a strong connection. This category fits with philanthropic, charitable, and sponsorship activities and projects. 

3. Equity CrowdFunding: Startup and other companies sell some of their stock to regular folks like you and me, that's the idea behind this category. Givers receive stock and the prospect of financial return that might come with it. It's a revolutionary concept, and here's why. In the United States, it is not currently legal to sell securities in a privately-held business to what are referred to as unaccredited investors, meaning people who have made less than an average of $200k per year for the last three years or who have a net worth in excess of $1 million, excluding their personal residence. However, the JOBS Act, which President Obama signed into law in April 2012, is going to allow this to happen. There are still some things to be sorted out by the SEC and whoever they appoint as the regulatory body to oversee compliance, but that's supposed to be done by Jan 1st, 2013.

4. Debt CrowdFunding: Similar to equity CrowdFunding, this category provides the prospect of a financial return to the giver in the form of interest and principal payments. 

In addition to sharing more content I learned at the conference, I plan to write a lot more on this topic during the coming weeks and months as the industry grows and regulatory bodies attempt to catch up with the current legislation.

Monday, May 21, 2012

Review of The Lean Startup

While reading The Lean Startup by Eric Ries, I found I underlined many sentences and wrote many notes in the margins. Before I tell you the most valuable nuggets I learned, first let me give my review: it is an outstanding book! If you want to or already have started a business, you need to read it. If you agree that the definition of business model is the most scale-able and repeatable way to get customers to pay you for your product or service, then you'll want to read this book more than once.

Now, on to some of my key take-aways.

Entrepreneurship is a form of management, one that focuses on doing the boring stuff over and over again, following a system, or process, that follows the steps of building, measuring, learning, tweaking, and then repeating this process as quickly and diligently as possible.

The traditional balance sheet and profit and loss is almost useless in the startup phase. The balance sheet and its various ratios are meaningless, and the profit and loss (or really the loss statement since most startups lose money at first) reveals no new, timely information to the entrepreneur. Lean startups call for more frequent and timely numbers that measure progress in the context of experimentation, learning, and key drivers of success.

Evaluating what we learn from our experiments leads us to one of two conclusions: pivot or preserve. Either it didn't work and needs to be changed or it did work and we need to keep doing more of the same.

Running one test, or experiment, at a time is no longer acceptable. It breeds a culture of politicians and salespeople lobbying for the success or failure of the experiment. Running hundreds of tests at a time (how Ries describes Intuit) allows for everything to move at the speed of the experimentation system with "shift-on-the-fly" results.

The goal of every startup should be to test every one of the assumptions they have made as quickly possible.

The "go and see for yourself" principle challenges all entrepreneurs to get to know their customers intimately and understand the core reasons they want to buy.

A Minimum Viable Product (MVP) does not have to be a working prototype. It can be something as simple as a basic survey or landing page with basic information and calls to action. It might even be a video of the concept. The key is to experiment on and test your assumptions as quickly and inexpensively as possible.

I love the concept Ries calls "Wizard of Oz testing". Rather than build out a product that is perfectly automated at the beginning, you can make it appear that your website is automated but actually is being run by humans. This allows for quick and inexpensive experimentation to take place long before investing in something that you'll likely need to scrap later.

"New customers come from the actions of past customers."

Those are some of the more important points I learned or re-learned from Eric's book and perspective. The book is well worth the read, and every business that has any desire to innovate can add value to their innovation process by implementing The Lean Startup principles.

Wednesday, May 16, 2012

To MBA or Not

Introduction
Based on some recent chatter on the subject, I am going to chime in on why pursuing and earning an MBA degree was one of the best decisions I ever made for my career. I realize there are lots of opinions, theories, and even some studies on this subject, and its clear that an MBA is not for everyone. One of my favorite articles about this topic, along with the debate of pursuing college education vs. entrepreneurial opportunities, was written by @_AlexLawrence and it is worth your consideration: Should I stay or should I go.

I will write this post similarly slanted toward entrepreneurial career paths. I do not intend this post to be any more than my anecdotal experience and opinion. The MBA degree was right for me, and here's why.

You Get What You Put in
The amount of value extracted from the MBA education is directly proportional to how much each individual student puts into it. The best part of my education was when I allowed it to push me the furthest from my comfort zone and inspire me to change and grow.

I attended the University of Georgia, well-known for its entrepreneurship program. I signed up for as many entrepreneurship classes as possible, and I was not disappointed. Within the first three weeks we had to form into teams and come up with a business idea to pitch to real-world investors and entrepreneurs. Every three weeks thereafter, on a Friday, we had to pitch to a new set of investors and entrepreneurs, and our professor expected significant improvement between each 3-week period.

After the second of these presentations, I was feeling pretty good about my team, our business idea, and the plan we were building...until I returned to school the following Monday morning. In my student box was our draft of a business plan with notes covering the margins and every available white space on each page. These notes were not pointing out our amazing skill and insight...rather they constructively ripped our plan and model apart. On top of the plan was an audio cassette tape sporting our team name. When the tape ended 45-minutes after I started listening to it, I felt as if I had been cut to the very core. Our professor pointed out every major and minor flaw and problem with our plan and presentation, and most of it was directed at me. But I only had time to mope for a few moments until the other side of the audio cassette began to play!

I had two choices. I could be angry and coast through the rest of the class, or I could take every piece of constructive criticism, analyze it, and figure out how to make myself, our presentation, and our plan better. Those who know me can likely guess which option I took, which was the latter. I went to work and felt like we made significant progress when we went in front of the next group of "judges" just three weeks later. But the following Monday morning I found a similarly marked plan and audio cassette tape in my box. But this time our professor's voice only filled the tape halfway through the second side. Now that's progress!

After an entire semester of this rigorous improvement process, I was a changed person. But it was only because I made the choice to fully engage. What I got from this class and the rest of my MBA experience was directly proportional to what I put into it. We went on to win several business plan competitions and a slot in the grand-daddy of them all, Moot Corp. My attitude toward my MBA education probably had something to do with why I was voted by my fellow classmates as student of the year. The speech I gave at graduation teaches some of these principles...feel free to read it here: Ken Kaufman Speech at MBA Graduation - Servant Leadership.

MBA Education Without the Degree
I am convinced that you can learn most of the MBA curriculum from books and other programs that boast the ability to teach the MBA material in 90 days, a month, or I think one of them even promises the timeline of 5 days. There are plenty of executive series and lectures that can fill the need to learn. Not to mention that the school of hard knocks has taught a lot of first and second-time entrepreneurs more than most newly minted MBAs can hope to learn from their entire corporate or consulting careers.

MBA Degree is About Opportunity
You see, in my opinion, an advanced degree's greatest value is in the opportunities it creates (notice I said degree and not education). I felt that the MBA degree would open up more opportunities to do the things I wanted to do with my career than if I didn't have one. Anyone considering an MBA needs to weigh that question in their minds, and realize that an MBA from some schools does not create as many opportunities as an MBA from other schools.

If you always plan to own your own business and your customers don't care if you have an advanced education, then the MBA degree itself will likely not add much value to you. But if you invest yourself into the education, I have no doubt you'll gain great value. And that's the key...the education can be gained from many different venues, but the degree cannot.

MBA Degree and Education are Meaningless Unless You Can Perform
Early in my career I was hired by an entrepreneur who started his company twenty years earlier after dropping out of high school. His company had grown to over 500 employees, an amazing success story. On my first day he asked me: "So what do you think you and your advanced education can teach a high-school dropout about running a business?"

That was the moment my MBA education and degree came full circle. I realized right then and there that everything I learned and the fancy degree on the wall helped me get the job but would be worthless if I didn't help this company grow and improve. My reply was simple: "Well, it seems like I have a lot to learn from you and your success." And I did.

Conclusion - Investment in Yourself
Early in my studies and career in finance I heard many people talk about the greatest investment most people make is in their home. I could not disagree more. The greatest investment people can make is into themselves...their education, experience, etc. And I'm not talking about the fancy ROI calculation where you figure out how much more money you can make a year because you earned an MBA. I'm talking about the person the MBA experience helps influence you to become. Is your perspective broader? Are you more able to make a positive difference in your relationships? Are you more empowered to add value wherever you decide to commit your professional time?

That's the real "ROI" of the MBA.

Monday, May 14, 2012

Lessons Learned from 3 Successful Entrepreneurs

I was part of a great event last week that featured 3 entrepreneurs (here's a picture of me hosting the event). Each shared three of their top lessons learned during the process of starting, developing, and growing their enterprises.

Thanks BizVision's Shawn Jones, Rimports' Jeff Palmer, and OrangeSoda's Jay Bean, the content was top notch. Here are some of the highlights from the Twitter feed for the event...all found under the hashtag #uvef.

Tweeted by @BNMadsen
  • Bizvision gets repeat & referral biz from customers; very little other marketing.
  • Bizvision advantages: low price, lean & flexible, low risk upfront.
  • Bizvision lesson learned: #1 = partner model (drive development), experts in their verticals, best "salespeople".
  • Bizvision lesson learned: #2 = customize/scale (started by building a platform not a site), build w/future in mind.
  • Bizvision lesson learned: #3 = stay lean: keep expenses down, outsource before hiring/buying equipment, focus on actions/plans.
  • Rimports financing through Zion's First Natl Bank - great partner.
  • Moms are best customers and marketers for Rimports.
  • Scentsy is biggest Rimports' competitor and biggest evangelist for product at MLM, Rimports sells for less at retail.
  • People are our most important resource; invested from the core - Rimports.
  • Honesty & integrity are core values - vol dealt w/82 out of 155,000 units - cost $1/4M - cemented partnership with Walmart.
  • Rimports mantra: there is a way.
  • Rimports - keep offerings fresh each quarter.
Tweeted by @Kisstixx
  • Honesty and integrity in business will take you far never compromise that.
  • There are no barriers just challenging opportunities! 
  • Choose a strategic investor that has your same vision, passion, and drive @mcuban
Tweeted by @aboytodd:
  • Lesson #3 at #bizvision "stay lean"
  • Shining referral for Zion's bank from rimport's Jeff Palmer.
  • People are best investment. Lesson learned at rimports.
  • Partnerships and alliances are the greatest asset for growth at rimports.
  • "There's always a way." the maxim of Jeff Palmer at rimports.
  • Rimports awarded product of the year by Walmart in 2011
Tweeted by @jpilmer:
  • PRICE is easy to copy. Low risk and flexible are not and better differential advantage.
  • Bizvision says stay lean
  • #Rimports on deck w $120M revenue at #UVEF. They love #ZionsBank as parter. 18-65 year old women target. They know the customer.
  • People are our best investment at Rimports. Give people autonomy. Key motivator.
  • #OrangeSoda on deck at #UVEF. Avg customer only $500. The key seems to be the niche focus and knowing the market.
  • Mobile Search is key to SEO of future per #OrangeSoda at #UVEF . Heads up #entrepreneur.
Tweeted by @thisiscoalition:
  • Innovation is driven by pushing the envelope.
  • Love the recognition that partners drive the business of BizVision.
Tweeted by @BCookson
  • Build platform rather than just site.
Tweeted by @LynnDavid007:
  • Business financial management is a lot like personal money management. Stay Lean--don't spend unnecessary money.
  • "I have two words for funding: Zion's Bank." --Jeff Palmer. A simple statement, but can be crucial advice for a new entrepreneur.
  • Some strategic investors will not have the same vision, passion, or objectives as you.
  • Social networking is going mobile dramatically.
Tweeted by @dagrani
  • Yay for rimports to listen to women to drive sales. Women are responsible for majority of sales.
  • Rimports manages growth through hiring great people. Gives them a task and then walks away. Trust is key.
Tweeted by @kindallpalmer:
  • There are no barriers, only challenging opportunity.
  • Be innovative. Build what you need instead of buying to stay on top.
Tweeted by @bryanbostrom:
  • BizVision does not have clients or customers, but Partners.
  • People are your best investment. -Jeff Palmer, Rimports USA
  • When adversity surfaces, think, "There is always a way."
  • Only spend your time and resources building a product that will make you the best in the biz in your space. Outsource the rest & save.
Tweeted by me...@_KenKaufman:
  • Focus on calling those who pay you partners, not customers or clients.
  • Customer service can always be a point of differentiation.
  • Customize and scale...build the platform, not just a website. Build with the future in mind. 
  • Stay Lean. Cyclical business allows them to shift on the fly.
  • Rimports likes having MLM competitors because they evangelize the concept at almost twice the cost.
  • Invest in People.
  • Honesty is integrity.
  • There is always a way. It's up to you to find it and then make it happen.
  • Some strategic investors will not have the same vision, passion, or objectives.
  • Decide what technology to buy vs. build. Stick to your core business.
  • Know your customer and how u can best solve their pain points.
  • Focus all product development efforts on how u can best serve your customers.

Thursday, May 10, 2012

It's Less About Software and More About Using it Correctly

About a month ago a business owner asked me this question: "Is QuickBooks the best for me?"

After asking a few questions, I realized he wanted some reassurance that he wasn't missing anything about his business and how he could improve it. His business is doing less than $500,000/year and QuickBooks is certainly an adequate accounting program for that size of business, but what stuck out to me is that he was asking the wrong question.

Rather than trying to determine if he had the right software, he should have been more concerned about if he was using it adequately. If you drive a manual transmission 5-speed car but you never shift higher than second gear, you're not getting the best performance and results from your vehicle. It's the same with accounting software, or any other software for that matter.

Software does not run itself. The people who interface with the software, who input information and export information and reports, they are the ones who run the software and determine how effective it is for the business. Having appropriate software is certainly required for success, but far more businesses fail to use the software they have correctly, maximizing its ability to help the business be successful!

Monday, April 16, 2012

Professional Brawn, and Why You Need Some

In a recent interview, I was struggling to find a term to describe someone who had worked their entire career on building up a strong foundation of knowledge, contacts, successes, and failures; someone who had learned a bunch about being successful in business the right way, who knew how to build and foster mutually beneficial relationships, and who was humble enough to still hunger to learn, change, adapt, and evolve. And, someone who was anxious to bring others with them on their journey, to teach them, train them, mentor them, and ultimately be replaced by them.

How do I sum all of that up into one term? And out of my mouth came brawn. But that sounded like only brute force, the roll-up-your-shirt-sleeves and get the work done element that would result in physical brawn, and neglected giving credit to all of the intellectual and emotional prowess required for everything mentioned above. So I put the word professional in front of brawn and thought I might be onto something.

Whatever you call it, we all need it, and we all hope everyone we hire has at least some of it.

Tuesday, April 10, 2012

Fixed Cost Coverage Ratio


It’s been a long day with lots of customers interacting with your team and buying many of your products and services. Your staff seemed busy and you felt productive. But did your business actually move forward or backward? Did you win or lose today? Here is the main number you should track every day in your business to answer these important questions.

THE FIXED COST COVERAGE RATIO
The number of times your business covers its fixed costs each day is the how you determine if you win or lose, and that is called the Fixed Cost Coverage Ratio. In order to derive this critical number, you need to calculate your daily sales volume and divide it by your break-even volume. I will explain how to figure this out for your company.

Variable Costs
You need to start by determining your variable costs. Variable costs change based on your daily sales, and they are expressed as a percentage. This usually includes materials, direct labor, and staff wages that are paid based on production. On average, let’s assume this number is 30% for your business. This means that for every $1 in collect-able sales you produce, you pay $0.30 to the variable parts of your business.

Contribution Margin
For the sake of this article and the example below, I will assume that the variable cost percentage subtracted from 100% equals the contribution margin, or the percentage of every dollar of collections that is left after paying the variable costs to cover the fixed costs. In this example the contribution margin is, therefore, 70%.

Fixed Costs
Now we need to discuss fixed costs. Fixed costs do not change, regardless of your daily sales volume, and they are expressed as a flat dollar amount. This usually includes your rent, insurance, salaries and wages not tied to production, utilities, marketing, etc. I suggest business owners include all of their compensation in this number, regardless of what the compensation might be called (i.e. salary, dividends, guaranteed payment, interest, etc). Let’s assume your fixed costs are $50,000 per month.

Break-Even Calculation
To determine break-even, we need to divide the fixed costs by the contribution margin ($50,000 divided by 70%), which equals about $71,500 of monthly production required to pay your variable costs and barely have enough left to cover your fixed costs. This means you did not make any profit during the month.

To be more specific, if your business is open 20 days per month, you need to produce $3,575 per day to break-even. But hopefully you didn’t decide to own your business just so you could break even. The goal is produce as much more than $3,575 per day as is possible.

The Ratio
The concept of the fixed cost coverage ratio is to determine how many times your production each day can cover your fixed costs. By dividing your daily production by the break-even, you will know your ratio. If the ratio is one, then the business is being run at break-even. If the ratio is above one, then you are profitable. If you drop below one, then you lost money that day.

For example, if you sell $5,363 in a day, your break-even coverage ratio is 1.5 ($5,363 divided by $3,575). This is a good, profitable day. If the next day you only sell $3,225, then your break-even coverage ratio is 0.90, meaning you lost money that day.

Conclusion
Empowered with this daily metric, you no longer need to wonder how you did each day. I recommend you revisit your variable and fixed costs quarterly to make any appropriate adjustments to your calculation. As you improve this ratio, you’ll find your cash flow and profitability increase significantly.

Tuesday, April 3, 2012

Get Out From Behind The Desk

While waiting for a plane in Frankfurt, Germany last week, I noticed the following advertisement. With my copy of Eric Ries' book The Lean Startup in one hand, I snapped this photo with the other:
This insurance company pulls a line almost directly from Eric's book, with an insurance and risk management spin on it: "If you want to understand risk, you need to get our from behind your desk." This ad wants to appeal to their customers, trying to change the mindset that insurance companies aren't just buildings full of stiff employees who don't understand how the real world works.

In his book, Eric spends a lot of time trying to convince entrepreneurs and founders of startups to get out of the office and get real feedback about what needs your customers have and what they would be willing to pay to solve them. But this is where many fail to really understand the message.

You see, most interpret this concept of "talk to customers" as a dialogue wherein the customer is asked what they need and what they like. But this causes a huge problem, primarily because the customer is not an expert in the area where they have pain and they are far from qualified to address exactly what they need.

So, this concept of getting out of the office is more about understanding customers, hearing what their challenges are, and deciphering what the root causes of those challenges are. As noted in the picture above, you want your customers to have a sense that you 'get' their problems and that you know how to help them. The way to achieve that is full of skillful question-asking and careful, attentive listening.


Monday, March 26, 2012

The Downfall of Less Difficult, Less Expensive, and Less Risky

I just finished reading Norm Brodsky's article from the March 2012 issue of INC. He directly addresses a growing concern among 9 out of every 10 entrepreneurs he meets. They're starting web-based and SaaS businesses while they maintain their full-time employment and steady incomes. They invest a little into development, but never enough for them to feel like everything is on the line.

The downside of this scenario, according to Norm, is that these entrepreneurs lack the sense of urgency associated with "...scrounging up every last cent" to risk it all, a do-or-die environment wherein "...success or failure becomes a matter of survival". Norm thinks this is good because:
"Your instincts are sharper. You approach problems with a totally different mindset. In a business you depend on for your livelihood, you have to come up with a solution immediately."
I see the same trend, and it leads to a couple of other interesting conclusions. First, even the small percentage of these businesses that do generate some paying customers generally stall in their development and fall far short of their potential. Why? Because the entrepreneur is waiting for it to replace his/her income and almost always ends up too fearful to risk everything, commit 100%, and really going for it.

Second, in the last five years we have seen a proliferation of web development companies and online search (both organic and paid) marketing consultants and agencies. These companies are probably the biggest winners of this trend toward part-time, web-based start-ups, primarily because these part-time entrepreneurs are buying some level of services with savings, retirement funds, or money borrowed from an un-savvy friend or relative that will likely never be repaid by the website itself.

So, if you fit the description of this growing trend of entrepreneurs, make sure you give your venture the intensity, attention, and commitment it deserves!

You can read Norm's article here: The New Breed of Entrepreneur

Thursday, March 15, 2012

1 Forgotten Characteristic of Entrepreneurs

In a recent speech at UVEF, Tony Zito of mediaFORGE identified three commonly recited characteristics of successful entrepreneurs: skill, timing, and luck. But he spent no more time on any of those. Besides discussing the concept that Whatever You're Thinking, It's Probably Wrong, he chose to focus on something that is often overlooked on the path to entrepreneurial success: failure.

He then went on to share some of his failures and how they ultimately led him to success. Here are some of his quotes on the subject:
"Failure is a by-product of pushing the envelope."
"You have to expect you're going to have failures as an entrepreneur."
"Failure is the secret to success."
"Failure increases the chances of entrepreneurial success."
"Entrepreneurs who have failed before are more likely to succeed." 
"You should want to fail, and want to fail fast." 
You can read the entire Twitter stream created by the attendees of the event here: Tony Zito of mediaForge was Excellent.

Monday, March 12, 2012

Whatever You're Thinking, It's Probably Wrong

The entire audience was silently engaged, on the edge of their seats, as Tony Zito of mediaFORGE was as open, honest, and transparent as I've ever heard an entrepreneur be when explaining the dark days of being ready to give up on a start-up. You can read some of the great Twitter stream from the event here: Tony Zito of mediaFORGE was Excellent.

As they pivoted from business model to business model, Tony realized that he could not come up with his best ideas in a vacuum. He learned this principle: no matter what he was thinking was best, he was almost always partially wrong, and sometimes completely wrong. His proof: he cited a study that found that 60% of companies are now doing something completely different than when they started.

It takes a level of humility, self-awareness, and honest/realistic perspective to accept that conclusion. Tony was making plans to close down his company. He had expressed this to his investors and, in one last effort to salvage something from his multi-year effort, flew to San Francisco, hoping to "fire-sale" his entrepreneurial baby, lick his wounds, and then figure out what was next.

As the meeting came to a close with no acquisition interest from the other party, Tony openly shared that he would return to Utah and close the company. The party suggested a business model that Tony and his partners had contemplated many times but was not economically feasible given the investment capital through which he had already burned. The party offered to give the required inventory for free, and before long the company had paying customers, had completely reversed its course, and was on a growth pace of more than 50% per quarter...which has continued for the last three years.

Pretty impressive, and a great example of: whatever you're thinking, it's probably wrong.

Friday, March 9, 2012

Don't Fight Change - Embrace It!

Technology seems to be changing every day. What was the norm yesterday quickly disappears into the past as the old, archaic way of doing things. Yet I hear so many people who fight against and resist these changes. The only one that loses is them, and those who, for example, wish they would break down and buy a cell phone or check their email more often than monthly so they can communicate more often.

Technology is only one example. As long as its for the better, change can only improve your life. Why fight change? Why not embrace it for all that it is and represents? We know its coming--change is inevitable, and, as I've heard many quote, the only constant. Embrace it or the world and many of your hard-earned relationships may leave you behind!

Thursday, February 23, 2012

Where Innovation Happens


Innovation seems to happen more frequently and meaningfully in small businesses. Why?

Larger companies have a proven business model, and those companies typically hire employees to execute those business models, not discover new ones. This tends to foster innovative thinking to make the business model more effective and efficient, with lots of corporate resistance and barriers to considering new, better ways that veer too far from the norm.

Smaller companies are searching for the way to become big and are often much more open to innovative ideas, business models, and perspectives. These companies are also able to adopt and absorb changes much more quickly, whereas the inertia of larger businesses can be hard to redirect, especially if it requires getting onto a completely new set of tracks.

There is certainly value that comes from each scenario I described above, but this is part of why it is so hard to grow into a big company and still stay competitive. This is also why so many people write about innovation, because large companies are trying a lot of different tactics to be innovative.

I think the real lesson is this: innovation needs to be fostered and empowered as far away from the proven, successful business models as possible. If you run a large company, get R&D away from the rest of the business. Start completely new businesses away from the parent organization and allow as little contact as possible between the two. The employees of the parent company will try and figure out how to fit new ideas into the existing successful business model, and nothing will stifle innovation faster!

Tuesday, February 21, 2012

Centralize or Decentralize

As businesses grow their operations to new states, countries, and continents, they have to grapple with the question of running their business as a centralized operation or as decentralized business units. Centralized businesses grow large, but their hierarchy grows too, usually into a complex web of political, silo-ed, unproductive bureaucracy. Yet the benefit of being able to control decision-making from the top can justify any other collateral damage.

On the other hand, decentralized companies push decision-making to the lowest levels possible, trying to create 'entrepreneurial' thinking in geographic regions or along other segmentation boundaries. Maintaining corporate culture and relinquishing too much control can be some of the challenges of this model.

As a business decides which philosophy to follow, one of the biggest issues I've seen is when centralized companies try to hire employees that only thrive in decentralized environments, and vice-versa. So, regardless of which model you employ, the key is to hiring employees that have thrived in similar systems and will fit into your business structure. Hiring an entrepreneurial individual into a centralized business will usually end poorly, just like bringing a corporate man, who is used to lots of infrastructure and thick-layered processes, into a small, humble business unit will go sideways almost as quickly.

Saturday, February 18, 2012

Impact Your Business Winner in 2012 Small Business Book Awards


FOR IMMEDIATE RELEASE

Cleveland, OH, February 17, 2012 - "Impact Your Business" has been voted a Winner for a 2012 Small Business Book Award, in the category of Management.

The Small Business Book Awards recognize business books that were published in 2011. Small business owners often seek advice and information through books. While there are many thousands of books published each year, it's those of interest to small businesses and entrepreneurs that the Small Business Book Awards seek to honor.

"With so many books being published each year, we wanted to recognize those that made a difference to small business owners and managers and startup entrepreneurs," said Ivana Taylor, Book Editor at Small Business Trends, which produces the Awards. "Our annual Small Business Book Awards are a way to highlight the books that entrepreneurs are reading and learning from."

The Awards are an honor to the authors who write books for the small business and entrepreneurial community. Says Anita Campbell, CEO of Small Business Trends, "For many of the authors, writing a book is a labor of love. Often they get up early in the morning before the rest of the family awakes, and they devote their evenings, weekends, holidays and vacations to writing. They deserve recognition."

About the Small Business Book Awards
The Small Business Book Awards, now in its fourth year, enable the small business community to nominate, show their support for, and vote on their favorite business books. The top 10 winners will be selected by readers based on number of votes as the Best Small Business Books of 2012, while the top five vote-getters in each category become Category Winners. Voting commences February 1, 2012. In last year's Awards, over 41,000 votes were cast by the community.

The Small Business Book Awards initiative is produced by Small Business Trends, an award-winning online publication, which along with its sister sites, serves over 4,000,000 small business owners, stakeholders and entrepreneurs annually.

CONTACT:

Small Business Trends
admin@smallbiztrends.com
Twitter hashtag: #BizBookAwards

###

Friday, February 17, 2012

Passion or Passive - Which do You Hire?

Do you hire people that are passionate about your company, what it does, and how they can help and add value to it? Or do you hire people that are just looking for a job?

In his book EntreLeadership, Dave Ramsey makes an excellent point when he writes (from page 21):
Passion is so key in leading and creating excellence that I will hire passion over education or talent every time. I prefer to have both, but given a choice I will take passion. La Rouchefoucauld once said, 'The most untutored person with passion is more persuasive than the most eloquent without.'
Passion instills productive activity. A lack of passion results in passive, how-quick-can-this-day-be-over thinking. Given a choice between the two, I know which scenario I'd rather have in my company. 

The take-away from this is two-fold. First, evaluate how deeply you care about your company and what you are doing. Make sure you have a deep care, and your passion will naturally and infectiously spread. Second, hire people who either already have that passion or who, once they learn more about your company, will get it.

Wednesday, February 15, 2012

Nothing is Below You

I used to work for an organization with tens of thousands of employees, and one day per year the highest paid executives would work alongside the lowest paid employees. It was a way for the leaders to stay in touch with what happens every day.

Yet there was another tangible benefit that came from this exercise. It fostered respect in all of the 'rank-and-file' employees for the leaders of the company. These leaders were willing to sweep floors, pick up dirty laundry, and engage in meaningful conversations with even some of the company's smallest customers.

Entrepreneurs and business leaders need to steer clear of any attitude or ego that keeps them from performing any task in their business. When your company moves facilities, show up and help move some boxes. Every once in a while take a call from an angry customer. Leadership is not about being above certain tasks and duties, but earning the respect and trust of those you hire to perform them. 

Monday, February 13, 2012

The Value of a Customer

Customers are the core component of any sustainable enterprise. The science of attracting and keeping customers is, therefore, of critical concern to entrepreneurs and business leaders. So, what are your customers worth? The secret to assessing this value lies in the key marketing and sales metrics of your business.

Marketing is about generating leads. You need to measure each lead generation activity separately, including the total number of leads procured and the fallout percentage as you qualify and prepare the leads for the sales cycle. Many lead generation activities have costs and, when applied correctly, you will determine exactly how much each qualified lead costs.

Sales is about converting those qualified leads into paying customers, yet there are usually several stages in this process. Some never make it into the sales pipeline, and others exit throughout the process. Ultimately, each sales cycle activity, like an introductory phone call, face-to-face meeting, or proposal presentation, filters into a conversion rate that will help you calculate the cost per customer acquisition.

Now that you know how much it costs to acquire a new customer, you need to assess the overall value that customer will bring to your business. If customer acquisition costs exceed the lifetime value of the customer, then your business will eventually fail. The goal should be to have the lifetime value of your customers far exceed the costs to acquire that customer by as many multiples as possible. Measuring, tracking, tweaking, scrapping, and pivoting are all things business leaders should do regularly with their marketing and sales efforts with an eye toward augmenting the value of the customers or decreasing the costs to acquire them.

Technology can either help or hinder those improvement efforts. For many businesses, several different software applications are often used in the marketing and sales processes of a company, including email software, task lists, opportunity pipelines, contact information, and more. Since these programs typically don't communicate well with each other and the other software used to run the business, many leads and prospects are lost before they can become a customer. In addition, once you gain a customer critical information is often lost and eventually those customers leave.

The idea for writing this post came from a recent conversation I had with some of the team at Fishbowl Inventory, a company based here in Utah. They have a powerful inventory and asset tracking program that integrates with Quickbooks as well as a more powerful stand-alone product that acts as an ERP (Enterprise Resource Planning). However, their customers were having this problem of tying all of their critical marketing and sales prospects and contacts into the one central location where they process orders and keep track of the rest of their business.

Their customers understood this lack of connection was causing them to miss lead generation opportunities, have a higher fallout rate from their sales pipeline, and lose new customers because critical information was lost from the marketing and sales activities related to each customer. In response, Fishbowl just launched a CRM (Customer Relationship Management) program that connects all of the marketing and sales activities together with their Fishbowl Inventory and ERP system. It's called Pipeline Contact Manager (an appropriate name). The point is this: running your CRM in isolation from the rest of your business software will likely cost you time and money and ultimately decrease the value you can earn from each customer.

Key Take-Aways:
  • Know your marketing metrics
  • Know the conversion rates of each step in your sales cycle
  • As you consider using technology to help you track your sales and marketing metrics, make sure it integrates with the main system you use to run the rest of your business.

Tuesday, January 31, 2012

Change is Good, Even for Me

I have some news to share. To some it may be old news, while to others it will bring you up-to-speed with the last few months of my professional life. In September of 2011 I accepted a full-time position with an exciting, fast-growing, innovative company in the dental and medical device space. This changes a few things for me, and I'd like to take a minute and explain what it all means.

Why Aribex®?
In the beginning of 2009 I met Dr. Clark Turner, then the President and CEO of Aribex. The company was feeling some of the stress of the economy as well as the some cash flow constraints as it launched its second medical device into the market. We agreed for me to help the company as a part-time, or outsourced, CFO. For almost the past three years, my relationship with the entire team at Aribex as well as the board of directors fostered and grew into deep professional respect and trust. While I worked hard to establish similar relationships with the other companies I helped in my outsourced CFO role (about ten companies total), there are two things about Aribex that make it special.

First, the disruptively innovative nature of its technologies and products is a very compelling story. When a dentist of more than thirty years says the Aribex NOMAD is one of the five most influential products he's ever seen in the dental industry, it should catch anyone's attention. When another dentist claims the NOMAD is one of the five things he loves in his life, well, that may be a bit extreme. But I think you get the point.

Second, the company was founded from a desire to help dentists on humanitarian missions to better diagnose and treat patients in remote areas of the world who desperately need care. Those initial desires are woven into every element and business practice within the company. For example, no one would expect a company that had not yet reached profitability to allocate some of its resources to charitable and humanitarian causes. Yet Aribex has done so since the very beginning, in the best and worst of times.

I officially joined Aribex full-time in September 2011. Here's the press release about it: Aribex Announces Leadership Reorganization. I thoroughly enjoy being a full-time part of the team, and I'm optimistic about the future. Here is some information just released about how we're doing: Aribex Continues Double-Digit Growth, Becomes Debt-Free in 2011.

What about CFOwise®?
So, what does this mean to the more than five years I've poured into starting, growing, and building a CFO Services firm? Well, all of that work was hopefully to build it into something that would last. Last summer we created several executive positions that were filled by existing partners. They have stepped into their roles very well and are hopeful to take CFOwise to even greater heights. I still have an equity stake in the business and participate in executive committee and board-level activities.

What about my book and regular blogs and articles?
My book, Impact Your Business, is and will still be available for sale on Amazon and other places. In fact, it was nominated for the 2012 Small Business Book Awards. I plan to continue blogging regularly and writing for American Express OPEN Forum and other online and print publications as time permits.

Any other changes?
I have created this new blog, KenKaufman.net, where I will publish all of my blog posts and keep the rest of my information and content current. Feel free to visit and subscribe if you are interested to stay in touch that way. In addition, I switched my Twitter account from the CFOwise handle to @_KenKaufman. I can be reached via email at ken.angela625 at gmail dot com or at Aribex, kkaufman at aribex dot com. Toward the top left-hand corner of this page you will find buttons to connect with me on LinkedIn, Facebook, Google+, and more. I will also be sending out a simple email newsletter once every two months with a fresh look at the recent content I've authored. Feel free to sign up for it in the Bi-Monthly Newsletter Sign-Up box on the left.

Change is Good
While change can be uncomfortable and even at times painful, it is often for our good. I continue to move forward with the same energy and passion for which you all know me, and I'm looking forward to the challenges and opportunities ahead. I hope this brief explanation has been helpful, and I look forward to staying in touch. If I can help you in any way, please do not hesitate to let me know.

Thursday, January 26, 2012

Fifty 2nd Graders, 10 Pies, and a Rock Star

To help more than 50 second graders learn basic economic and business principles, my daughter's elementary school held a bazaar where each student sells goods and services to their classmates. They have $10 to spend on what they sell, and they exchange points earned from good behavior in class for fake money to shop in all of the second grade classrooms.

I saw an opportunity to teach my daughter, and the rest of the family for that matter, some lessons about how to start and build a business. Here's how it played out...

What Does Your Target Market Get Excited About?
The first thing I did is ask what kids her age like. Her older brothers, both of whom have been through the same experience, explained what they saw work the best--candy bars and soda pop. But with only $10 to spend on items for resale, those students capped their earning ability. Then my daughter started talking about the carnival from the fall and how all of the kids stood in a very long line to throw pies in the face of the principal. With some whipped cream and throw-away pie tins, we determined we might have some real potential. The picture below is the "store" she set up in her classroom:


Find the Optimum Business Model
Since we knew the kids liked smashing pies in other people's faces, we began to talk about the best way to monetize, or commercialize, her idea. This is often also referred to as building a revenue model. She decided she could afford to make 10 pies, and wanted to sell raffle tickets with ten lucky winners getting to "pie" someone in the face. She also guessed that some of the crazy boys in her class might be interested in paying for the privilege of getting a pie smashed in their face. We had no idea this "guess" would be our best money-maker, hands-down. Lesson Learned: If you work on it hard enough, you can likely find a way to monetize things for which people carry great excitement and passion.

Get Others to do the Selling for You
Once the event started, she sold a few raffle tickets for a dollar each and no one wanted to pay to get a pie in the face. I had been selected as the default facial pie catcher, so 10 minutes into the activity we had our first pie-throwing event. I found myself in front a very nice, cute young girl. I had no idea she could hurl that pie with such velocity! A small group of kids had huddled around to watch this happen, and they each burst into laughter at what they saw. And that's all it took. Word spread like wildfire, and everyone was talking about the 'pie' store. Lesson Learned: Some of the most significant influencers never spent any money at her store, but they sure brought in a lot of business!

Give the People what the People Want
Before she knew it more kids were interested in raffle tickets and one kid paid $10 for the privilege of taking a pie in the 'mug'. He loved it so much he paid $15 dollars to do it again, and he rounded up all of his friends to buy raffle tickets to try and win a chance to seek revenge, justice, or whatever motivated all those boys to buy tickets. Nothing like a satisfied customer. Raffle ticket sales were okay, but she was raking in more money selling the right to take one of ten pies in the face. I especially appreciated this, because that meant I only received two instead of ten whipped-cream facials. Lesson Learned: Listen to your customers and don't be upset when they use your product or service in a way you didn't initially intend.

Give the People what the People Want - Part 2
My daughter considered trying to get the principal to agree to be a pie victim, but she couldn't bring herself to ask him. She instead decided to target one the most popular teachers in the school, who is a real rock star. His band plays at school events and all the kids think he's great. He agreed to be the grand-prize pie receptacle, and the kids went crazy for it. Lesson Learned: Don't be afraid to ask for help, especially from people you think are too important to be interested in what you are trying to accomplish.

Give the People what the People Want - Part 3
While the raffle tickets were a good idea, she soon had groups of two coming up requesting for one to throw the pie and the other to be on the receiving end. They were offering her $20 each for this opportunity, or $40 per throw. All this while some of the kids were selling candy bars for $0.75. Lesson Learned: Reselling normal products has an earning potential cap, while selling products and services that generate buzz and emotion in customers and influencers carries a higher earning potential.

Pivot When it makes Sense
One thing we noticed after the third pie-ing is that most of the whipped cream stayed in the pie tin after being carefully, but forcefully introduced to someone's face. So, my daughter started to recycle the pies and was able to do far more than ten throws, increasing the opportunity for revenue and 'buzz' about the store. Lesson Learned: Keep your eyes open and you'll likely find easy ways to grow revenue, cut costs, and be more friendly to the environment.

Conclusion
This was a lot of fun, and all the kids came up with great products and services to sell. I'm sure many more lessons were learned than I mentioned, but my hope is a few entrepreneurial fires were lit. Here's a picture after the event when I had cleaned most of the spoils of the afternoon from my face, although it looks like I missed my earlobes!

Wednesday, January 18, 2012

The Business Model of New Year's Resolutions

An interesting thing happens every January. The gym is more full than normal (very frustrating for those of us who go year-round and get used to having the place to ourselves 11 months of the year). Places of worship see increases in attendance and donations. I'd imagine more blog posts are written, more journals are purchased, and more 'diet food' is consumed in January than any other month of the year. Why? New Year's Resolutions.

I see an enormous business opportunity in all of this self-improvement and goal-setting every January. People aren't happy with where they are at, and they're ready to part with their hard-earned money to try and get better, or at least feel better once they have an idea to try and be better and then they spend some money to show some form of commitment to being better.

I'd imagine that more than half of all gym memberships are sold in January. Many churches likely bankroll donations to sustain them throughout the year. So, here is the question for every business owner and entrepreneur--when is the most emotional time your customers want to buy from you? When do they feel more compelled than any other time during the year to buy your product or service?

The next questions surround the business model of a business with one time of year when customers want to flock to their products and services. How can you structure your business model to leverage this seasonal demand? What is the ideal way to engage customers during this peak, the point in time that they are most likely to sense the most highest degree of value your products or services offer to them?

I don't know the full history of the subscription pricing model, but it seems like seasonal demand could have had something to do with giving birth to it. Why not get people to sign up for a year commitment, like a gym?

The business model of new year's resolutions is really about understanding your customers and helping them buy from you at their most opportune, and often emotional, time. The time when they need your product the most, when, from their perspective, it can add the most value to them. Embrace, don't resist this about your customers, and build your business model to make it as successful as possible for you, your team of employees, and your customers.

Friday, January 13, 2012

12 Lessons Learned from 4 Award-Winning Startup Entrepreneurs

On Thursday, January 12th, 2012 the Utah Valley Entrepreneurial Forum (UVEF) invited four of the Top 25 Under 5 award winners from 2011 to share some of the lessons they've learned while starting, building, and growing their business. I had the privilege of working with the four entrepreneurs who came to present and facilitating the crowd forum format for their presentations and Q&A.

Each entrepreneur had about 2.5 minutes to present the basic vitals on their business, their customers, and the competitive landscape in which they operate. Then they had 45 seconds to describe the first lesson learned followed by almost three minutes of comments, questions, and dialogue with the crowd. This was repeated for the second and third lesson learned, after which the next entrepreneur would get up and follow the same format. Here is the slide show we used:


Since I was interacting with each entrepreneur as they presented, I was not able to take notes. However, during the event we asked attendees to tweet the lessons learned using the #uvef hashtag, so I am going to try and use the twitter feed to reconstruct the list of three lessons from each presenter.

Ryan Kohler, CEO of iApplicants (#14 Top 25 Under 5)
  1. Listen to your customers
  2. Build your own competitive advantage
  3. Take ownership of lead generation
Notable comments captured on Twitter during Ryan's presentation:
  • @MyZacAttack: Know who your target market is before launching a company
  • @TaleSpring: iApplicants competes with paper. C'mon! It's 2012 already! Quit accepting paper applications
  • @Caleblight: Listening is the best way of connecting with your customers.
  • @parkerboyack: don't waste your time focusing on your competition!
  • @utahguy: interesting approach to selling tech today - "it's better than paper"
  • @brandtpage: build competitive advantage & "bootstrap"
  • @Agility_Media: put your head down and go to work
  • @utahguy:  #iapplicants hires people with the patience to love the customer


Megan Brown, Founder of The Sweet Tooth Fairy (#13 Top 25 Under 5)
  1. Manage systems not people
  2. The worst decision is indecision
  3. Tell your story
Notable comments captured on Twitter during Megan's presentation:
  • @MyZacAttack: The Sweet Tooth Fairy is here at #UVEF. I'm smiling already! Megan is the owner and is living her dream
  • @KimUt: Megan Brown has a great business in the Sweet Tooth Fairy
  • @utahguy: #sweettoothfairy says women control 85% of consumer purchasing in US.
  • @Agility_Media: Its not the people that are typically the problem its the system, refine the system and the kinks usually go away
  • @MyZacAttack: Train your employees properly first and then evaluate them - with a @shelbigomez
  • @iApplicants: make a decision... Do your best, forget the rest...
  • @Hammona: Surround yourself with people who have done what you want to do.
  • @MyZacAttack: people don't buy what you do they buy why you do it. Sounds like #apple and #sweettoothfairy have something in common
  • @bryanbostrom: Sell more than a product - sell an experience. Thanks, Megan
  • @stevedalton: Great presentation by @sweettoothfairy


Alan Martin, Founder and CEO of CampusBookRentals.com (#4 Top 25 Under 5)
  1. Remove emotion from the decision-making process
  2. Partner well and find great talent
  3. Get a board of advisers and listen to what they say
Notable comments captured on Twitter during Alan's presentation:
  • @jeng17ut: remove emotion...true for almost every decision especially in decluttering!
  • @Agility_Media: Create partner agreements that give them a way out without damaging the equity of the company
  • @bryanbostrom:  Create partner agreements that give your partners a way out without decimating the equity of the company
  • @MyZacAttack: Know who your best partner is and seek similar companies
  • @utahguy: Accept 'NO!' as a proof of concept
  • @MyZacAttack: @alanmartin is a young entrepreneur who led his company to have over 150 employees and over $5M in revenue


Reed Quinn of KT Tape (#9 Top 25 Under 5)
  1. Sell an emotional product or service, something that reaches customers emotionally and for which they can carry a great passion
  2. Ability to scale
  3. Stick to what your're good at
Notable comments captured on Twitter during Reed's presentation:
  • @Trentewing: Cater to the consumer experience KT Tape
  • @iApplicants: don't do any marketing that doesn't generate an immediate return...
  • @bryanbostrom: Find an emotional customer


What did the attendees think of the 'Lessons Learned' crowd forum format?

As we were leaving, one accomplished entrepreneur explained he was in the process of writing a paper about the 20 things every startup and entrepreneurial company should do. "9 of the 'Lessons Learned' here today are so good I'm going to use them in my paper," he reported. Here are some additional comments on Twitter:
  • @KenSharrar: I am blown away at value-add while learning incredible business lessons in Provo @ Utah Valley Entrepreneur Forum lunch at Novell!
  • @KenSharrar: The value of 12 lessons learned at UVEF Lunch = Priceless!
  • @stevedalton: Loved today's luncheon from @UVEF. Excellent speakers, great info, and loved the format. Look forward to making it out to more events.
  • @Trentewing: Great speakers at the UVEF luncheon
If you were there, what did you think of the event? Any ideas on how we can improve the format?