Urban FIRE

Undoing the Business Plan Brain Freeze

2011-06-25T07:50:00.000-07:00

Strategy Session: Biz Plan Accelator

“We must remember that one determined person can make a significant difference,

and that a small group of determined people can change the course of history.”

Sonia Johnson

“Success is not final, failure is not fatal: it is the courage to continue that counts.”

Winston Churchill

1. Three most important activities: listen, give constructive feedback, welcome feedback!

2. All ideas are valid and must be taken seriously by each participant.

3. At the end of the session, spend 10 minutes to conduct a Plus/Delta evaluation.

Section One: Bringing Value – Maximum Time: 90 min.

Incorporate Your GPS Into the Soul of Your Company

Your business is your passion. It speaks directly to the phoenix rising within you to fulfill your purpose in life. Your First Commitment is to assure that your business works in synergy to the Guide to Personal Success you wrote earlier. Ask yourself how your personal goals, your ethics, and your future are satisfied by the business vessel you are about to launch. It is a Soul Manifesto – the promise to yourself. We also call this your Personal Mission Statement – a 15-word mantra you can say to yourself daily.

Final Statement Maximum: 100 words Soul Manifesto: 15 words

Your Company’s Value to the World - Visioneering

Taking your GPS concepts, you are placing them within the context of your business. This step moves your dreams into a concrete form factor. This is your Vision Statement. It explains five things: 1. how your business brings value to the world, 2. what values your business holds, 3. who makes up your ideal customers, 4. what you are promising to your customers and 5. how this business meets your goals and dreams. With your strategy session participants, it’s important to release your fears and express your ideas; good, bad and ridiculous because powerful results come from the openness you create. Engage your trusted group to brainstorm to your ideas because great “ideas” know no bounds.

Final Statement Maximum: 125 words

(take a 10-minute break to reflect or continue to Section Two without a break if the group is moving well)

Section Two: Marketing – Maximum Time: 90 minutes

Why your Product/Service is needed in the marketplace

You can’t make money from your vision or your values until someone knows you exist. That’s the role of marketing. First provide the most fundamental description of what you’re selling such as “I’m selling an organic red apple that is sweetly tart.” Next, create a message of emotion that you believe will strike an impact with your niche customer: “Remember the aroma from that apple your mom sliced up one summer evening . . . .” Since you cannot compete against the established, well-financed companies, how can you implement “disruptive innovation” in defining your product/service? Use the SUCCESs formula – Simplicity, Unexpectedness, Concreteness, Credibility, Emotional and Stories. Tell your story and grab that emotional impact that your niche market will crave for. Ask your participants to tell you what they think of what you’re selling and in the manner you’re selling it.

Final Statement Maximum: 75 words

Understand your customers and their needs – the Platinum Rule

Remember: you will never be all things to all people. However, you can be the best kept secret to a small passionate client base. Start by profiling your ideal customer. What’s important to them: time, price, knowledge? What is it about them that’s different? With that differentiation, what unique way can you then satisfy their needs? What is it that your customers expect from you? How will you then outperform your client’s expectations? Who are your competitors and what can you learn from them? How will you distinguish yourself from your competitors? Who do you not want as your customer? Now, develop a customer profile: What are their needs, motivations, and characteristics? In the end, what is it that we’re bringing to improve our customers’ business or lives?

Final Statement Maximum: 100 words

Plan Your Opportunities and Know What Improvements to Make

Okay, it’s time to get real. What’s your SWOT—Strengths, Weaknesses, Opportunities, and Threats to your business? Called a SWOT Analysis, it is an honest appraisal of your business and all the things around it. And it’s how you take stock of the business environment as you open your doors. The questions are in the four areas of the SWOT analysis. What do you do better than anyone else? What assets do you hold, and what capabilities do you have? What is it you do not do well? What is happening outside of the company that will affect you? Are there global events that will affect your business? What are the strengths and weaknesses of your competitors? What forces are driving the sales in your industry? What might be potentially important markets to explore? Answer other questions specific to your industry.

Time: 60 minutes Statement Maximum: 150 words

Section Three: Sales – Maximum Time: 60 minutes

How you’ll convince enough people to buy what you sell

Starting a business is not the same as making money. Making money means 1. there are enough people who will buy your stuff and 2. they’ll spend enough money to cover all your costs and provide a satisfactory profit. Your Sales objective is getting perspective clients to become happy paying clients. How will you go about finding perspective clients? Write your Unique Selling Proposition (USP) specific to Sales – how will you sell so that your clients felt good about the transaction. How will perspective clients learn to trust you? In order to close a deal, what steps will you take? Sales is based on trust which needs to be taken to the next level: a referral system: provide the steps for both your clients and your staff to participate.

Final Statement Maximum: 50 words

Section Four: Honoring Your Word

What Constitutes Success for Your Business?

Your goals and objectives are your benchmarks in meeting your company’s mission and vision. Just so we’re clear: objectives are the big picture intentions. They are long term and tied into your company mission statement. Goals lead to satisfying each objective and carry a shorter sensitivity to time. Write out no more than five objectives that give meaning to your mission and vision, accomplishable within one, two, and three years. Next write out three to five achievable goals that define how you’ll meet each objective. Your goals should be specific, indicating the exact outcome you’re looking for, who will perform it, and the drop-dead due date. Keep in mind all the discussion that’s taken place so far.

Time: 45 minutes Statement Maximum: 150 words

Develop Your Company’s Mission Statement

This is your company’s statement of purpose written for your staff and the world as a company manifesto – simply and clearly. This statement alone tells what you do and triggers an emotional connection to your niche. It reveals: 1. what you offer, 2. how you’ll offer it, 3. where you’ll offer it and 4. to whom you’ll offer it. Ask your strategic participants to take the Vision Statement and your Soul Manifesto to form a short, easy-to-remember statement that attracts the right clients. Ask yourself: What exactly does our business do? What are the benefits our clients receive from us? How do we deliver our promises? Key point: Mission statements must be short, easy to remember, and have a long-term intent.

Time: 60 minutes Writing out Ideas, Maximum: 100 words Mission Statement: 15 words

Section Five: The Bottomline

Action Item #7: Analyze the Time, Money, and Resources Needed to Meet Your Objectives

Here’s where you’ll assess your resources because no matter how important each objective is, they won’t get done unless you weigh your budget, time, and manpower. How much money will you need to meet that goal and who will do it? Usually, what you want to accomplish and your budget are likely off-kilter. The best thing to do is assess the importance of each goal and ask if it makes financial sense. If it does, put it to the top; if it doesn’t, then lower its priority. This exercise will put in the reality of launching your business. But don’t let it discourage you! Remember: you can start any business with exactly what you have right now.

Time: 30 minutes Statement Maximum: 100 words

Action Item #9: Establish the Action Plan To-Do List

Now you’re writing an action plan—the final part. In this process of breaking down and simplifying how we will attain our objective, follow this guide: go negative first by asking, “What will stop me from reaching my goal?” Review your SWOT Analysis. Then use your answers to design a to-do list to overcome any problems and to reach each goal. State when each action item is to be completed and by whom. Then require the responsible person to create an action plan with all the tasks for their area.

Time: 45 minutes Statement Maximum: 100 words

Action Item #10: Track Your Progress

Achievements require you to keep a scorecard. It is through this method that you’ll know what measurements were attained and when. It is imperative that your scorecard is updated regularly so that your objectives are well within your constant vigilance, and you’re able to track your progress. They can be graphical like an empty vase or a written timeline.

Time: Ongoing Statement Maximum: 100 words

Bonus Action Item: Get In the Habit and Control Your Destiny!

Sure you’re proud of yourself for completing this Strategy Session. Who wouldn’t be? But the work is only beginning, so make Strategy Sessions a regular part of your company’s agenda. Provide time each month to review and update the status of your objectives and goals. Be flexible, adaptable, and realize that during the course of your business life that these objectives and goals may need to change based on you, your company environment, and all the factors around you that will impact your business.

“You have brains in your head. You have feet in your shoes.

You can steer yourself. Any direction you choose.” – Dr. Seuss

Lesson #20: Physical Fitness for Entrepreneurs, Part 1

2011-06-14T16:26:00.001-07:00

Lesson #20: Physical Fitness for Entrepreneurs

The Brawn Factor in Mental Fitness

Given a choice between having a morning latte and exercising, we'll promise to exercise tomorrow. Americans aren’t the most out-of-shape people in the world (that honor goes to Micronesia) but we’re pretty close to the top. With the recent research on our brains, we now know that there is no separation of fitness when it comes to your brains from brawn. It’s safe to say that your success as an entrepreneur has as much to do with your ingenious marketing strategy as your physical fitness strategy. Just consider these findings:

1. physical conditioning has proven to be the principle link to improving your mental capacity

2. physical fitness promotes self confidence that attracts business relationships to you

3. it’s a whole lot more fun when you’re healthy to enjoy the fruits of your labor

4. you’ll live a lot longer with a higher quality because you’ll be preventing dementia

Simply put, physical fitness is a lot like entrepreneurship: it’s a lifestyle practiced over many years. You wouldn’t consider operating your business every three months and closing down operations for three months sitting in front of a TV. It just wouldn’t work well. So launching into your fitness regimen on January 1 only to give up on April 1 doesn’t do much good either.

The Real Key

In the February 2011 edition of AARP magazine, entitled “Super Athletes,” the author, Gretchen Reynolds, cites a research study conducted at the Cardiovascular Aging Research Laboratory at the University of Texas at Austin. The study showed that contrary to conventional wisdom, active individuals in their 60s and 70s maintained almost the same amount of muscles as their 20-year old counterparts. These athletes were not elite humans with strong genetics; these were individuals who decided to maintain exercising as a regular part of their lifestyles. The study also showed that those who did not partake in exercising were riddled with the illnesses that we’ve come to expect from aging.

What would it take you to make physical fitness a regular part of your daily activities? That’s the question you have to ask yourself because we all know that exercising is good for us but very few of us take it seriously to manifest long term benefits. What if you knew that physical fitness increased your odds of making more money? That your ability to think and act clearly without the grumpiness and depression resulting from low self esteem would give you a distinct advantage over your competition? That brimming with self confidence and a respectful attitude would attract customers to you?

Join a Gym and Create One of Your Best Networks

This is one of the best advice I can give you to generate a client base and a great referral system: join a local gym. Not only will you get in shape but something very relevant to your business happens: you start making friends and business contacts. The environment is conducive for meaningful relationships because of a simple fact: you’re all there for the same reason. A bond develops and people are more at ease because, for one thing, you’re all wearing the same uniform.

Think about it: if you were to make an appointment to see the CEO of a local small business, you’re probably going to see him for the first time in his office where he controls the environment. He’ll most likely play that role wearing his power tie. He’ll act cautious and even aloof and that’ll make you feel a bit intimidated. For these reasons, your presentation may not go as well as you’d rehearsed it.

Now consider the same thing if you were both in the gym. The usual scenario goes something like this when you initiate a friendly chit-chat:

“I see you’ve set that angle on your treadmill for 8 degrees. Are you training for a hilly race?”

“Naw,” the old guy laughs, “it’s better on my knees and it gives me a great workout,” as sweat drips off his face and soaks his t-shirt.

You both laugh and carry on about the versatility of the treadmill. You’ll tell him your name and he says, “I’m Fred.” Now, as we always seem to do, you ask Fred what he does for a living. He tells you he runs a small solar panel installation company. And in turn you tell him that you’ve just started a marketing firm tailored for small businesses especially catering to green businesses.

“Good for you,” Fred says and he means it because you’re in a neutral environment where status or power doesn’t come into play. While nothing more may come of it at that point, you’ll continue to run into Fred each time you come to the gym. But there’s going to be lots of Freds all in one place!

Some real practical considerations to keep in mind:

· You’re at the gym to get a good workout first and foremost

· Meeting people and making friends is easier because you all dress the same

· People in important business positions, work out in the morning; it’s a discipline

· People who want to socialize exercise after work

· In such a neutral environment, people tend to be friendlier and less status conscious

· But (a key point), people do observe you and take note of your diligence and consistency

Watch What You’re Doing

This last point is important because for many observers, how focused you are about your workouts represents your diligence as an individual. Having been a gym rat for over 30 years, I’ve noticed that those who are friendly and work out with meaning develop more relationships than those who merely go through the motions. I think most people want to be around those who are healthy and happy. It is natural for people to admire hard work in whatever we do including the gym. But at the gym, friendships are easier to make than at just about any other business-social gathering.

Some of my best referrals and business connections came from the relationships I gained at the gym. It wasn’t instantaneous but a gradual experience that grew. In our gym clothes, there is no hierarchy and that makes for the best and most honest relationships because there are no territories to protect, no proprietary information to hide. There is a genuine bond that develops because you see each other on a regular basis, like being in a family. So when you do speak about business in this kind of environment, the level of trust will never be higher.

I’ve met superior court judges, heads of large companies, venture capitalists, high level bureaucrats and directors of foundations during my early morning workouts – all out of context to what we represent during the rest of the day. As a result, when I did visit their offices, there were no formal protocols as our relationship from the gym carried over. Needless to say, it was a lot easier closing deals, boosting my referrals and expanding my businesses and nonprofits simply because I worked out at the gym! Believe me, it’s one of the best investments you can make for yourself and your business.

Defining Physical Fitness

Let’s get this straight: physical fitness is not about dieting. Dieting is harmful to your entrepreneurial career because of the way your body reacts. What happens is that the reduction in food slows down your metabolism because the body goes into its primitive survival mode and thinks it’s starving. So in order to conserve itself, it naturally responds by shutting down some of its mechanisms. This causes a detrimental mental reaction by reducing the nutrition your brain requires in order to think properly. You get edgy, irritated and whiny. Who wants to do business with you?

This less-than-adequate nutritional intake will also dumb you down – a real problem for entrepreneurs, especially for those running a micro enterprise where every decision carries a great deal more weight (no pun intended).

A healthy body comes only with a combination of nutritious foods, adequate exercise, restorative rest, a clean environment and mental fitness.

According to the National Institute for Health, more than a third of American women and nearly a quarter of men are on some kind of weight-loss diet at any given time. The most popular means of pursuing weight loss are branded diet programs such as the South Beach diet and Weight Watchers. The various popular diets seem quite different on the surface, each claiming its own special reason for being more effective than the others, but beneath the surface they are all essentially the same thing: low-calories diets. And worst of all, we are led to believe that dieting is the same as physical fitness.

Supersizing Addiction

We in America can stand to eat less and cut out the “supersizing” addiction. According to the Journal of American Dietetic Association, when MacDonald’s served you a soft drink in the 1950s, it was seven ounces. It’s tripled since then. If you get the Big Gulp at 7-Eleven, it’s a whopping 44 ounces.

While I was in college, I worked part time at Coca-Cola in their syrup plant in the Hunters Point district in San Francisco. There was one giant 40-foot silo next door filled with sugar which was filled weekly from a tanker. I remember that in the recipe for the Coke syrup, we use to throw hundreds of pounds of sugar into the mixing vat, enough, it turned out that each 12-ounce can of Coke had 10 teaspoons of sugar or 40.5 grams. That’s 20 sugar cubes in 12 ounces. If you were to drink one Coke each day for one year, you’d be consuming 32 pounds of sugar and on average, gaining 18 pounds.

One important note: don’t think that drinking diet sodas is any better. Your body is fooled into thinking that the artificial sweetener is sugar calories. But since it gets no food value, it reacts by going hungry. Two things then happen: you as the eater reward yourself for drinking fewer calories and tricked by the chemical sweeteners, you end up eating more. Studies indicate that those who drink diet sodas actually gain weight. Also, some chemical sweeteners have caused cancer in laboratory mice.

Our Bulging Population

I’m sure you’ve either heard about or taken the time to read the caloric and fat content of any hamburger from fast food chains. And while many fast food businesses have introduced salads along with fresh fruits and vegetables, once you squish the dressing on, it’s almost as bad as that burger you were trying to avoid.

Needless to say, the fattening of America can be directly attributed to the increase in fast food restaurants and our hectic lifestyles. While fast food restaurants were convenient, they’ve made us into a land of very chunky people. The Centers for Disease Control and Prevention (CDCP) states that in 1990, America had less than 19 percent of its population considered to be obese (or dangerously unhealthy). In 2008, Connecticut was the thinnest state with 21 percent obesity while Mississippi as the highest at 33 percent.

More alarmingly, the greatest gain in fat has been our youth, ages 12 through 19. Their obesity rate has tripled since 1980 meaning a third of our youth is too fat. (In some southern states, the obesity rate is as high as 44 percent.) Obese kids are defined by a body-mass index at or above the 95^th percentile for children of the same age and sex. This means that these youths are now suffering some of the same diseases that use to only afflict adults such as high blood pressure, high cholesterol and Type 2 diabetes. Moreover, many of these youths are also suffer from low self-esteem which then leads to depression which in some cases leads to drug addiction.

If this trend continues, says the American Diabetes Association, one in three kids – and one in two minorities – will develop Type 2 diabetes in their lifetime. Diabetes has been linked directly to heart attacks, stroke, blindness, amputation and kidney disease; and to die prematurely as adults.

One of the prime reasons for the increase in obesity among youths has been our neglect as parents to curb the amount of time our kids spend in front of the computer screen and the television. According to the ADA, youths spend an average of just over 50 hours per week in front of video rather than playing sports or other physical activities.

Obesity and its complications come at an expense of $147 billion annually to the United States.

Lesson #20: Physical Fitness for Entrepreneurs, Part 2

2011-06-14T16:25:00.001-07:00

So If We Know We’re Fat, Why Can’t We Change?

That’s the question Dr. Claire McCarthy, a pediatrician at the Harvard Medical School has asked for years of her young patients and their parents. What she’s concluded about overweight people is summed up in her four “D”s:

Denial: “This is probably the main reason. People think that they or their kids, aren’t overweight (so many people are overweight that unless you are really obese, you don’t stick out). They let themselves think that their diets aren’t that bad or that walking to the car from the store is enough exercise.”

Delaying: “Next week they’ll start the diet, or stop buying chips for the kids. Things are too nuts at work (or at home, or at school) right now. In the spring they’ll join a gym or sign Junior up for soccer. It can wait (there’s the denial again).”

Discouragement: “The hard truth is that losing weight takes work and time. It’s easy and understandable, to get discouraged and start thinking, why should I make myself miserable eating carrots and going to the gym if it’s not doing anything anyway? Why should I make my kid miserable if he’s not losing weight?”

Difficulty: “For many people there are real obstacles. Healthy foods are more expensive and not always easily available. Gym memberships can be expensive too – as can fees for sports teams for children. Many families live in neighborhoods where playing outside isn’t safe.”

It’s the Habit, Not the Exception

It is now scientifically proven that leaner meals with fewer calories are actually better for us both physically and mentally. However, commercial dieting or severe calorie restriction is not the best way to pursue the proper substitute for weight loss or physical fitness. To achieve weight loss should never be a standalone goal. It’s also important to note two other key factors in your overall health: 1) regular exercise and 2) an understanding of your body composition

Our health is affected not so much by how much we weigh but rather by how lean we are -- that is, by the ratio of fat-free mass (consisting of muscle, bone and water) to the amount of fat in our bodies (commonly measured as body fat percentage). Dieting by itself does nothing in building lean muscles and in promoting a long term effect of keeping the weight off. The only way to maintain a lifelong course of optimum health is to get in the habit of exercising regularly to build lean muscles, keep the fat off and stay mentally alert. It also means eating properly and being more aware of your body.

Men and women who have a high body fat percentage tend to be unhealthy, regardless of whether they're heavy or light. By contrast, individuals who have a low body fat percentage tend to be healthy, again regardless of whether they are heavy or light.

The healthiest men and women have good muscle tone and just enough body fat to perform the functions that body fat is responsible for (e.g. supplying energy and cushioning our vital organs). A lean body composition is also ideal for athletic performance, because muscle is capable of performing work, whereas excess body fat just increases the load the muscles must carry.

In the book “Younger Next Year” pertaining mainly to people 50 and over, by Dr. Henry Lodge and Chris Crowley, they argue that the only way to achieve a lifetime of health includes exercising six times a week including four aerobic sessions (running, fast walking, cycling) and two anaerobic sessions (weight training to tone your muscles). Each session should last between 45 minutes to an hour including some stretching. While many people will consider that too much time out of the day, developing the habit of exercising can eventually benefit you personally and financially. And one undeniable fact: we are mammals; animals. We are physical creatures that require physical activity as a necessary component of our ability to stay alive. There are huge libraries of evidence showing that those who do physical work outlive those who sit on their butts.

A study at Harvard of 14,000 people also concluded with the same results: we need to exercise for one hour in six out of seven days each week. And we cannot just walk but gradually move up to moderate exercising where you’re breathing harder and forcing your muscles to work harder.

In his best-selling book, “Brain Rules” author John Medina lists physical exercise as the number one method of keeping the brain alert and maintaining the ability to learn new things. Even at the age of 80, science has shown that it’s possible to strengthen your muscles and limber up those cranky joints.

For when you are planning out your physical fitness program, include the following parts:

1. Aerobics – running, cycling, fast walking – movement that forces you to breathe harder

2. Anaerobic – weight lifting – increasing your muscular strength in your arms, core, legs

3. Stretching – yoga, limbering up your extremities, (start slowly and warm up to avoid injury)

4. Dexterity – hand-eye coordination, balancing, quick reflex exercises

What’s Good for the Heart Is Good for the Brain

There has been a conceptual separation of brawn and brain when in fact, we now know they are one and the same. The quality of our physical condition from the pumping of our hearts, the strength of our muscles to the quality of the foods has a direct correlation to the health of our vital organs – especially the brain. In fact, much of what’s truly nutritious for you both physically and mentally is probably already in your frig or easily purchased at the local supermarket.

According to Dr. Daniel G. Amen, MD, a well respected expert on nutrition and the brain, there are six nutritional neural/physical principles:

1. Drink at least 84 ounces of water daily. Since the brain is 80 percent water, it is imperative that we provide enough water to keep it hydrated. And yes, the brain can suffer dehydration raising stress hormones causing damage to your brain over time.

2. Restrict your caloric intake. This controls your weight and decreases the risk of heart disease, cancer and stroke. On the other side, however, is the importance of taking in the right kinds of foods. It even has a name – CRON for Caloric Restriction with Optimal Nutrition.” The Secret: eat five small meals daily rather than three big ones.

3. Fish, fish oil, and good fats. DHA, a form of omega-3 fatty acid found in fish makes up a large part of the brain’s gray matter. It is also a main component of the brain’s synapses. Research has also shown that DHA promotes a healthy emotional balance.

4. Lots of dietary antioxidants – Numerous studies on antioxidants from fruits and vegetables have shown they can reduce the risk of developing cognitive impairment. As cells convert oxygen into energy, tiny molecules called free radicals are formed. When produced in massive quantities, free radicals damage the body’s cellular machinery resulting in cell death and damaged organs including the brain.

Best Antioxidant Fruits and Vegetables: blueberries, blackberries, cranberries, strawberries, raspberries, spinach, Brussels sprouts, plums, broccoli, beets, avocadoes oranges, red grapes, red bell peppers, cherries and kiwis.

5. Balance protein, good fats and carbohydrates. At each meal, one needs to combine foods from each of the three food components into a balanced serving. This includes: Lean proteins: fish especially wild salmon, skinless chicken and turkey, lean beef and pork, enriched DHA eggs, organic tofu, low fat cheeses and cottage cheese, garbanzo beans and lentil; and walnuts to name a few.

Complex carbohydrates: berries (see above), oranges, lemons, limes, grapefruit, peaches, plums, broccoli, cauliflower, Brussels sprouts, oats, whole wheat, wheat germ, red and yellow peppers, squash, spinach, tomatoes, yams and beans.

Fats: avocados, extra virgin, cold-pressed olive oil, olives, salmon, macadamia nuts, Brazil nuts, pecans, walnuts and almonds.

Liquids: water, green and black teas

6. Plan for snacks. Again, it is best to combine proteins, carbs and fats. So, it’s possible to have dried fruits and vegetables (but don’t buy the kind in supermarkets that’s loaded with preservatives) and combine with nuts (protein and fat) or low fat cheese (protein).

Lesson #20: Physical Fitness for Entrepreneurs, Part 3

2011-06-14T16:24:00.000-07:00

The Truth of What’s Inside of Your Body

Now, we’re coming to the technical part where you can figure out how to tone your body and feel comfortable in your skin. Knowing your basal metabolic rate (BMR) is the key to knowing how many calories you should, or should not be consuming in a day. Your BMR is simply the minimum amount of calories your body requires daily to complete its basic functions, like keeping your heart beating or regulating your internal temperature. Once you know your BMR, you can also factor in the body’s caloric use during digestion, and your daily caloric expenditure based on your activity level. This can give you an accurate representation of what your total daily caloric expenditure is.

Once you have estimated your total daily caloric expenditure, you can accurately calculate how many calories you need to eat and how much exercise you need to do every day to maintain, gain or lose weight to meet your healthy weight goals. Here, I’m going to give you the non-technical – best guess estimate - method of calculating your daily caloric expenditure.

The Best Guess Method
For every pound of body weight you carry, your body burns about 10 calories each day. Therefore, a person weighing 130 lbs would need to take in at least 1,300 calories (130 x 10 = 1,300) every day, just to meet their body’s basic needs. After you figure out your most basic caloric need, you can factor in your activity level, and digestion needs, which will get you even closer to the real number of calories that your body uses every day to support your regular activities.

To find out your basic BMR, take your body weight in pounds and multiply this by 10. Let’s use an example of a person weighing 130 pounds:
Example: 130 lbs x 10 calories/lb = 1,300 calories

To factor in the amount of activity you do in a regular day, take the above number and multiply it by your Activity Level (see below):

Sedentary: 20% (Sitting most of the day)

Lightly Active: 30% (Walking here and there; daily chores)

Moderately Active: 40% (Constantly moving around; daily exercise)

Very Active: 50% (Heavy exercise for prolonged periods of time or heavy manual labor)

Example: 1,300 calories x 0.30 = 390 calories

Then, add together your BMR and calories burned by your activity level: Example: 1,300 calories + 390 calories = 1,690 calories

To factor in calories used during Digestion, which is estimated at 10% for the general population, take the last number you calculated (your BMR + activity level) and add 10% of that number to your total:

Example: 1,690 calories x 0.10 = 169 calories + 1,690 calories = 1,859 calories
Therefore, this 130 pound person burns an average of 1,859 calories every day to support their body’s most basic needs, activity level and digestion of food.

Your Body Type and Body Composition

While there are great variations in people’s sizes and shapes, most people can be placed into a well defined category of body types. These include Mesomorph, Ectomorph and Endomorph. Each has a unique characteristic, and understanding these characteristics may very well establish your expectations as it relates to your physical conditioning and appearance. Of course, the first thing to consider is your genetics. What did your parents look like in their twenties? And is one parent an ectomorph while the other is a mesomorph making you a meso-ectomorph or something like that. In other words you may have the traits of two body types although one will always dominate.

The second concept to understand is Body Composition. A weight scale will not tell you how much fat to muscle, bone mass and water weight you hold. A thin person can have excessive fat especially around the middle and butt with the misconception that being thin is healthy. The key factor is the amount of fat to muscle mass. The greater the muscle mass in relation to the reduction in fat is ideal no matter what your weight may be.

Today, there are amazing body composition scales for home uses that work like weight scales. No longer do you need to get dunked into a tank of water and have a team of scientists figure out your composition. Tanita probably leads the field with several highly accurate scales costing from $40 to $130. If you really want to know what your internal makeup looks like, then I’d recommend getting one of these scales. Go online to Google and type in “Tanita Body Composition Scales.”

Two quick important notes:

Don’t believe the hype you see on TV about the “fit” individual being touted on an advertisement using some gimmicky new exercise equipment guaranteed to make you look like a movie star in only 10 minutes a day. You may not have the same genetic composition or the time or the professional trainer to make you look like that “model” on TV.
Body composition in itself will not complete your fitness picture. Jim Fixx, who wrote the bestselling book, The Complete Book of Running, and an avid runner, died of heart attack in 1984. He scumble while running due to a pre-existing genetic condition he wasn’t aware of. Fixx believed that exercising alone would keep him healthy. Get regular checkups!

Which Body Type Are You?

A mesomorph (or meso, for short) is a muscular person with broad shoulders and a well-defined chest that’s larger than the waist. Meso types can increase their muscle size quickly and easily. The well-developed, rectangular shapes of mesomorphs are representative of their thick bones and muscles. The abdomen is taut and hips are generally the same width as the shoulders. The buttocks, thighs, and calves are all toned and defined. One major drawback to meso types is their inflexibility.

Mesomorphs are full of energy, are physically capable of a lot of activity, and tend to be aggressive athletically. (Usually no couch potatoes in this group.) Although mesomorphs generally store fat evenly all over their bodies, they can become overweight if they are sedentary and consume a high-fat and/or high-calorie diet.

Cardiovascular disease can be a primary threat to an overweight meso, so if you fit into that category, your best method of prevention is to maintain a healthy diet and a balanced exercise regime. Remember that your heart is a muscle, too, and the best way to keep it fit is to perform cardiovascular activities.

Mesomorphs make great athletes. They excel in sports that require great strength, short bursts of energy, and lots of power. Mesos are always popular in gym class and at the playground, because people want mesos on their teams. At the gyms, you will most likely find mesos lifting weights and avoiding the cardio equipment like step machines, Spinning bikes and treadmills, not to mention their lack of attendance in cardio and stretching classes.

The ectomorph (or ecto, for short) is slim. Ectos are usually tall, slender individuals who have trouble gaining weight. Fashion models are ectos. An ectomorph is relatively linear in shape with a delicate build, narrow hips and pelvis, and long arms and legs. Ectos, especially those who are extremely thin show the outlines of their muscles and bones. They normally have less fat and muscle mass than people with other body types. Remember, however, that most ectomorphs have a combination of features that may resemble an endomorph as well.

Because of their leanness and a body that consists of small bones and joints, ectos have a tendency to be injured during sporting activities. So ectos are usually too fragile for contact sports like football. But this body type is naturally suited for endurance activities such as running, swimming and cycling.

Just remember: balancing your activities is the key. Like mesomorphs, ectos have a tendency to stick with what they do best, and ectos excel at cardiovascular training. Ectos, however, need to balance their workouts with cardio and muscle building to achieve peak fitness and strengthen their bodies against injuries.

The endomorph (or endo, for short) is curvy. As endomorphs age, the body fat tends to settle into the lower regions of the body, predominantly the lower abdomen, hips, and thighs, rather than being distributed evenly throughout the body. Keep in mind, though, that most endomorphs don't have all the features of characteristic endomorph, but a blend of features from other body types as well.

An endomorph body typically has the capacity for high fat storage, and unfortunately puts fat on pretty easily. Although all body types are susceptible to excessive weight gain, endos are more inclined to become obese. The majority of the body weight is either centered in the middle of the body or in the hip and buttocks regions. Endos have been called “pear-shaped.” Structurally, endos have small to medium bones, limbs that are shorter in relation to the trunk, and a muscularity that is not well defined.

A male endo (known as an android) tends to have a different fat distribution pattern from a female endo (known as a gynoid). Female endos usually collect fat in their butts, legs, and hips, while most males collect fat in their abdomen (the "spare tire" or "love handle" look). Many research studies have shown that abdominal fat deposition is much more dangerous than fat in the leg and butt area. This is primarily due to the danger of heart disease and an increased risk of diabetes, stroke, some cancers, and high blood pressure.

The main health concern for endos is maintaining a healthy body weight. Excessive amounts of body fat puts endos in jeopardy of cardiovascular disease. Remember that the risk of such disease is increased if the majority of the fat is carried in the center of your body surrounding your heart. For endos, especially those out-of-shape and carrying extra body weight, the joints of your lower body may be weak and highly susceptible to injury if involved in high impact sports.

Worth Repeating: Don’t Diet, Exercise Instead

Diets don’t work on two levels: 1) it slows down your metabolism because without a regular level of food, your body naturally slows everything down to conserve energy. This defeats your ability to burn fat calories, and 2) you are less-than-optimally fit to exercise and increase your metabolic rate.

I’ve dealt with several people who’ve told me that they tried “everything” and haven’t been able to lose any weight. For many people, a weight loss program as I’ve defined it is a total paradigm shift in their lifestyle: if you want to lose weight, you must commit to getting physically stronger – and eating smaller portions at increased intervals every day. Getting stronger will speed up your metabolic rate and burn calories from fat. Eating smaller meals more often will also increase your metabolism. A simple way to do this is understand the amount of calories your body needs to sustain itself by using the formula above or more accurately with a body composition scale. Then divide the amount of calories by six and eat six smaller meals without reducing the number of calories. Warning: you’ll be hungry more often. Just as important, however, is to reward yourself on the weekends by eating whatever you want! By allowing yourself to eat hardily on one weekend day, you’ll maintain this eating plan longer.

But don’t forget: you must couple these six meals with a strength and aerobics program that will improve your cardiovascular fitness and increase your muscularity. (A side benefit of weight training is better bone mass which for women and older adults is critical.) Studies have shown that people in their 70s and 80s have been able to gain strength through bodybuilding.

Remember: it’s not how much you weigh; it’s the ratio of fat to muscle that counts. You may find yourself weighing more, looking slimmer and holding less fat because muscles outweigh fat.

The best results will come by understanding what methods work best for you: the types of exercise and your personal motivations. Living happily and longer with full functionality should be at the top of your list!

One important word about aerobic exercise: from what I’ve seen in the gym, most people do not do enough cardio to lose weight. I was once asked by a group of middle-aged walkers who walked three times a week for one hour why they didn’t see any weight loss? The first question was what they normally ate each day and how much. By analyzing their situation, it was clear that on average, the walking only burned 350 calories while their consumption was nearly 2500 calories – 500 more than necessary and still 150 calories in excess after walking an hour!

Walking may be a great exercise but if you’re trying to lose weight, you’ve got to walk faster or a great deal farther. If you add some jogging, that increases the exertion (or metabolic rate).

If you take a look at countries where people are slim – France, Japan, China many Third World nations – their diets are less fatty, less caloric and they walk a great deal more than us (or in other words, their aerobic time is far greater). In fact, on average, people in other countries walk an average of 13,000 to 15,000 steps per day. In this country, we walk less than 5,000 steps and we eat a whole lot of crap.

Next time you’re on the treadmill or step climber count the number of steps you’re taking in one minute, then multiple that by 60 and you’ll figure out your hourly quantity.

Remember: The quality of your life is in direct proportion to the quality of your physical health. And your life as an entrepreneur will be greatly enhanced by the physical fitness as it makes you smarter, attracts people and increases your optimism about life!

Lesson #12: Sales Is Good for Business

2011-05-24T16:32:00.000-07:00

When I was a freshman in college my educational inspiration came from the late Harvard professor, Dr. Timothy Leary - who following his own advice, “turn on, tune in, drop out” did exactly that in the name of finding the true meaning of life. I had my own version of this philosophy. It consisted of driving up to Mount Tamalpais in my little red sports car to get above the thick fog, hanging with a group of old Italians at the Café Trieste in North Beach where English was a foreign language or throwing a crab net over Muni Pier to see if I was smart enough to enjoy Crab Louie that night. At least the beer and chips felt good on a sunny afternoon. It was more educational than falling asleep in a classroom.

It was on one of these excursion days that I tagged along with my friend, Lincoln, who was in the market for a newer version of his car. He was interested in selling his ’61 Chevrolet Corvair and buying a ‘64 Corvair. We use to joke with Lincoln about his choice in a car that Ralph Nader once called the most dangerous car ever build in his investigative book, “Unsafe At Any Speed” (1965).

We ended up at a Chevy dealer on Geary Boulevard in San Francisco where he found the vehicle in the used car lot. The sales person told Lincoln to leave his car on the premise so that he wouldn’t get a parking ticket in the event his test drive went longer than the minutes on the parking meter. That made sense so we cruised around, doing the test drive, but after about 10 minutes, Lincoln decided there was a problem with the car and chose against buying it. As we re-entered the dealer’s lot, Lincoln didn’t see his car nor could he find the sales person. He asked several employees where his car was and they all acted as if Lincoln hadn’t taken a bath in two weeks.

The Old Trick

After several minutes of hunting around the lot, there in the back row of the service garage, Lincoln found his Corvair behind three other vehicles. He asked one of the mechanics to please get his car out of there. The mechanic mumbled something and walked away. Now what?

Finally, the sales person reappeared, a big smile on his face. Lincoln told him he wanted to continue looking at other dealers and could he get his car back.

“Look,” said the salesman, “Your car’s on its last legs, and that Corvair you just drove is one of those rare ones with a supercharger. You’re lucky you found it. I’ve got people dying for this car but I’ll make you a great deal right now, and we’ll take your old one in trade.”

Lincoln wasn’t impressed. But the sales person wasn’t going to budge. He waved his manager over to join us. Oh no! – the dreaded manager “say-hi-to-my-customer” tactic! Here we were held hostage by a used car commando unit and no way out! The sales manager was so focused on Lincoln that he didn’t even notice me. This guy was a regular Captain Crunch. You know, the imposing pressure-laden, fast talking salesman who won’t take no for an answer. He was practically spitting into Lincoln’s face with every loud punctuation. So here was my poor friend being pressured into buying a car, having his car shoved literally into the corner and seemingly without an option other than to buy the car in order to get out alive!

Was this how successful sales people needed to behave in order to get things done? It was kind of funny but it was time to blow this taco stand. So, I stepped forward, “Hi Fernando,” I said to the sales manager. Yep, I knew him. In fact, he was my next door neighbor! I can’t tell you the expression on his face but it went dead silent like a deep freeze just swooshed in from the North Pole. He acted as if he’d just been caught by his mother selling narcotics to homeless orphans. In about five minutes, we got back in that ’61 clunker and drove off. I didn’t see much of Fernando after that.

My memories of that episode left a deep scarred image of sales people for a long time. From that point on, I thought of sales as a slimy, corrupt evil that no decent person would ever stoop so low for. To be an outhouse cleaner would be more respectable.

Then, I became an entrepreneur

It comes to you pretty quickly when you realize that you’ve got to sell something in order to keep your business alive. The question was, how do you do it without feeling as if it’s utterly gooey to go home every day and rinse off that stinky slim with a hot shower. But if you’ve followed everything so far in our Urban FIRE process, you should be saving on your hot water bill. Sales should always be enjoyable and profitable! It must be about helping your clients find their solution. As the great sales trainer, Tom Hopkins, once said, “Sales makes the world go round.”

And here’s a reality check: we’re selling all the time – maybe, just calling it something else. It’s been that way for most of our lives. Think about it. When you wanted something or you wanted a situation to go your way, didn’t you have to persuade someone or a group to agree with you – even if all you had to do was persuade yourself? How about when you were in high school and you were infatuated with someone? If you wanted that person to notice you, didn’t you have to make a memorable impression? Or when you were trying to get your baby to eat, weren’t you doing a sales job on those carrots? How about when you needed to get that promotion at work or convince your mother that the new boyfriend wasn’t a drugged-out gangsta just because he sported a skull and bones tattoo on his forehead?

Selling is natural if it’s a business you love because it’s an integrated part of your life. Loving something means you’re passionate about it and you want to tell the whole world about your love! But when we refer to our expression for love in the context of “sales,” it gets disassociated from our Top Ten List. Instead, we correlate sales to facing constant rejection. And ouch! Rejection is something we try to avoid because its other name is “failure.”

In the case for your new company, sales needs to be a planned activity based on your Marketing Strategy. It needs to be constant and prioritized meaning that in most cases, the bulk of your initial work will be in marketing and sales. If you do it right, you’ll spend less time hunting for sales and more time filling orders. That’s because you’ll have a cadre of happy customers who will be helping to spread the word about the goodness of your company. At this point, you’re improving your product, your marketing and your delivery to your customers because now, you’ve got a fantastic reputation to uphold!

Sales needs to be measured (like how much money did I bring in this week in comparison to my costs?) so that you’re giving yourself constant feedback on what works and what doesn’t – one of the five principles of deliberate practice. It must be proactive not reactive, and represent your principles and high qualities whether you stand face-to-face with your client or the way it resonates on your website.

Simple and Personal Goes A Long Way

Back in about 1990, I was in Las Vegas for a technology convention when I first heard Tom Hopkins speak about his passion for the sales profession. In fact, he was so passionate that he had a 20-volume video course available at the incredibly low price of $1999 or something like that. But wait! There was more! Since I bought the set that day, I was entitled to an autographed copy of his newest book and nine additional books at no extra charge! I was so loaded down with sales materials that I decided to ship it all back home rather than lug 20 pounds of extra luggage. But having gone through the materials, I realized that what Hopkins had to say could have taken one sentence: “Sales needs to be a simple, personal relationship with you focusing your attention on meeting your customer’s needs.” Of course, there’s a bit more than that but that pretty much covers the essence. If you’ll recall the research conducted by Forester Research in the Marketing section on successful business websites, the conclusion was the same.

This situation reminded me of the opening paragraph of the famous psychology book entitled “The Road Less Traveled,” by M. Scott Peck. It begins with three words: “Life is difficult.” He goes on to write, “This is a great truth, one of the greatest truths. It is a great truth because once we see this truth, we transcend it. Once we truly know that life is difficult – once we truly understand and accept it, then life is no longer difficult. Because once it is accepted, the fact that life is difficult no longer matters.”

Wow! Isn’t that an enlightening revelation! For entrepreneurs, it should be up there with the Platinum Rule. This is one of those memorable quotes that should be plastered on your refrigerator door maybe paraphrase like: “Life is difficult . . . and what else is new?” The rest of Peck’s book draws evidence to this opening statement. But as one of my friends said, “Once you’ve read that opening paragraph, that’s pretty much it.” In the same way, it might be a good thing to get sales training to learn some fundamentals like me going through the Hopkins videos but, if you’re your own boss, your best time spent is just getting out there and focusing on your potential customer’s needs and desires. The more you do this, the easier it gets to do two things: 1. coming up with solutions that are compatible with your customer’s requirements and 2. narrowing your customer profile to fit into your niche.

If you’ve gained the courage through our Urban FIRE I progressive process of 1. being true to who you are, 2. resolve to build your library of knowledge, 3. absorbed greater wisdom from those around you and 4. set up your marketing plan, this Sales section should flow like water over smooth granite.

The Formal Method

I’ll be honest with you: my way of selling wasn’t based on any sales theories or research. It was based on watching and listening to great sales professionals. Contrary to what one might conjure up, such as a shifty-eyed shark, what I discovered was that great sales people were compassionate listeners who were neither boastful or obnoxious. They didn’t necessarily have the “gift of gab” as we tend to stereotype sales people. They spoke extremely well – not because they were born with verbal brilliance but because they loved what they were selling, practiced their sales delivery and believed in what they were saying.

You might recall some of those individuals we spoke of in the Leadership section. Wouldn’t being in the presence of any of those individuals have made a rewarding experience where you felt there was honesty, value and sincerity? Well, some of the best sales people were also great leaders because they understood that fulfilling a need required an understanding of the problem, then working with their clients to come up with the solution. They always worked to “understand before being understood” and created a “win-win” partnership where everyone finished with a smile. It was the 7 Habits in real life.

So that I’m not remised in providing the formal sales process, here’s my take on how you would organize your thoughts and actions in an organized manner to fortify your sales effort. In sales, there are two things you have to focus on: strategy and tactics (assuming your marketing and company strategies are in place).

Your Sales Strategy is the planning of your sales activities. Picture yourself as the manager of a baseball team. Will your strategy be to score runs with sluggers who can wallop those homeruns or scrappy, speedy hitters who can outrun a groundball for a base hit. Will you try to score more runs than the other team or will you rely on a dominant pitching staff that gives up few runs. Will your final score be 10-6 or 2-1? It’s the difference in strategizing with the glitzy Broadway budget of the New York Yankees or the frugal Broadway (yes, our Broadway) of the Oakland Athletics. Your Sales Strategy takes into account your budget, your resources and plans out how to maximize what you have! How will you reach out to your clients; how will you distinguish your company from the competition; what resources are available to you to win business? How will you implement your guerrilla marketing strategies into your sales campaigns? Most importantly, your Sales Strategy complements the culture you’ve established both internally and externally of your company’s way of doing business.

Your Sales Tactics refers to the day-to-day methods you use to carry out your Sales Strategy. As in baseball, your sales tactics refers to carrying out your game plan. You’ve changed the culture of your players by motivating them to play as a cohesive team rather than relying on one or two superstars. Your team can’t afford the homerun hitters so you’ve opted for the less glamorous, scrappy hitters who’ll bunt, hit for the sacrifice fly, steal bases and produce runs based on forcing the opposing team to handle the ball more, thus, increasing the odds of making mistakes. Your pitching staff has been trained to keep the ball down low so that the power hitters won’t be able to hit homers. This makes you competitive because your creativity and out-of-the-box thinking to utilize what you have makes up for the lack of high priced superstars. Thus, your sales tactics is the scrappy methods by which you’ll carry out your sales strategy. This would include your particular sales process, how you prospect for new clients, and how you stay in contact with existing clients. There’s plenty where the main ingredients are your brains, imagination and your hustle.

Far Above the Maddening Crowd

By establishing a Sales Strategy, you will be way ahead of what most new small businesses do to organize their income potential. You begin to rise into the atmosphere of established small businesses with their own marketing and sales departments. Their advantage, of course, is they have the budgets to retain fulltime employees to focus on and carry out their sales strategy. Your advantage is that it’s your company and you can do just about whatever you want. The sky’s the limit and your imagination is endless. As Albert Einstein once quipped, “Imagination is more important than knowledge.” The critical factor is to organize your efforts and establish a Plan of Action that you implement into your company’s short list of daily Must-Do Activities.

It’s worth repeating: your Sales Strategy should focus on two objectives: your customers’ needs and the solutions you’ve come up with for your customers. To start with, follow this three step process:

Meet with your clients and potential clients regularly (phone, email, person-to-person) and ask them about their needs and concerns. Tell them your company engages the clients in building solutions (because the more your client gets empowered, the more they will feel connected to you as a partner, not as a vendor.) Lastly, ask them what their final expectations would look like. Then, with that expectation in mind, exceed it.
Work with your vendors and other external experts to help you devise solutions built for your clients. Just make sure you’re representing your client’s concerns and ideas so that externals experts are not running away with their own profitable solutions.
Get better educated about your clients’ industries through their associations and contact their managers to increase your knowledge. It may end up including solutions that already exist.

In the most ideal situation, the sales strategy takes on a synergistic relationship of all three areas and you’re able to provide the best solutions for your clients. This is important so let me repeat that: your best sales solution comes from your understanding of: the client, the solutions available to you and the factors of your client’s industry.

This is one of the best el cheapo Sales Strategies you’re going to find but it’s also one that you should follow even as your business gets well established. Make it into a system where you’ve written out a planned procedure for each time you meet with a new potential client. If you conclude that the client meets your target market and it’s worth your effort to pursue a relationship, then be proactive and use your system! And by documenting your procedure, you’re also laying the groundwork for expanding your business so that others can work within your system.

But remember that you must key in on your target market and the profile of your ideal customer. None of this will matter if you go after every Tom, Dick and Harry without first qualifying them to what your niche market is. And of course, the best way to do this is by focusing all your attention on each individual client who comes along and asking them questions about their business and what they’re looking for in a business relationship. Is it speedy deliveries, cheap prices, expertise in a particular area or consulting services? You can then gauge whether your business is set up to accommodate their needs.

Later, as you mature, you’ll want to cut ties with your bad clients and focus on clients who have been loyal, easy to work with and fit your niche profile. A bad client might mean a business that doesn’t fit your niche, one that requires more time than the monetary gains, and/or one that is always trying to get their prices reduced. By trimming your unprofitable clients, you’ll have the opportunity to improve your relationships with your good clients and increase your revenues. This will also narrow your client demographics through the knowledge you’ve gained in fine-tuning your niche market. You’ve now established a better profile for future clients and further focused your marketing; thus, putting your money where it will do the most good.

The Best Surefire Strategy for Getting New Clients

"I built my original real estate sales business from nothing to being a 98% referral business within three years by keeping in touch with my clients.” – Tom Hopkins

Without a doubt, referrals are your number one source of business or at least, it should be because it requires the least amount of guess work and has the highest rate of success. In surveys I’ve seen, referrals work out to a 60 percent success rate (that’s business from six out of ten referrals!) while cold calling is less than 10 percent plus you have to deal with your share of nasty rejections. When you think about it, referrals are the least expensive sales tactic because it requires less advertising, time spent looking for prospects and shortens the sales cycle (the time it takes when you first start working with a client to when the sales transaction is made).

Here again, you must establish a system that becomes automatic and second nature to you and your staff. Of course, referrals depend on your ability to satisfy your customer’s needs and even going beyond their expectations. And however successful your solutions are, the vast majority of people do business with you because you and the client connected on a personal level, and trust was established. So that your best referrals will come from those who have a real affection for you as an individual who happens to deliver the best solutions for their business. Always keep that in mind: constant improvements of your solutions and a constant nurturing of your relationship. If you get too comfy with the relationship and neglect it thinking they’ll automatically come back to you each time, you might find yourself as the odd person out because someone else will fill the void. Gee, sounds like a marriage, doesn’t it?

Let’s face it: your first clients will most likely be people you already know; maybe family members, close friends, former business associates and clients you’ve worked with in the past. So your first set of referrals will be from those who know you personally and can vouch for your honesty, your concern for the work, your passion and the ease of doing business with you. (Also, think in terms of building your network with your classmates, the participants from your Strategy Session and businesses you meet at the Ignite Expo.)

Once you’ve established your reputation with a few clients, then go back and ask for referrals, not after one transaction but perhaps after three or four and a couple of months. Then get in the habit of asking for referrals from all your clients. The worst they can do is say, “no.” But I doubt that because if you perform and they keep coming back, that says a lot about what they think about you. Now, it’s a matter of getting your client to verbalize that on your behalf. I can’t remember once when someone refused to write me a referral or introduce me to another client when I asked for it. And always remember to thank them for the referral. Perhaps a thank-you card, a phone call or a small gift to show your appreciation. (We all want to be acknowledged and it encourages more referrals in the future!) And why not expose yourself to an even greater extent by participating in LinkedIn, Facebook and other social networking sites as we discussed in Marketing.

It’s Got to Be a System So that It’ll Grow Organically

So establish that Referral System and use it regularly! Establish a tickler file that sets up benchmarks for when you’ll be asking for a referral: how you’ll compensate for referrals and at what intervals you’ll be asking for more referrals. As you can imagine, after a while, the Referral System becomes self perpetuating as your clients become a part of the system. Invariably, they automatically begin referring clients to you as if its’ bragging rights. When it becomes a part of your no-brainer sales system, you will control one of the greatest income generators for your company!

Here are some methods of formulating a winning Referral System, all of which deal with working closely with your existing clients:

Provide clear demographics of the type of clients you’re looking for. Remember: in their well meaning, your clients may refer your worst nightmares because you didn’t provide a good profile.
Provide that unexpected great service to your clients and they will always return the favor.
Provide a rewards program such as a discount on their service, a gift, a lunch out.
Always follow up any referrals with a thank you letter, card or a phone call to let them you appreciate the effort they’ve made on your behalf.
Select clients as referral agents only if they’ll rave about you starting with your Top Ten.
Asking for referrals too early in your relationship could actually harm your relationship because your client may feel that you’re trying to take advantage of them. That’s a turn-off.
Always established a goal for your Referral System: how many in a month; quarterly, annually.

If you’ve completed a cost analysis on your Referral System, you’ll note that it’s cost you very little money. How cool is that! Remember, it’s not how much money you throw at it, it’s how you plan and execute your Sales Strategy and implement your Sales Tactics.

You Might Not Remember The Alamo But Never Forget The Platinum Rule

I can’t stress that in business, it’s all about people and gaining their trust. Whether it’s part of your Referral System, your Sales Strategy or your Sales Tactics, you must go into your relationships with clients using the Platinum Rule. “And what is the Platinum Rule?” you ask. Well, we’ve all heard of the Golden Rule: “Treat others as you would like to be treated.” It is one of the oldest rules from which our Constitution is based as well as the concepts behind international human rights.

In sales and business relations, the Platinum Rule goes one step further: “Treat others as they want to be treated.” This doesn’t mean kiss their butts and act like a wimpy “yes” man. It means respect your clients and provide them with what they need. It says “let me first understand what my client wants and then I’ll do the best I can in order to give it to them.” The results will be rewarding.

In the book, “Groundswell,” the authors speak about the trends business people need to be aware of when dealing with the new technology of marketing. Yet, much of what they speak of sounds a great deal like the Platinum Rule although they call it a three-stage process for gaining your customer’s trust. The stages include: listening, talking with your clients and energizing them. Energizing is getting your clients enthused enough to refer business your way. So, the more things change, the more they . . .

The guy who came up with the Platinum Rule is Tony Allesandra, PhD in Marketing and a well known sales and marketing consultant. You might say the Platinum Rule has the elements of the “Seven Habits of Highly Effective People” in it. But in this case, it has everything to do with establishing a strong, loyal, interactive client base. As we experienced the Medicine Wheel in dealing with people we work with, Dr. Allesandra studied clients in a similar manner and gave them different names. You’ll note; however, that the characteristics sound a bit identical!

Dr. Allesandra’s concepts of the Platinum Rule came about over a 30-year period of research and analysis, but the main idea of the Platinum Rule is understanding others and helping you to understand the best ways to work with them. He categorizes four different personality types: Director, Socializer, Relator, and Thinker. The following is an excerpt from his work.

Director

Directors are driven by two governing needs: to control and achieve. Directors are goal-oriented go-getters who are most comfortable when they are in charge of people and situations. They want to accomplish many things now so they focus on no-nonsense approaches to bottom-line results. Directors seek expedience and are not afraid to bend the rules. They figure it is easier to beg forgiveness than to ask permission. Directors accept challenges, take authority and plunge head first into solving problems. They are fast-paced, task-oriented and work quickly and impressively by themselves which means they become annoyed with delays. Directors are driven and dominating which can make them stubborn, impatient and insensitive to others. Directors are so focused that they forget to take the time to smell the roses.

Socializers

Socializers are friendly, enthusiastic, “party animals” who like to be where the action is. They thrive on the admiration, acknowledgement and complements that come with being in the lime light. The Socializer’s primary strengths are enthusiasm, charm, persuasiveness and warmth. They are idea people and dreamers who excel at getting others excited about their vision. They are eternal optimists with an abundance of charisma. These qualities help them influence people and build alliances to accomplish their goals. Socializers do have their weaknesses: impatience, an aversion to being alone and a short attention span. Socializers are risk takers who base many of their decisions on intuition which is not inherently bad. Socializers are not inclined to verify information. They are more likely to assume someone else will do it.

Thinkers

Thinkers are analytical, persistent, systematic people who enjoy problem-solving. Thinkers are detail-oriented, which makes them more concerned with content than style. Thinkers are task-oriented people who enjoy perfecting processes and working toward tangible results. They’re always in control of their emotions and may become uncomfortable around people who are very outgoing such as Socializers. Thinkers have high expectations of themselves and others which can make them over-critical. Their tendency towards perfectionism-taken to an extreme can cause “paralysis by over-analysis.” Thinkers are slow and deliberate decision-makers. They do research, make comparisons, determine risks, calculate margins of error and then take action. Thinkers become irritated by surprises and glitches, hence their cautious decision-making. Thinkers are also skeptical, so they like to see promises in writing.

Relaters

Relaters are warm and nurturing individuals. They are the most people-oriented of the four styles. Relaters are excellent listeners, devoted friends and loyal employees. Their relaxed disposition makes them approachable and warm. They develop strong networks of people who are willing to be mutually supportive and reliable. Relaters are excellent team players. Relaters are risk-aversive. In fact, Relaters may tolerate unpleasant environments rather than risk change. They like the status quo and become distressed when disruptions are severe. When faced with change, they think it through, plan, and accept it into their world. Relaters more than the other types strive to maintain personal composure, stability and balance. In the office, Relaters are courteous, friendly, and willing to share responsibilities. They are good planners, persistent workers and good with follow through. Relaters go along with others even when they do not agree because they do not want to rock the boat.

Relating to the Four Types in Business

Directors

Directors are very time sensitive so never waste their time. Be organized and get to the point. Give them bottom line information and options with probabilities of success if relevant. Give them written details to read at their leisure. Directors are goal-oriented so appeal to their sense of accomplishment. Stroke their egos by supporting their ideas and acknowledge their power and prestige. Let Directors call the shots. If you disagree, argue with facts and feelings. In groups allow them to have their say because they are not the type who will take a back seat to others. With Directors in general, be efficient and competent.

Socializers

Socializers thrive on personal recognition so pour it on sincerely. Support their ideas, goals, opinions and dreams. Try not to argue with their pie-in-the-sky visions; show a little enthusiasm and encourage their creativity. Socializers are social butterflies so be ready to flutter around with them. A strong presence, stimulating and entertaining conversation, jokes and liveliness will win them over. They are people-oriented, so give them time to socialize. Avoid rushing into tasks. With Socializers be interested in them.

Relaters

Relaters are slow decision-makers for several reasons: 1. their need for security; 2. their need to avoid risk and 3. their desire to include others in the decision-making process. Relaters are relationship-oriented, want warm and fuzzy relationships, so take things slow, earn their trust, support their feelings and show sincere interest. Talk in terms of feelings not facts which is the opposite of the strategy for Thinkers. Relaters don’t want to ruffle feathers. They want to be assured that everyone will approve of them and their decisions. Give them time to solicit co-workers opinions. Never back a Relater into a corner. It is far more effective to apply warmth to get their chicken out of its egg than to crack the shell with a hammer. With Relaters, be non-threatening and sincere.

Thinkers

Thinkers are time-disciplined, so be sensitive to their time. They need details, so give them data. Support Thinkers in their organized, thoughtful approach to problem-solving. Be systematic, logical, well-prepared and exact with them. Give them time to make decisions and work independently. Allow them to talk in detail. In work groups, do not expect Thinkers to be leaders or outspoken contributors, but do rely on them to conduct research, crunch numbers and perform detailed foot work for the group. If appropriate, set guidelines and exact deadlines. Thinkers like to be complimented on their brain power, so recognize their contributions accordingly. With Thinkers, be thorough, well prepared, detail oriented and business like.

The Bottom Line in Understanding Personalities In Relation to the Platinum Rule

Understanding people is a vital – if not the most vital – component of your business success. Given that we are all different, our clients will react in different ways to how we approach the relationship. By understanding these four personality types, it gives us a better way to serve our clients and build a long term relationship. There is no value and even a negative turn of events when you try to build a relationship solely on your set of standards, values and comfort level. As Dr. Allessandra concludes: “The Platinum rule provides powerful life skills that will serve you well in all your relationships: business, friends, family, spouse and children. Improved relationships create infinite possibilities. Sometimes I think of John Lennon’s song, “Imagine.” One of the verses could be: “Imagine there’s no conflict, it’s easy if you try.”

What About You? Are You Ready to Sell?

There’s nothing that says you have to be an extrovert to excel at sales. The key ingredients are your passion for what you’re selling, and your ability to hear your client’s needs. Having been around hundreds of sales people I can clue you in to what I’ve observed as the best characteristics for an effective, compassionate sales person.

Integrity is a critical factor, perhaps the most important one for sales, because your business must build itself on clients who are committed to you in the long term. When a client is happy about a sale, you’ve established a trust factor that only comes from the integrity you’ve shown during the sales cycle. And this trust will continue to bring that client back to you.

Commitment to your company’s sales strategy and tactics. This requires patience and the ability to multi-task several clients at the same time. It is your commitment to take action and initiate new prospects and build your referral system. Sometimes a sale may take months to complete and it is your commitment to see that process to its conclusion is critical which will gain integrity to your company’s overall image.

Passion you have for what you do and the product/service you’re selling. You can’t fake passion and your customers will get it right away. You’ll make it easier on your clients to select your business when your passion comes out. This doesn’t mean ranting and raving but it does mean showing your expertise, thoroughness and commitment to your business. That’s what clients what from their vendors – standing 100 percent behind their product/service!

Creativity means bringing solutions to your clients that shows insight and a unique vision to your work. Anyone can leave behind business cards and a few trinkets! Think differently and make your company standout. It does take more work in the beginning but what you’re actually doing is creating a sales system that can be repeated and constantly improved upon. The more you practice your creativity, the better you’ll get.

Tenacity to stay the course, having the courage to go on even after a series of failed sales attempts because you believe in what you’re doing even if not exactly right yet. Failed attempts means you either have a confusing message or your clients don’t need what you have. These insights should help you right the wrong and move forward. Tenacity in sales is essential because in the majority of sales cycle, the customer needs to be convinced that you are the right solution.

System-oriented so that there is a logical and planned method to how you conduct your sales strategy and tactics. This requires you to set up a system that provides a guide for you to follow:

- Establishing a method of searching for clients
- The process of understanding your client’s needs
- Research methods for both the client and the solutions
- Establishing presentations that are relevant and on point
- Assuring your company is in control of the sales process
- A process that goes through the process and asks for the sale
- Follow-up process to assure the client’s satisfaction

Lessons 10 & 11: Marketing to A Niche Market

2011-05-14T07:31:00.000-07:00

Don't Imitate, Instead Innovate and Cause Havoc

Peter Drucker, one of the most influential thinkers of the Western business world, once said that business can be broken down into just two main tasks: innovation and marketing. And without a doubt, innovation and marketing are best developed when you gain the knowledge, implement that knowledge, analyze the results (feedback), and then implement your improved knowledge (or innovation). In other words: you have to get out there and do it and see what works. It is a constant process that changes with your accumulating experiences and the technologies that will influence your industry.

Keep this in mind: the knowledge you gain isn’t always going to serve you well unless you keep your target audience in mind at all times. Think of marketing as an innovation in and of itself. Don’t try to imitate the big boys because you can’t win in their arena. Instead, think of Star Wars and the rebel uprising against the evil empire, think of the way in which Barack Obama rose to the presidency and think how the status quo is not really your friend in business—as a small business—because it’s based on the paradigms and rules of big, fat corporations. Small businesses win when they buck the system and come up with stuff that catches the status quo by surprise! This has been referred to as “Disruptive Innovation.”

Clayton Christensen, Harvard professor and author of several books and articles on disruptive innovation, called it “in simple applications at the bottom of a market and then relentlessly moves ‘up market,’ eventually displacing established competitors.” He goes on to say:

An innovation that is disruptive allows a whole new population of consumers access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skills. (Mainframe computers vs. personal computers; record stores vs. iTunes downloads; Internet marketing versus print media; postal services vs. email) Characteristics of disruptive businesses, at least in their initial stages, can include: lower gross margins, smaller target markets, and simpler products and services that may not appear as attractive as existing solutions when compared against traditional performance metrics.

Seth Godin, one of my favorite marketing gurus and a champion of disruptive innovation, had this interesting way of looking at how companies market themselves (November, 2009):

So if it’s true that to a person with a hammer, every problem looks like a nail, the really useful question is, “What sort of hammer do you have?”

At big TV networks, they have a TV hammer. At a surgeon’s office, they have the scalpel hammer. A drug counselor has the talk hammer, while a judge probably has the jail hammer.

Maybe, it’s time for a new hammer . . .

When the market changes, you may be seeing all the new opportunities and problems in the wrong way because of the solutions you’re used to. The reason so many organizations have trouble using social media is that they are using precisely the wrong hammer. And odds are, they will continue to do so until their organization fails. PR firms try to use the new tools to send press releases, because, you guessed it, that’s their hammer.

The best way to find the right tool for the job is to learn to be good at switching hammers.

So Think Different, Think Fresh, Think Social Media

Think of your knowledge as a critical ingredient for innovation because you know more than you think. But it’s necessary to keep learning to advance your company’s offering and make it resonate with your customers. It may not happen immediately, but with marketing content that addresses your customers’ needs and as their trust in you grows, your message will be heard.

And now, you’ve also got one other huge consideration that can be advantageous and possibly detrimental. It’s the power of the voices on the Internet—or social media. Even if your business isn’t on the Internet (which would be an absurd mistake), your customers are talking about you, writing reviews, and providing unsolicited opinions and insights to other potential customers. You can’t stop it, can’t control it, and it’s gaining in power and influence. It means that you may not be the biggest influence on how people see your company. It also means you can have many powerful allies singing your praises.

Your company’s image is now in the hands of those who have experienced a relationship with you or even just a glancing minute. Many companies who have either lagged behind in their technology or disregarded the Internet have come to hate these new avenues because it has changed the playing field. Internet commentaries are growing organically by users to help others navigate the treacherous world of shopping for products and services. But your company can take advantage of this phenomenon by maintaining its client-centric posture and making sure that you’re doing your best to satisfy each customer who comes through your door—even if they don’t buy anything.

Quite simply, marketing has two components: a compelling message to bring in your targeted client base and the mechanism to gauge and respond to customer input. When carried out successfully, you’ll have paying customers who will come back regularly.

Definitions of Marketing

To be sure, marketing is the representation of your company to the outside world. Marketing is the way you want the public to view your company. It is greater than advertising, greater than your public relations or your referral system, and far more than establishing your niche client base. It is, however, all these things working in a synergistic methodology. It is your job to find that happy medium where the quantity and quality of your marketing materials is in right proportion to attract your customer base. And in each and every one of these efforts, the message must be kept consistent and simple. Otherwise it will confuse your audience, and confused audiences will not buy from you. Simultaneously, it’s imperative that you are also building the internal system and culture for you and your workers in order to carry forth with your marketing message. If you don’t do what you say you’ll do, the consequences will be severe.

I’m assuming that you have a very limited budget, so what we are about to venture into doesn’t require a rich uncle or a third job flipping burgers on the graveyard shift. It does require some elbow grease, attention to detail, and devotion to follow-through. Also, let’s make one thing clear: marketing is not a one-night stand. It’s like an engine with eight pistons, each representing one component of the whole. Each of the pistons requires periodic fine tuning and sometimes an entire overhaul when the results begin to diminish. You might say that successful marketing is like a long happy marriage: after the honeymoon, it’s not always a bed of roses but if both of you are willing to work on it, give it a little pizzazz here and there, and you’re committed to sticking with it, then you’ll work on getting to the answers rather than making excuses and neglecting it to failure.

In this section, you’ll be faced with a bunch of questions; some of which are generic to your quest for marketing excellence, some to help focus your new business through information gathering, and some that are specific to your marketing strategy. Keep in mind that these questions, although not always direct to your business plan, are integral to the content of your marketing section. Reframe some of these questions in order to make them relevant to your business plan. Remember to be diligent with your research and answers because, one day, you might be making the next best thing since sliced bread.

The Legend of Sliced Bread

Did you know the guy who invented sliced bread originally couldn’t get anyone to buy his machine or his sliced bread? Seems he had a bit of bad luck, didn’t listen well enough to the feedback, or take the time to step into the shoes of his potential customers—the Platinum Rule again. Otto Rohwedder, a Midwestern jeweler, first came up with the idea in 1912. Otto invented the machine but couldn’t get anyone interested because housewives immediately saw the flaw: the bread dried up too quickly once sliced. But he knew his invention was a good one, and finally, after four years, he decided his invention needed some changes. So passionate was he about sliced bread that he sold his three jewelry stores so he could tinker with his invention. But in 1917, a fire burned down his factory and destroyed the machine and the blueprints. It took Otto another eight years before he could save enough money and convince enough investors to start up again. Talk about devotion and passion!

It wasn’t until 1926— a full 14 years since Otto first invented the machine—that he filed for a patent with an improved design that sliced and wrapped the bread in one motion to keep the moisture in. But even at that, Otto’s invention still hadn’t hit the big times because he was marketing the machine as a technical innovation, not a solution to better living, or easier food preparation. It took Continental Bakers, makers of Wonder Bread, in 1930 to parlay Otto’s technical prowess into a perspective that spoke to mothers, who were the real audience. The bread was wrapped in an appealing rainbow of balloons against a clean white background inspired by an international balloon race in Indianapolis. It was attractive and fresh-looking, something that mothers believed to be important. It also had the slogan, “Helps build strong bodies 8 ways,” and who wouldn’t want their children to have healthy bodies. Note that Wonder Bread was about the content, not the technology. These along with the convenience of sliced bread made Wonder Bread one of the top national brands.

What’s the moral of this story? The greatest invention since sliced bread is only as good as what the consumer perceives as a value to them. Without a marketing plan that carefully captures your targeted customers in a compelling way, there is no market to start out with. A good way to think about your marketing strategies is to use the six Sticky Principles as your guide. (Made to Stick, Chip and Dan Heath, Random House, ©2007) In their book, the Heath brothers make a case for a systematic approach to getting your message across. While it can be applied to different disciplines, its application to your marketing contents is critical. The book is based on an on-going research told through stories to illustrate six points with a memorable acronym: SUCCESs. Below is an excerpt from the book in briefly describing the principles.

The Principles of Sticky Ideas

Principle #1: Simplicity – How do we find the central core of our ideas? A successful defense lawyer says, “If you argue ten points, even if each is a good point, when they get back to the jury room they won’t remember any.” To strip an idea down to its core, we must be masters of exclusion. (The concept of the Personal Mission Statement) We must relentlessly prioritize. We must create ideas that are both simple and profound. The Golden Rule is the ultimate model of simplicity: a one-sentence statement so profound that an individual could spend a lifetime learning how to follow it.

Principle #2: Unexpectedness – How do we get our audience to pay attention to our ideas and how do we maintain their interest when we need time to get the ideas across? We need to violate people’s expectations. We need to be counterintuitive. We can use surprise—an emotion whose function is to increase alertness and cause focus. But surprise doesn’t last. For our idea to endure, we must generate interest and curiosity. We can engage people’s curiosity over a long period by systematically “opening gaps” in their knowledge—and then filling the gap.

Principle #3: Concreteness – How do we make our ideas clear? We must explain our ideas in terms of human actions, in terms of sensory information. This is where so much business communications goes awry. Mission statements, synergies, strategies, visions—they are often ambiguous to the point of being meaningless. Naturally sticky ideas are full of concrete images because our brains are wired to remember concrete data. Speaking concretely is the only way to ensure that our idea will mean the same thing to everyone in our audience.

Principle #4: Credibility – How do we make people believe in our ideas? Sticky ideas have to carry their own credentials. We need ways to help people test our ideas for themselves—a “try before you buy” philosophy for the world of ideas. When we’re trying to build a case for something, most of us instinctively grasp for hard numbers. In many cases this is exactly the wrong approach. In the sole presidential debate between Ronald Reagan and Jimmy Carter, Reagan could have cited innumerable statistics demonstrating the sluggishness of the economy. Instead he made one simple statement: “Before you vote, ask yourself if you are better off today than you were four years ago.”

Principle #5: Emotions – How do we get people to care about our ideas? We make them feel something. Research shows that people are more likely to make a charitable gift to a single needy individual than to an entire impoverished region. We are wired to feel things for people, not for abstractions. Sometimes, the hard part is finding the right emotion to harness. For instance, it’s difficult to get teenagers to quit smoking by instilling in them a fear of the consequences, but it’s easier to get them to quit by tapping into their resentment of the duplicity of Big Tobacco.

Principle #6: Stories – How do we get people to act on our ideas? We tell stories. Firefighters naturally swap stories after every fire, and by doing so, they multiply their experience; after years of hearing stories, they have a richer, more complete mental catalog of critical situations they might confront during a fire and the appropriate response to those situations. Research shows that mentally rehearsing a situation helps us perform better when we encounter that situation in the physical environment. Similarly, hearing stories acts as a kind of mental flight simulator, preparing us to respond more quickly and effectively.

Marketing your business will be a new experience. So don’t freak out before you get started. Remember, in our entrepreneurial world, Rule #1 is always “Action Creates Knowledge.” This means you’ve got to get down and dirty with new ideas and instigate new experiences. A key point: think about those board games when you were young. You had to learn how to play, but once you got going, it was a blast! Marketing is an adult game. Remember, the more times you play the game, the better you’ll get and the more fun you’ll have (maybe even an addictive challenge—which happened to me all the time). Why it might even make you smarter and grow more brain cells! Actually, the latest scientific evidence says it will! So, know some ground rules:

You’re the tortoise, not the hare, and if you don’t stop being so impatient, you won’t last.
Life is truly short, so stick to your life plan, PMS, and stick to the core idea of your business
Think cheap, think urban guerilla, think anti status quo, think your daily dose of innovation.
Listen very closely to your customers; they’re actually in charge of your marketing arm.
Don’t burn bridges, ever; instead build them constantly—friends will help you grow.
Your marketing subtitle: “Truth in Unexpected Simplicity,” then make it so for your clients.
In the end, it’s all about trust—your customers’ trust; trust in yourself to do the right thing.

It begins with a single step and it gets better only if you keep moving

The problem with newspaper advertising is that it’s too general especially for new businesses and small businesses. That’s why Internet advertising has taken off and grown into the biggest venue for ads. Small companies love how it can segment to a particular crowd, and its audience becomes so much larger! Besides, there are so many tools on the Internet that are cheap or free, why pay for lousy coverage? Newspapers—relying on ad dollars—will all die.

Trust, however, is the overriding factor in marketing; and that takes a while. An old-time entrepreneur I knew decided to take his work to Hawaii. For the first two years, all he did was visit his potential clients and provide information and assistance without making one sale. He even made family visits and brought cookies for the kids. I was astounded by his tenacity and level of service so I asked him about it.

“There’s simplicity here,” he said. “People in Hawaii do business with each other because they’ve known each other for decades, so they’ve built trust through their own personal experiences. Being from the mainland, I have to build that trust and confidence and show that I’m here to stay. It’s like a test to see if I’ll fit into their ‘Ohana’ (family).” In the end, he won their trust and gained many clients, most of whom were referrals.

That’s the kind of longevity you’ll want to practice because long-term clients means happy clients who will stick by you, rave about you, and love to refer other customers to you. Be very conscious about this because it will prove to be your best source of business. Of course, you’re thinking, “Well, I need customers immediately to get started!” Two things: use the Internet for your marketing focus and start building a network of referrals now!

I’m talking about right now; in class, with your classmates because at this moment, there is no better referral possibility than those who are going through the same experience with you towards entrepreneurship. The relationships you build because of the closeness and like-minded bonding you’re doing in class is a great way to build your referral system.

The Internet As Your Marketing Buddy, But First . . .

In their bestselling book entitled Groundswell by Charlene Li and Josh Bernoff, (Harvard Business Press ©2008) of Forester Research, the authors make the argument that there is no way for companies to survive in today’s market without a comprehensive understanding of both the undercurrent culture and the burgeoning fundamental change in Internet behavior. They define groundswell as “a social trend in which people use technologies to get the things they need from each other, rather than from traditional institutions like corporations.”

Wow! Now that's a statement that'll strike fear in traditional business owners. It means your influence can no longer be fluffy words alone; it must be a compelling message followed by world-class performance because the Internet is an open book that has a worldwide audience.

Moreover, they make the argument that even though the technologies are rapidly advancing, it is not the technologies that companies must focus on, but rather the people who make up the forces using these technologies. Their key principle for mastering the groundswell: “concentrate on the relationships, not the technologies.” (Ahh! Your ability to meet your client’s needs)

Like Swimming Against A Tidal Wave?

The groundswell has essentially democratized information so that anyone with Internet access can initiate and respond to whatever is on their minds including how they feel about your company. These are then compiled in user-interest sites as well as hundreds of other sites by any group of users who may believe the information to be relevant to their specific interest. In the case for business, it is one thing to market the virtues of your work but another thing altogether when one or more users write their reviews. In many cases, the glorification of your company dies quickly to the biting words of a nasty review.

While you can fight back with your own words in defense, the best defense is never to get yourself in a situation where your reviewers are trashing the crap out of you. More and more, every business, every product and every service has some sort of review on the Internet, and consumers are using these reviews more often than ever as part of their buying decision process.

But companies such as Amazon are setting up their own review portals to allow users to make comments about their experience with them. In February 2009, BusinessWeek ranked Amazon as the best customer experience on the web. So in this case, encouraging user reviews is a highly-effective marketing tool that required only a feedback portal. The rest was supplied by the surge of users. Check out your buying experience on Amazon and analyze how their website works for you. Their tools and their respect for their clients are unsurpassed.

In order for Amazon to build a loyal customer base who raves about their service, a number of internal functions had to be considered. First and foremost was to make sure the employees understood what was expected of them by communicating what was to lie ahead. Next, they established the operational procedures that would provide the resources necessary for their employees to produce excellent service. And lastly, Amazon had to build the technical system to streamline their operations. One important change was in allowing their customer service representatives to make most decisions without having to tell their clients: “I’ll have to ask my supervisor about that.”

According to Pew American Internet Study, a survey released in March 2009 showed that 91 percent of the users logging onto the Internet were there to search for something. Search was tied with email as the number one online activity.

The speed at which search engines can help you find what you need is superior to thumbing through the Yellow Pages or looking for ads in the paper. Advertisers are taking advantage of this electronic resource to the point that many newspapers, for instance, have an electronic version of their daily printouts. By so doing, they are creating their own hard copy demise.

The Internet Technologies That Influence

So in order to work with the people creating the groundswell, it’s also important for entrepreneurs to understand the various technologies being utilized and growing constantly. Among these are blogs, social networking sites (SNS), wikis, forums, tags, really simple syndication (RSS), widgets, and twitter.

Blogs: these are personal or group entries into an electronic journal. This can take the form of a written document, a video or an audio segment, or all three. Articles you write no longer require strict guidelines or extensive approval procedures from an editor; you just publish it yourself on one of the thousands of blog sites. Here are three sites that give you access to many of the blogs: http://www.blogcatalog.com/, www.googleblog.blogspot.com, www.blogtopsites.com.You can also go to Google’s own site for an explanation on how to use blogs: http://googlesitesblog.blogspot.com/. YouTube is an example of “user-generated” video site that reaches millions of viewers worldwide. There are thousands of blog sites geared for every possible niche and interest. Blogs encourage comments and feedback on their specific topics. According to Groundswell blogs are read and/or viewed by 25 percent of all American Internet users, making it one of the most popular online activities.

Blogs are inherent in their culture for feedback, citing each other’s work, in adding links to other blogs and building relationships. This environment of interaction is called a “blogosphere” in which any given topic is trailed by a stream of comments, feedbacks, and links.

Since blogs are unregulated and users follow no formal set of guides, some of the information may contain lies and rumors without conflict-of-interest disclosures. This would pertain to your new company as bloggers start to write their opinions about your new enterprise. It’s always a good idea to first read and listen to what’s being said about your company before reacting. Blog search engines such as Google Blog Search, BlogSearchEngine.com, and Technorati.com will make it easier for you to see what others are saying about you on their blogs.

You can start replying to the comments with your own comments or even start your own blog as many companies have done. In this way, you’re able not only to initiate contact with the public but also introduce new concepts and test out new ideas. YouTube has been an effective, cheap method for many companies to introduce or market their products and services using the ever popular video format giving credence to the old adage that a picture is worth a thousand words.

Social Networking: A social network is an online community of people who share interests and/or activities. Most social networks are web-based (accessible through a web address) and provide a variety of ways for users to interact with each other such as email and instant messaging. Social networking has created new ways to communicate and share information because most of them are open source—meaning they allow programmers to improve upon or add new features for communication. Social networks are used regularly by millions of people with the most popular being those connecting friends, former classmates, and recommender systems linked to trust. The most popular methods are those that incorporate various methods such as LinkedIn, Facebook, and MySpace.

According to Nielsen Online, an Internet research company, Facebook is the most popular social networking site with a 566 percent increase from December 2007 to December 2008. This translates to over 108 million visitors worldwide during December 2008. MySpace was second with 81 million.

Social networks are maintained by members of these sites who write up their own profiles, write comments and provide feedback. One of the most popular activities is “friend-ing” which allows people to acknowledge relationships and keep updated on their friends and acquaintances. According to Groundswell, one in four American adults visits these sites at least monthly. However, social networking has proven to be an addicting activity for some users who visit several times a day roaming about to see what new individuals, postings or activities have been added. Among teens, 22 percent stated they visited daily according to a Forrester Research study conducted in 2007. Social networking is also the top Internet activity for college-aged users.

For businesses, social networks can connect people at a low cost where these networks act as a customer relationship management tool. These are used to provide information on products and services as well as placing advertising in the form of banners and text ads which of course, are viewed globally—far superior to placing an ad in the Yellow Pages or your local newspaper. LinkedIn is a rapidly growing site for businesses where users connect with each other for a variety of business and personal reasons. Some 36 million contacts in 200 countries use LinkedIn.

Social networks are broken down into two categories: Internal Social Networking (ISN) and External Social Networking (ESN). An ISN is a closed or private community consisting of groups of people within a company, association, or social group. An ESN is open to the public and available to all web users. It can either be a niche site such as knitters, golfers, yoga enthusiasts or as broad and open as Facebook and MySpace.

Wikis: Wikis are information websites maintained by Internet users. Wiki is a Hawaiian word for “quick” and refers to the ease at which individuals are capable of making contributions, changes, and maintaining the contents of the website. The wiki is supported by multiple contributors with a shared responsibility for servicing the site usually containing word and graphics. The largest wiki site is Wikipedia, a nonprofit encyclopedia with over two million articles. It is considered the eighth most visited site on the Internet.

A wiki invites all users to edit any page or to create new pages using a simple web browser. The wiki also promotes associations between different pages by making page links to compatible subjects. The wiki is open to all but according to Groundswell, only six percent of the users make contributions while over 22 percent use it.

A critical characteristic of the wiki technology is the ease at which pages can be created and altered. Generally, there is no review whether you log in or not. However, as a legitimate contributor, it is always beneficial to sign in as the author. Surprisingly, even without its regulatory protocol, the great majority of information on the wikis comes from users with a sincere quest to providing accurate information. The beauty of the technology allows for near-real time changes meaning that alternations can be seen almost instantaneously. However there are private wikis that require users to sign in and wait for a review before the article is posted.

As a new company, you too can contribute your own wiki as a service to your clients. Check out: www.wikihow.com. For instance, eBay has a wiki for sellers and buyers to provide advice on selling and buying various articles. Reuters built a wiki to help its readers create a financial glossary (www.glossary.reuters.com).

Forums: Forums are the oldest forms of social technology—even predating the Internet. They are online discussion sites on just about any subject imaginable. Forums require you to sign up and log in to post your comments. The most popular forums are those that recommend, rate, review and discuss products and services. Forums are so prevalent that it’s a given that most sites will offer a forum as part of their presence. They do, however, have a set of rules for participation that must be adhered to.

Forums are started by a user on a particular subject. A thread begins where someone else will comment which then continues as advice, questions, and opinions are voiced by other readers and contributors. But the most popular forums are taking the form of reviews. Amazon.com was the first to use reviews as a way to get consumer involvement and leverage reviews as a sales and marketing tool. Now, many major retail sites have join the movement. They will even email you with a link to their review page. This not only helps the retailer to get feedback on what you’ve purchased, but it provides a way for the retailer to get you back to their site for another possible sale.

Online reviews have become an automatic part of the buying process for many consumers now with one in four Americans using review sites in order to make a decision. The impact of reviews has changed the playing field for most businesses. In the past, the business only had to convince a professional reviewer of the quality of his product who would then write a lone review. Now, consumers are weighing in with their own experiences and posting those to the appropriate websites. There are two types of review sites: the independent review site such as Yelp and the commercially-loaded sites that contain banner ads and links to “recommended” stores. The latter is really a retail portal and not a true review site.

Twitter: This is a short blogging service acting as a social network. It allows users to send and read other users updates known as “tweets.” Tweets are text-based postings containing a maximum of 140 characters. Updates are displayed on the user’s profile page and delivered to other users who have signed up to receive them. Users can send and receive updates via the Twitter website or on their cell phones using Short Message Service (SMS) or on their web browser through Really Simple Syndication (RSS) web feeds which can be added to your personalized opening web pages on Google and Yahoo.

One of the most famous Twitter users is President Barack Obama. According to Forester Research, Twitter is ranked only behind Facebook and MySpace with about 55 million visitors a month.

For your business, you can use Twitter to let your customers know of any updates to your services and products in this quick format which can direct them to a website providing more extensive information.

The More Things Change, The More They Stay the Same

There should be no question in your mind that the use of Internet marketing tools is a necessity for your business. First and foremost, they are easy to use and simple for your clients to access. They are primarily open forums that give control to the users and that’s exactly what you want. While technology and the Internet are providing a level of marketing unprecedented, through all the new wording, slogans and technical innovations, what you’ll discover is that a successful business comes down to your ability to listen to your clients and satisfy their needs. That’s it. The difference is that today, you either use the technology or you die because your clients are already using the technology.

Six Months Down the Road

Okay, now let’s look ahead—six months in business and you’ve established a small customer base. You’re starting to know your clients and you’ve made some logical adjustments to your business. At this point, I would recommend a formal sit-down with yourself and some of your colleagues to examine what’s happened so far. By doing so, you’ll begin to take inventory of reactions from clients and potential clients. This will provide a method of fine tuning your message. At this juncture, you‘ll want to reflect and begin to memorialize your experiences into a reformation of your marketing strategy. For instance; in my startups, a period of 6 months up to a year gave me much better insights through my interactions with my clients and, if I had any, with my employees. These will help in:

Distinguishing yourself with niche advertising to your client base that educates; providing information that is useful to your customers. Of course, you’ll need to get a great assessment of what your clients are looking for! If you follow the Made to Stick principles, your ads and your messages would include examples of successful stories from clients. Testimonials add believability. But don’t expect your ads to get people to buy right away. First, they’ll need to warm up to you; get to know you. So at this point, they’re “prospects.” Once they’ve made contact with you or show an interest in your business, they now have given you permission to sell to them. (Don’t forget creativity and imagination in your headlines because that’s the first thing the reader will see—80 percent of your attraction will originate from the headline.)
Fine tuning your niche market. If you started your business based on the concept that you cannot be all things to all people but you can be a welcome resource for a specific body of people, then your next step is to re-examine the niche you’ve selected. This may mean firing some clients and it may be broadening your niche to include a different audience. Also note that specialization allows you to provide value that’s worth more to your niche clients so that your distinct offerings do not have to compete on price. But make it a fair price—your clients know!
Ask your best customers to speak on your behalf. There’s an interesting phenomenon that happens with happy customers: they want to see you succeed and they want to be a part of it especially if they see you working hard to make your new business a success. So don’t be afraid to ask for referrals. In fact, you can make that a part of your marketing program and to the point that doing business with you requires your clients to make referrals. When you train your clients to work as your champions, they’ll take that as part of their relationship to you!
Concentrate on serving your existing clients. It is far easier to gain more business from your existing clients than constantly seeking new clients. Make it a point of your marketing strategy that referrals will be the bulk of your new business. In order to make this work, it means that your existing clients must be satisfied first and foremost. (In my companies, our goal was always 70 percent new business from referrals. Not only did this give us a format for doing business, it established a client-centric culture that dictated how everyone in the company was to treat our clients. In the end, it was a lot cheaper than having to constantly search for new business.)

Analyzing Where You Stand Within Your Industry

So in order to get to the future, we need to return to the beginning. First, see how you fit into your industry. Usually, your best search will be on Google. That is, if you haven’t researched the specific websites for your industry yet. Since you’ve come this far with your business concepts, you’re going into this section with a reasonable definition about your new company, about yourself and your future. These are all important because consistency of what you put forth in your marketing plan must remain constant in each of your marketing tactics. And it’s worth repeating: make sure whatever you put forth to the public, it jives with your code of ethics, your principles and the goals for your GPS. Otherwise, you’ll send a confusing message to your potential audience, you’ll be constantly questioning yourself and you’ll end up with zilch.

As you conduct your research within your industry, ask yourself:

Is my industry a rising or falling star? What is the long-term forecast?
What associations are available to me to seek information and/or join?
What are the innovations going on that I must incorporate now or later when I can afford it?
What are the trends that make the most sense to me? What are trends to avoid?
What trends fit my company profile from which I can make immediate profits?
With what my business is, how unique is my product/service in comparison to the rest?
What companies can I emulate? And what could I learn to do better from them?
Who are the local stars that I can look at and learn from?
Are there mentorship programs or helpful programs for new businesses?
Is there a website that can help me to estimate my startup costs, pricing strategy, etc.
Are there similar industries that will provide additional information?

The idea is to get really well acquainted with your industry and understand it from the inside out. This way, you’ll be able to guide your business where it makes the most sense and the most profits. In the worst case scenario, you may find that it’s heading for the dumpster which of course, means “thank god!” you did the research.

Establishing Your First Target Market

Your target market guides you in your sales effort. This is the second phase of your marketing plan. Here you can get detailed, and I would recommend that you be as specific as possible without going into “analysis paralysis.” So how much is too much research? When you realize that the real reason you’re doing more research is because you’re scared shitless about launching. At that point, it’s time to launch. No, you probably won’t feel ready but no one ever does. What you’ll find as I said about the six-month review is that your best answers will come once you’ve launched. Real experiences in your new business will tell you which way to go. The following is a list of the areas to consider for researching your target market:

Audience Demographic Checklist

Age Group Gender Profession Education level

Household Income Marital status Geographic location

Corporate Customer Checklist

Number of Employees Physical Locations Products and Services They Provide

Annual Revenue Number, Size and Location of Branches Website

Year Founded Key Personnel If Publicly Traded, Annual Report

Psychographic Checklist

Conservative Liberal Conformist Environment-friendly Socially Conscious

Growth Oriented Fun Loving Cutting Edge Trend Follower Fashion Forward

Family Oriented

Corporate Clientele Psychographic Profile

(If your target market is made up of corporate customers, which of the following psychographic categories fit them?)

Market Leader Innovative or Cutting Edge Liberal Conservative

Environment Friendly Employee/Family Friendly Fast Growing/Adopt New Ideas

Stable/Set in Their Ways Growth Stage (Startup, Growth, Stable or Decline)

Type of Workforce Employed

Who in the business are you selling to?

What department do they represent, what management level?

Are there common characteristics of a certain department that you can identify?

What are the common characteristics of the management team?

What is the company culture?

What is the management style?

What trade associations do they belong to?

What publications do they subscribe to?

Behavioristic

(These are the factors that identify the motivation or reasons why someone wants to buy your product or service.)

What benefit is the customer looking for?

How often will they purchase?

What is the decision-making process?

What Factors Are Most Important to Your Customers?

Item Very Important Somewhat Important Not Important

Price

Quality

Brand Names

Specialization

Customer Service

Broad Array of Services

Broad Array of Products

Friendly Staff

Internet Ease

Informative Website

Discounts and Sales

Attractive Packaging

Convenient Locations

Store/Office Appearance

Convenience of Product

Convenience of Service

Guarantees/Warranties

Technical Assistance

Flexible Payment Terms

Once you’ve identified your target market, place all your emphasis on marketing to them. Believe in the 80-20 Rule. Eighty percent of your revenues will always come from the top 20 percent of your clients. The 20 percent represents your target market. The other 80 percent is essentially “lookie-loos” who will take up too much time and provide you with only 20 percent of your income.

Another Approach to Balance Sheets

2011-05-08T12:48:00.000-07:00

Why in the world does Assets = Liabilities + Equity? This equation has tormented many new business owners since the dawn of double entry bookkeeping. But understanding Balance Sheets is crucial for understanding your business’ financial health.

Assets are anything of value in your company. Things like cash, inventory, office equipment, prepaid expenses… these are all worth something to you and thus, would be considered an asset.

Equity is what you, or any other investors in your company, own. So, if you invest $1,000 into your business, you have $1,000 in equity. This must go on your balance sheet. Likewise, any money you make from your business belongs to you, the owner, and so that would also go on your balance sheet under equity as “Retained Earnings.”

Liabilities are stuff you owe other people. If you get a loan from a bank or from a friend, that is a liability because you are obligated to pay them back.

So let’s look at a simple example to show how Assets=Liabilities + Equity

(Adapted from http://www.theequator.com/fin/balance.htm).

If you had a pie, and you are the only owner and you don’t owe anybody anything then you can eat the whole pie. If you own a pie and you owe Frank one slice, then you probably shouldn’t eat the whole thing since then Frank would never get his slice. But, if you take that pie and give Frank back his slice that he is owed (liabilities) and you keep the rest (equity) then the entire pie is accounted for. The pie (assets) must equal Frank’s piece (liabilities) and everything else (equity).

Make sense? Let’s do another example:

Assets = Liabilities + Equity may look like a bunch of accounting mumbo jumbo but you are probably using this concept in your everyday life and not even know it. If you own a home and are paying a mortgage, you probably are thinking in terms of “Assets=Liabilities + Equity.” Let’s take a closer look:

Let’s say you buy a house for $500,000. If you pay for the whole house with your own money, meaning you own it free and clear, then you have 100% ownership (equity). But maybe you don’t have $500,000 sitting around and you need to get a loan from the bank for $250,000 or 50% of the house. Well, now your house (asset) is made up of the $250,000 you owe the bank (liabilities) and the $250,000 you invested in the house (equity).

House (Asset) = $500,000

Bank Loan (Liability) = $250,000

Your Investment (Equity) = $250,000

So Assets = Liabilities + Equity

Let’s go one step further. After 5 years of owning your home, the value goes up to $750,000 (pretty unlikely in our current real estate market, I know, but just pretend in your Fantasyland). How do you account for that extra $250,000? Well, it belongs to you, not the bank so we would put that under equity (what you own).

House (Asset) = $750,000

Bank Loan (Liability) = $250,000

Owner’s Investment + Earnings (Equity) = $500,000

So, you see here we’ve done a very simple example of double entry bookkeeping. We added $250,000 to the assets and $250,000 to the equity so that everything balances out.

In the recent real estate downturn, many people’s homes were worth less than what they owed to their bank and this put them in big financial trouble. The same is true for your business. You never want to get in a position when what you owe people (liabilities) is more than what you have (assets). The balance sheet will tell you just that. See why it’s important?

So remember, the goal here is to make sure that what you have (assets) covers what you owe people (liabilities), and everything left over belongs to you (equity). So Assets = Liabilities + Equity.

My Mantra: Build Your Network

2011-05-05T14:39:00.000-07:00

Another Insightful Contribution by Hugh MacLeod
from his gapingvoid.com blog

I began my professional, post-university career in the notoriously insecure world of an advertising creative department.
Agencies lose their accounts all the time. A large account staying at one agency for two years is considered good going.
And when accounts were lost, jobs were lost along with them, end of story. Often it didn't matter how good at your job you were.
You could be a rock star one day and POOF! On the street overnight.
And this was normal. We never thought a job for life existed.
All we had was our work to fall back on. And the people we knew, and the people who knew us back.
All we had was our network. The network.
That's all anybody has, at the end of the day.
And now the rest of the world is learning that quickly.

DIY for Entrepreneurs

2011-05-04T15:01:00.001-07:00

As I was saying in class a couple weeks ago, Nolo Press is a great Do-It-Yourself resource. Even better is that they have a 40 percent discount sale going on right now. Check it out:

http://www.nolo.com/promotion/anniversary.html

Lesson #7: Establishing the Legal Entity for Our Business; Part 2

2011-05-02T15:35:00.001-07:00

Partnerships

There are three types of partnerships: 1. General, 2. Limited and 3. Limited Liability Limited. With the existence of the Limited Liability Partnership and Limited Liability Corporation, you now have the option of creating an LLC/LLP rather than a partnership. Partnerships in this category are flawed with some risks which have been addressed by the newer Limited Liability Company (LLC) formation.

A partnership is a legal relationship existing between two or more persons (the law does not have an upper limit) who join to carry on a profit-motivated business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.

Unlike a sole proprietorship, a partnership is a separate legal entity with the power to sign agreements, borrow money and represent those who make up the business. However, a partnership files its annual tax return only as an “informational” report showing its income, deductions, expenses and losses from its operations. The actual income tax responsibility is placed on each partner based on his percentage of ownership in the partnership. Each partner is required to include his share of the partnership's income or loss on his personal tax returns.

General Partnerships

Like a sole proprietorship, a general partnership in California has no formal registration procedure. It only requires two or more people to formalize a verbal agreement to start a business. It would be well advised, however, to establish a written agreement using the federal “Uniform Partnership Act” as your opening template. This document will describe the rights and responsibilities of each partner.

Formation

Use the same formation process as for the sole proprietorship beginning with the search for a fictitious business name. You could also search through the recorded names of corporations and LLCs listed with the California Secretary of State if you’re considering statewide use.
Determine the initial contribution each partner will make to the partnership based on a solid estimate of the money and resources you’ll need to launch the business. Contributions may be in the form of cash, property or services, but the contributions must provide the business enough capital to operate reasonably from the outset. Your agreement needs to show each partner's initial contribution.
Within your agreement, create a procedure on how the business will dispense the profits and losses among the partners. The Uniform Partnership Act will presume that each partner is “jointly and severally” liable for the partnership debts -- that is, each partner is individually liable for the entire partnership debt -- but you may outline in your partnership agreement how profits and losses will be distributed.
Divide authority among each partner. While each partner must have access to the partnership fiscal and operating records, the scope of each partner's authority can be defined and limited in the partnership agreement.
Develop a process for conflict resolution between partners. Disputes can result in an ugly partnership dissolution unless specific guidelines are described in the partnership agreement.
Outline the steps for adding a new partner or for allowing an existing partner to resign.
Optional: you can register your new business in a Statement of General Partnership with the California Secretary of State for a fee of $70.

Operation of a General Partnership

Because a partnership is a group endeavor, you have the advantage of working with others toward a common objective. However, any time you’re dealing with people, conflicts are most likely going to arise. How you are set up to settle these conflicts is critical to your success:

Ø Make sure you have the same vision. Talk it all out before entering into the partnership

Ø Define your roles by considering each of your strengths and skills

Ø Hold periodic meetings – at least once a month – and create an open communicative culture

Ø Establish the decision-making process especially as it pertains to resolving conflicts

Ø Write up a partnership agreement (see below)

In a general partnership, each partner is “jointly and severally” liable for the actions of the partnership. This means that each general partner is deemed an agent of the partnership and is empowered to make decisions on behalf of the company including borrowing money and signing agreements. It also means that if one partner misuses funds and personally cannot pay back a debt, all the partners become liable for that debt. Furthermore, if one partner is caught in a wrongful act or represents the company without the knowledge of the other partners, all the partners are held liable. While a written agreement is not required by law, having one drafted and signed by all the partners is essential to curbing any impropriates or misunderstandings.
According to the US Small Business Administration, a partnership agreement should include:

Ø Amount of equity invested by each partner

Ø Defining the type of business and being clear as to what you’re selling

Ø How profits and loss will be shared

Ø Partners pay and compensation

Ø Distribution of assets on dissolution

Ø Provisions for changes or dissolving the partnership

Ø Dispute settlement clause

Ø Settlement in case of death or incapacitation

Ø Restrictions of authority and expenditures

Ø Length of partnership

By law, a general partnership can terminate upon the death, disability, or even withdrawal of any partner. However, you can avoid this by spelling out the provisions to address these occurrences. In most cases, the shares of a departing partner are purchased by the remaining partners.
By law, each general partner has an equal right to participate in the management and control of the business. Disagreements in the ordinary course of business are decided by a majority of the partners. More serious disagreements or amendments to the partnership agreement require the consent of all partners. However, in a partnership of any size the partnership agreement may include language allowing certain partners to manage the partnership such as a company board.
Unless otherwise provided in the partnership agreement, no one can become a member of the partnership without the consent of all partners, though a partner may assign his share of the profits and losses and right to receive distributions ("transferable interest").

Taxation

· Partners are not employees and are not issued a Form W-2. The partnership must furnish copies of Schedule K-1 (Form 1065) to the partners.

· Each partner is responsible for reporting their percentage of the partnership’s revenues and losses directly on their personal tax returns. While the partnership entity is required to report its financial activities to the IRS, it is not required to pay any taxes owed or given credits for losses.

Liability Potential

· A general partnership is considered open for liability to the partners and not to the partnership as a separate entity as would be the advantage of an LLC and corporation. This places the burden of financial responsibility onto each partner whether for financial or legal mishaps.

· As with a sole proprietorship, it is mandatory for the business to carry liability insurance and for each partner to carry a personal umbrella coverage to cover any negative legal rulings.

Limited Partnerships

A limited partnership is a business entity consisting of one or more general partners and one or more limited partners. The general partners are responsible for the operation of the company and thus, are also held liable for any legal action. Limited partners are only liable for the amount they invest into the company, and they have no management or decision-making powers. The limited partnership was developed to address the liability flaw inherent in the general partnership law. In addition, you can only create a limited partnership by registering with the state. Given its more complex formation and protection for its limited partners, a more complete registration process is necessary.

Note: a Limited Partnership is not the same as a Limited Liability Partnership.

Limited partnerships are formed when an individual or individuals have a business idea they want to pursue but lack the necessary finances to get it started. Thus, they solicit investors as their “silent partners” with the intentions of sharing any future financial gains. Much of the same rules that are listed above for general partnerships can also be applied for the limited partnership.

Formation

Limited Partnerships are required to register with the state:

Registration is filed via the Certificate of Limited Partnership through the Secretary of State: http://www.sos.ca.gov/business/be/forms.htm#calp. There is a $70 filing fee. It is required to clearly state some basic information that the state keeps on file for every business. This certificate is different from the Partnership Agreement which is a contract among partners.
At this time too, you ‘ll need to file your business name with the same agency.
For additional information, go to: www.sos.ca.gov/business/be/information-requests.htm
Registration of a limited partnership will obligate the new business to pay to the Franchise Tax Board an annual minimum tax of $800.00. The tax is required to be paid for the taxable year of registration and each taxable year, or part thereof, until a Certificate of Cancellation is filed with the Secretary of State. (California Revenue and Taxation Code section 17935.)
You will need to get both a federal employer ID as well as a state EDD ID:

Ø http://www.irs.gov/businesses/index.html?navmenu=menu1

Ø http://www.edd.ca.gov/Payroll_Taxes/default.htm

Ø http://www.dir.ca.gov/dwc/dwc_home_page.htm (worker’s comp insurance)

If you will be selling products, a reseller certificate will also be mandatory:

Ø http://www.boe.ca.gov/pdf/boe400spa.pdf

Operation of a Limited Partnership

Write up a partnership agreement using the guidelines set forth in the General Partnership section above. However, you’ll need to specify the different rules between the general partners and the limited partners.
In some instances, individuals forming the limited partnership have designated a corporation as the general partnership. In this case, it would be wise to seek the assistance of a business attorney to help you set this up assuming that you are also the founder of the corporation.
A limited partnership must maintain certain records and must follow specific requirements for registering the business name.
A limited partnership is not permitted to engage in the banking, insurance, or trust business.
When a limited partnership wishes to dissolve, it must file a certificate of cancellation with the Secretary of State in order to cancel its certificate of limited partnership.
A limited partnership can continue after the death or departure of a partner assuming it is written as such in the partnership agreement. The departing partner (or his or her beneficiaries) may be entitled to the fair market value of the partnership interest. The beneficiaries also may have the option of becoming limited partners.

Taxation

· Partners are not employees and are not issued a Form W-2. The partnership must furnish copies of Schedule K-1 (Form 1065) to the partners.

Liability Potential

· As its name states, the limited partners are limited in their liability only for their share of the investments. The general partners are liable for the entirety of their company even when it goes beyond their own investments. In the case of a legal action against the company, the court can order the general partner to pay whatever amount deemed to satisfy the court’s decision.

Lesson #8: Leadership Defines Your Business

2011-04-25T15:31:00.000-07:00

“Leadership is defined by results, not attributes” – Peter Drucker

Let’s begin with this statement: Leadership is the ability to be independent through a measurable support system. It is the understanding that your business does not succeed without internal and external controls. Leadership isn’t about managing first; it is about creating a vision and building the mechanism so that the vision can be successfully carried out by yourself and people who share your vision.

For most entrepreneurs, leadership is a role that seems somewhere down the road when you have employees. We tend to mix up leadership with management. The practice of leadership needs to happen before you open your doors because your mindset should be about two main areas: leadership within your industry and leadership of your operations. Too often, many new small business owners go into their launch skilled around their end product without regard for the bigger picture of what the company will look like in ten years. When you give the proper perspective to your business, you will view the future as a key component of your immediate priorities. The clearer the vision, the easier to describe it.

Management Versus Leadership

Management, on the other hand, is about managing the work necessary to carry out the vision. There isn’t much visioneering about management. Peter Drucker defined the difference between management and leadership: “Management is doing things right. Leadership is doing the right things.” Management is specific to managing your business on various levels. In fact, it might be detrimental for managers to practice visioneering while managing. It should be made clear that the vision is either the sole responsibility of you as the owner or with your leadership in a group strategy/vision session(s) as your business grows. Management means defining and systematizing your needs in order to carry out your vision.

Leadership is your ability to grow the company internally and externally through your vision and essential details of what your business will look like in a decade’s time. Leadership is the difference between being self employed versus being self independent. It is this leadership that will provide the mechanisms to grow your company to the point where others are happily attaining the goals you’ve established. As a leaders, don’t forget this concept: “You are either working on your GPS or you are working on someone else’s GPS.”

The Big Question: How Does One Become a Leader?

If you were to study the young lives of such leaders as Martin Luther King, Bill Gates, Barack Obama and John Wooden, you would never have guessed that they would turn out as they have. What led to their rise as leaders was the passion and commitment they made to their work. They were not born with anything out of the ordinary. But they were able to discover the world through the acquisition of knowledge that sparked an interest, an interest so profound that it would lead to their legendary rise. It is a long process of maturation, not a genetic gift. And that might be the most important lesson of leadership: it’s a marathon of “deliberate practice” that runs on an endless road. For many people who have excelled in their leadership capacity, it was their passion that served as their lifelong partner.

And where did this passion come from? In many cases, it was the encouragement of a grade school teacher, a parent or even an acquaintance who happen to see something being performed well. In most cases it was something just above the ordinary, but it was this voice of encouragement that sparked an interest which planted a seed of pride and accomplishment. Studies into the origins of performance excellence always indicate that when a child is identified with an interest in a field, the ability of the parent or guardian to encourage that child is critical in his/her development. Knowing the guidelines for deliberate practice make it more organized and “scientific” if you will. However, the role of how parents should implement deliberate practice has never been studied. Anders Ericsson, the pioneer in deliberate practice, confesses that scientists are far from getting the exact answers to how parents should fit into their child’s development. But, he warns, “Push children too hard and they respond with anger.” He believes that parents must learn to help their children grow with a greater sense of independence so that they will choose to participate in their activity. “It’s how you as a parent can make individuals feel freed to reach these levels and aware that this is going to be a long process.”

Too Old?

But what if you’re already an adult and you’ve made the decision to excel in a field of your choice? The ideals of entrepreneurship fully embrace the dawning of adults into their passionate pursuits. In one obvious way, an adult who develops into a “prodigy” may simply require less time than a child because some experiences accumulated over a lifetime can be “credited” as time spent in deliberate practice. The very idea that most new entrepreneurs begin their businesses after the age of 50 should attest to the shortened learning curve and the willingness to move forward. AARP magazine noted that in 2008, over one million new businesses in the United States were started by those over 50, making it the largest segment of the population to enter entrepreneurship.

But younger adults have also built “credit” through their education, experiences and expanding worldly understanding especially with the information available on the Internet. While it might still be difficult for some adults to identify their passion in the beginning, it nevertheless, becomes a desirable outcome to pursue. As with any deliberate practice, we understand that nothing comes in a flash but works itself slowly over a long period of time with specific training that hones the specialized skills necessary to achieve greatness. The key ingredient is commitment.

Charisma is a Reversed Concept

Often times, we hear about “charismatic” leaders as if you need to be charismatic in order to be a leader. Because many leaders gained success and notoriety, we tend to attribute that - at least partially - to their charisma. Instead, it’s the other way around: they became charismatic when they became leaders; not in their eyes but ours. They remained oblivious as they forged ahead with tenacious drive, and we placed them on a pedestal in admiration of their accomplishment. That’s what we took for charisma.

Let’s broaden the definition of charisma. Charisma does not necessarily mean a leader with a commanding presence. What we tend to see most often are well-spoken charismatic leaders but not so often, are those who lead with less fanfare and yet, have as much impact. Without a doubt, charismatic leaders with the gift of gab, draw the most attention and make for great sound bites. We are emotionally drawn to their passionate ability to get their message across. But Bill Gates rarely speaks with emotional content yet his leadership was one of the most profound influences in the computer industry.

Same could be said for Calvin Coolidge, a Republican, whose lack of verbal charisma still won him the presidency in 1923. He was known more for his “distinguished” leadership and ability to “restore the dignity and prestige of presidency,” as Democratic Alfred Smith said at the time. There is a story about Coolidge’s infamous verbal shortfall that shows that a message can be delivered effectively without the need for a powerful presence. After he became president, an inaugural party with members of Congress was held. On a bet, a senator came up to Coolidge and said, “My friend over there bet me that I can’t make you say three words.” Coolidge replied, “You lose.”

Your Passions Will Grow

So don’t confuse your lack of charisma as a weakness. Instead get to the thing that makes your heart flutter with excitement and engages your mind as if time stood still. Then, work like hell, and it may be so engaging you won’t notice how hard it is. One of the things that will happen is that as you become an expert, your desire to express your new knowledge finds an enthused voice.

As more people who desire your company’s offerings find out about you, they seek your expertise, and you naturally find opportunities to speak. And the more often you practice your lines, the finer you are able to deliver your message. (Martin Luther King’s “I Have A Dream” speech had been recited dozens of times before his most famous rendition in Washington D.C.) For many, the passion can’t be restrained and the flow of words comes out in colorful imageries. That’s when others begin to see you as a charismatic leader. When the dust settles, you too may be standing on that pedestal without knowing it.

Self Employment Isn’t Self Independence or a Factor of Leadership

Self employment is you doing all the work yourself and working 12 hours a day. Self independence is organizing your business so that it can function efficiently with or without you while you continue to reap the benefits. This doesn’t mean you aren’t working anymore. It means you’re still required to work but it also means you’ve established systems that keep you organized and in control – something that many self-employed entrepreneurs seem to lack. (If you want evidence, read “Outliers – The Story of Success” by Malcolm Gladwell, Little, Brown Publishers, 2008 and “Tribes” by Seth Godin, Penguin Group, 2008.)

Leadership means bucking the status quo and understanding that change is inevitable and desirable because improvements are a necessary part of your business. Constant social and economic changes will happen and your role as company owner is to anticipate and take control of your future. Social trends and technological breakthroughs will either have a detrimental or positive effect on your business and it will be your job to take advantage of each change. With or without you, change will happen so always look to it as a positive step forward. When you take that attitude, you are leading not following. Leaders know this and look forward to opportunities that will come about.

Take Time to Sharpen Your Saw

Remember, your best tools for utilizing change are the information you gather from the various sources that will have an impact on your business. By staying atop what is happening, you will remain a step ahead of your competition. Let’s face it: it takes work to keep a competitive edge and the majority of small business owners conduct information gathering and skills upgrade as if it’s a burden. Some don’t even bother. Instead, you should look upon this necessity as “sharpening the saw” as Stephen Covey calls it in “Seven Habits of Highly Effective People” Simon and Schuster, 1989. It is your opportunity – your responsibility – to improve your skills and to improve the offerings of your company. It must become a key component of your company’s culture. If you love what you do, seeking information should feel like being a kid again running rampant in a candy store without any big people bossing you around!

As a leader, you’ll also be up against many people who author Seth Godin calls “sheepwalkers” in “Tribes,” (one of Business Week’s Top Ten books of 2008). He defines them as “people who have been raised to be obedient and giving them brain-dead jobs and enough fear to keep them in line.” They and their compatriots will fight you even when they’re losing their jobs to outsourcing, cheaper labor and automation – fighting the changes that result from our global economy.

Everything Has Already Been Invented

A classic story of a sheepwalkers is that of the director of the US Patent Office who in 1899 said that his office was no longer necessary because everything that man would invent has already been invented! Had we lazily sheepwalked to his way of thinking, we’d still be using typewriters and slicing our own bread. Unfortunately, that way of thinking still exists where many people are so use to the way they live and work that they are unwilling to change, even for the better. It’s of the same syndrome as the battered wife who refuses to leave her abusive husband because at least she knows what lies ahead rather than getting a divorce. Her mental world has shrunk into a cubicle to the point that she fears moving outward into the unknown. It goes without saying: “no knowledge, no future.”

You’ll find that sheepwalkers and their allies make up the majority and so your role as a leader will be as a minority challenger who is characterized as a black sheep to the status quo. Godin makes the case that leaders must be of the mindset that they are underdogs: “That’s because leaders work to change things and the people who are winning rarely do.” It’s the honky dories versus the underdogs!

But in order to succeed as underdogs, we need to get our message out there, get people to learn about our passion, and in our case, our entrepreneurial passions. The idea would be to find people who support you and want your stuff too. Even better is if they share the same passion and are looking for a leader (or business owner) who’ll help them find their own nirvana. This doesn’t mean just talking about it or sending off emails to all your friends and family. It requires a campaign, a “micro-movement” as Godin calls it. Imagine applying these ideas to your marketing research and the design of your company’s culture.

Godin says a micro-movement requires five things-to-do and six principles in order to be effective:

Things To Do:

Publish a manifesto. Get it out there and make it easy for others to see. It doesn’t have to be written or printed. It can be a motto or a graphical representation. “It unites your tribe and gives them a structure.” In your business, this might be simplicity in message so that your clients get it right away.
Make it easy for your followers to connect with you. Make it so visiting you, emailing you is a snap. And given your clients’ technical savvy, it might be an interactive process on a blog, Facebook, MySpace, LinkedIn, etc.
Make it easy for your followers to connect with one another. Consider that in your company or prior to your financial ability to hire others, there will be a need to unite those who believe in your business and need to gather in order to go forward. Give them plenty of opportunities to connect because the more they connect, the better their understanding of each other, their common goals and their ability to work together.
Realize that money is not the point of a movement. If you believe that your business has an end result of financial intentions, then the movement is no longer a movement. Money enables the movement, not the other way around. At the point money becomes the dominant figure, there is no point to your movement.
Track your progress. This provides a method for you and your compatriots to see where you’ve been and where you’re heading. It provides a method for everyone to contribute to your on-going progress.

Principles:

Transparency really is your only option. Keeping everything above board and in the open gives everyone a sense of trust and improves their engagement.
Your movement needs to be bigger than you. So often, successful people talk about how what they do isn’t as important as the end result.
Movements that grow, thrive. And in order to grow, one needs to innovative, get better and more meaningful to those that matter in the movement. It reinforces the very existence of the movement.
Movements are made most clear when compared to the status quo or to movements that work to push the other direction. What is the impact on the greater society that your movement has and aligning your movement with similar movements strengthens your common cause.
Exclude outsiders. Identifying who doesn’t belong to your movement provides a way for you to understand who should be in your movement.
Tearing others down is never a helpful to a movement as building your followers up. One of the worst things you can do in a movement or business is to disparage your competition with negativity. The message then becomes negative altogether.

Leaders As Servants

When we speak of leadership, our youthful image might be of a boss who dictates everything and says, “It’s my way or the highway.” Granted, companies require a set of rules that all employees are guided by including your one-person operation, but is it not possible to get the same results (if not better results) by doing three things: 1) drawing up the vision of where you see your company going and getting people excited about it, 2) allowing openness, creativity and people’s desire to succeed as the company culture and 3) devoting your company’s mantra as leading through service to others? What, you say, does it mean “service to others?” As a leader, are you not suppose to take on the role of being served by others?

To get the quick and dirty answer to that question, you might want to refer to the “21 Lessons of Successful Entrepreneurs” and read over Chunk #3. The role of leadership is one of the most important questions you should be asking yourself when you’re considering your business philosophy. As Benjamin Disraeli, British Prime Minister (1804 -1881) said: “I must follow the people. Am I not their leader?”

Perhaps no time in our modern history has the role of business leadership become scrutinized so much: first by the baby boomers of the Sixties who saw the relationships that business developed in the Vietnam War - of the massive “military-industrial complex” and its death-in-profits war machine. Later in the 1980s, as many of our major companies closed down their factories and outsourced their manufacturing, leaving millions unemployed. And today, as our financial and economic systems collapse into the worst recession since the Great Depression, brought on by the greed and unregulated transactions of our biggest financial institutions. If our business leaders can operate with such callous disregard for the rest of us, why trust leadership when it has led to many horrific results? How is it possible that business executives on Wall Street gave themselves over $18 billion in bonuses for 2008 when their companies were going under and millions of investors were losing their life savings?

Changing Our Concepts of Leadership

These and other episodes have brought about a shift in the way many people consider leadership, especially leadership that hides its mistakes and refuses responsibilities of its failings. Many Americans including the new rise in entrepreneurs have redefined their own paradigms of leadership to mean more social responsibility and personal enrichment. We have decided in greater droves that working for ourselves is a better form of leadership than working under “traditional” forms of leadership that seem too corrupt and too arrogant for our tastes.

In the Urban FIRE concepts, leadership serves the people it affects the most: its employees, its customers and the community in which it resides. It does so by creating products and services that enhance our lives while providing a livelihood that allows us to continue improving our offering. We also define leadership as your ability to make your new enterprise stand out amongst its many competitors and not merely exist as another new company. The combination of the two roles are critical ingredients in first distinguishing your business, second, in stabilizing its existence and third, in giving it longevity and financial security.

We Are Members of Our Communities

One word about community in our last paragraph: don’t ignore it (which most companies do in real terms – that is, lots of talk and little action but always around for photo ops). By ignoring community, we give no appreciation to our ability to exist as a company. And if you think about what makes for a successful company, it is in solving problems, in building partnerships with clients and vendors and formulating creative innovations that launch new paradigms. All of these factors would not happen unless we had not listened and served those around us. Why then would leadership not believe in the consistency of this interconnectivity? That takes our new definition of leadership.

We should realize too that our very existence as leaders and our ability to start a business is a matter of privilege and choice. For this we need to believe in the importance of gratitude in how we conduct ourselves. The brashness and egomaniacal legends of the Donald Trumps are great television and gossip, but they do nothing to serve our purposes in starting a business or in succeeding through an imitation of their character.

Defining Leadership

Let’s take the essence of leadership and give it a practical definition. According to the Merriam Webster Dictionary: to lead means “to direct on a course; to direct the operations, activity or performance of; to tend towards a definite result.” Again, notice that it doesn’t say “manage.” It means that you as a leader of your new enterprise must have a purpose in taking charge of going forward. It also means having the knowledge to lead this charge even if it’s just directing you. In other words, leadership should begin with a plan, a business plan, to show where you want to take your company.

As we said earlier, leaders are made, not born. Leaders arise out of a passion to change and improve something and the powerful desire for continuous knowledge to make it happen – the ability to grasp information and put it into practical use. If you can’t do that, then you can’t lead. Actually, most great leaders all worked for someone, learning the ropes and understanding how great leaders conducted themselves. So if you’re young, the odds are your leadership skills will be lacking. This, however, doesn’t mean you shouldn’t start a company; it does means you’ll have to acknowledge your lack of knowledge and experience and take up extra duty studying the mechanisms of leadership. So why not work under someone as an apprentice, as a junior executive, as a mailroom clerk – all in the effort to gain the experience and knowledge? You can be in training while you’re setting up your business. All great leaders had others who they looked up to and learned from. They included mentors and senior business associates. And when a physical person wasn’t available, they relied on email correspondence and sometime through biographies and autobiographies.

My Life Flashed Before Me

In my own situation, I was determined from a young age to run my own business. Getting fired from your first five jobs will do that. As I progress into college, the thought of graduating, working 40-hour work weeks, getting two weeks vacation, retiring at 65 and then dropping dead seemed a waste of a good life. So I self-taught myself just enough skills and ventured into business without a clue as to what I was doing. It was, however, exciting, chaotic and a great deal of work – mostly correcting my mistakes.

It didn’t take me long to realize that I needed more information to do this entrepreneurship thing but I dreaded the very idea of returning to school for business – a subject that seemed both boring and difficult. Instead I decided my best course of action was to work for companies that offered me a chance to learn just by immersing myself. Later, however, I realized that studying entrepreneurship through research, mentors, biographers and experience were necessary components of the broader picture.

Learning By Doing

So to make a long story short my business education during my 20s was all hands. I targeted small companies because I figured small companies offered me more flexibility, working in several departments rather than one. I never thought about whether some chore was in my “job description” because if it offered me an opportunity to gain an entrepreneurial skill, I’d do it. Of course there were lots of things I didn’t want to do but that came with the territory (such as counting inventory – torture!) but I learned the importance of inventory control and how your money gets stuck in products rather than available cash to grow your business.

The idea wasn’t to establish myself in any one company, it was to learn and move on because my true goal was learning and creating the company that would have my signature on it and provide me with joy, contentment and maybe a few girlfriends. I worked for three companies during that time and with each, I learned, took my lumps but always kept notes on what I considered were the key factors of a successful company. With each successive company, I also rose in responsibility and gained even greater insights to the making of a sustainable, if not great, company.

The Fallacy of Leadership Traits

And what about all those leaders who we think of as geniuses and brilliant innovators? To burst your bubble, here’s a list of what corporate headhunters say are the top traits of leadership. In “Talent Is Overrated,” author Geoffrey Colvin, Penguin Book Publishers, 2008, shows that top corporations are looking for isn’t brainiacs but those with the following characteristics:

A clear thinker
Imaginative
Inclusive leader
Externally focused
A confident expert

Jack Welch, the legendary former leader of General Electric had the Four “E’s of leadership:

Energy
Ability to energize
Edge (meaning decisiveness)
Ability to execute

Seth Godin’s “The Elements of Leadership” from “Tribes.”

Leaders challenge the status quo.
Leaders create a culture around their goal and involve others in that culture.
Leaders have an extraordinary amount of curiosity about the world they’re trying to change.
Leaders use charisma (in a variety of forms) to attract and motivate followers.
Leaders communicate their vision of the future.
Leaders commit to a vision and make decisions based on that commitment.
Leaders connect their followers to one another.

The above are lists of behaviors not birth traits. By understanding what is necessary, it is highly possible for anyone to gather these behaviors through deliberate practice – repeating the practices until it becomes second nature. It won’t happen in a month but repetition will eventually prove itself.

One other important rule about leadership: you never, ever stop learning to be a leader. Think how many times, our society has changed; how we used typewriters in the 1970s and all of a sudden in the 80s, we converted to computers. How about the implementation of fax machines, cell phones, the wireless transmitters, high definition TV, Internet dating, hybrid cars, the global marketplace and online communities and blogs? These are change agents that need to be reckoned with and utilized as we mature as leaders.

Domain Knowledge

One of the most important areas for leaders and business owners to learn is called “Domain Knowledge.” While we have no problem learning and growing passionate about the product or service we sell, there is little emphasis on understanding all the other aspects of running a business. In fact there is little explicit education with on-the-job training or in school to teach these skills. Seems extremely dumb not to provide this level of education but most people assume you’ll learn it as you build your company. Yes, you will through trial and error but wouldn’t it be great if you could – at least – learn the fundamentals before you step into the real world? How does your business work?

Just so we’re clear, if “domain knowledge” isn’t available, here’s the areas you need to consider:

Company internal structure and operations
The particulars of your industry (join an industry association)
Financial relationships (banking or investor relations)
Tracking your financials (get QuickBooks and learn it – it’s easy!)
Employment policies and regulations

The Importance of Structured Knowledge

Geoffrey Colvin’s “Talent is Overrated” has this to say about domain knowledge:

“Imagine the difference if you made domain knowledge a direct objective rather than a byproduct of work. If you set a goal of becoming an expert on your business, you would immediately start doing all kinds of things you don’t do now. You would study the history of the business, identify today’s leading experts, read everything you could find, interview people inside your organization and outside it who could provide new perspectives, track key statistics and trends. . . . With time, your knowledge advantage over others would become large.”

The advantage you now achieve is a superior understanding of what creates profits and avoids losses for your business. But it goes beyond just financials because it also provides a huge database in your head that allows you to make more intelligent decisions for your company. Colvin calls it a “mental model” which contributes in three ways:

A mental model forms the framework on which you hang your growing knowledge of your domain
A mental model helps you distinguish relevant information from irrelevant information.
A mental model enables you to project what will happen next.

Leadership is a set of acquired skills. As much as we’ve discussed the various aspects of leadership, your ability to gain it is based on two questions:

Are you willing to attack whatever it takes to achieve it?
Do you believe that if you put in all the hours, all the training, all the studying, you will actually gain a level of performance that will distinguish you above others?

Do You Truly Believe You Can Succeed?

So it comes down to an internal passion that requires an environment of positive motivation. It means that there will be many failures but that your environment and ultimately, you, are determined to achieving greatness. The second question is a matter of confidence, not artificial confidence that most people attempt to engage by trying to convince themselves. It is a deep rooted belief that probably comes from childhood or early work experiences. Do you really believe you can succeed or do you believe that even if you worked hard at attaining these skills, you’d fall short – perhaps relating to a condition that happened in the past. If you’re honest and cite the second half of the above sentence, then you won’t do the work necessary. You aren’t mentally ready yet. As Henry Ford quipped: “If you think you can, you will. If you think you can’t, you won’t.”

So face it: there is no reason why you can’t lead. It’s tough, it’ll probably exhaust you and mentally tax you, but the solution is in front of us because all the research on human performance and leadership during the past 30 years has built enough evidence to structure a course of action that anyone can use to gain success. It begins with this fact: all great success stories met with great difficulties along the way.

You have two choices when you come upon a roadblock: 1. turn around and go home or 2. figure out a way to punch through it. If you make the first choice, you’ll do no better than the majority of people. If you take the second, your intelligence will gain confidence, exponentially growing and expanding your abilities. That’s why there are so few leaders and so many people who are looking for leaders to follow. No one succeeds without the willingness to fall down and feel the pain. Those battle scars emerge as our badge of courage, our windows of experience and the best lessons of our lives.

People Will Laugh At You

Anyone can do this. You’ll fail, people will laugh at you, you might look foolish and you might cry and scream but each entrepreneurial episode will be a test and a way for your brain to take in the lessons. In the book, “How We Decide,” author Jonah Lehrer, MHM Publishing, 2009, chronicles the latest research on training our brains to increase our abilities. Through new imaging technologies, scientists have witnessed how the brain learns. The greatest discovery was how activities in which failure occurred also provided the brain with the most productive learning experience. When failure was not in the equation, the lesson was not as impactful.

The decision is up to you. There are no reasons you cannot be a leader if you’re determined to build a sustainable future. It just requires your commitment to make it a conscientious component of your entrepreneurial life from this moment on. As Walt Disney would tell you: “The way to get started is to quit talking and begin doing” which appears universal in the broadest sense. And as Yoda said in Star Wars from a galaxy far, far away: “there is only doing.”

To be continued by you.

Lesson #9: Securing the Right Financial Concepts, Part 2

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Bankers probably won’t like what I’m about to tell you nor will many entrepreneurs but here it goes: When you start a business, don’t go into debt; start with exactly the amount of money you have right now. Adjust your business concept so that it takes advantage of your present financial means. In many cases, this probably means starting really small. An advantage? You betcha! Because when you lack capital, you got to get down . . . and dirty! What you lack in money, you’ll make up in sweat equity, more planning, information gathering, and force you to utilize more of your creativity. It will make you a superior entrepreneur down the road. And those brain cells will go into overload on ideas and solutions.

There are few entrepreneurship training programs that hold this concept, but I’ve launched a number of companies and each one was based on this simple formula:

Build a client base first (by using guerilla marketing techniques and a client-centric culture)
Save a portion of your profits first and build equity (to take advantage of future business)
Slowly grow the company using the equity (for continuous marketing and innovation)

Debt Sucks

I was never in debt for greater than $100,000 and that was short term. At the time, my company was closing in on $5 million gross annual sales. What I’m about to explain to you about financial planning is no different than what many financial experts will tell you on an individual basis: don’t spend what you don’t have. (There is one exception to that rule and that’s if you have a signed contract to provide your product/service to a qualified client for which you need capital in order to fulfill.) It makes life more challenging but it also keeps you out of debt, and debt for many people can degenerate into panic attacks and suck the life out of them when they’re having trouble making the payments. Your success may take longer, but it’ll definitely be more rewarding and less costly, financially and personally.

Organically, you’ll turn into a business guerilla, attacking with imagination and getting out into the marketplace to offer your product/service because you need the damn money! You won’t get your money problem resolved, but you’ll be thinking about it and planning for it. But all that thinking, planning, training, information gathering, going after clients - all that hard work in lieu of money, will begin to show dividends because you’ve kept your expenses low.

The Purpose of Business

Here’s what Peter Drucker, the father of modern-day management had to say about expenses within the content of a broader statement on business: “Because its purpose is to create a customer, your business has two purposes: marketing and innovation. Marketing and innovation make you money, generate sales and produce profits. Everything else is an expense.”

Jim Collins, the best-selling business researcher and author of Good to Great (2001), stated: “Disciplined people who engage in discipline thought take disciplined action. This framework captures much of what separates greatness from mediocrity.” Nowhere do you see anything about money; it’s attitude and creativity.

As you stabilize your business, your perspective on money will be the right one because you never have money to skip steps. You couldn’t pay an outside consultant to do your analysis or buy a business plan or pay for a marketing campaign. You couldn’t be lazy because the money wasn’t there to afford any luxuries. You had to do it all. And for that, you know your business, you know the true value of money and the appreciation for your clients is more meaningful than your wealthier competitors.

Money Should Never Lead

The other way to look at money for your business is this: money does not initiate anything. It follows. Money will not make a brilliant idea or a solid business. You do those things with your intelligence and hard work. Money is a tool you use to carry out your existing ideas. It goes where you want it to go. And always use it at your comfort level because the more success you create, the more you’ll get to know Mr. Money. While your comfort level now may be $5,000, in five years, your comfort level may well be $500,000 because both you and Mr. Money have grown together.

And another cool trick that you need to implement as your business grows: don’t wait until you need a loan; anticipate your financial requirements using a realistic projection analysis. This should never be a pie-in-the-sky analysis showing growth at a factor of 10 when you’re trying to impress your banker. She knows better than that based on your past history. It should be a truly realistic projection that makes sense to you and your company. It might be ten percent or less. And in that case, consider applying for a business line of credit or a “microloan” available through a new breed of community loan companies. Do so months ahead so that when it’s time to borrow, you’re not scrambling and panicking for money. Be comfortable with the payment amounts you’ll be making each month. Finally, it’s a whole lot easier to stay in business when you don’t owe any debts. To give you an example of operating with minimal capital, here’s two of my experience from way back in the mid-80s.

Lots of Fish in a Little Pond

When I started a technology business back in 1985, I looked up the number of competitors in the yellow pages. There were 24 in San Francisco doing just about what my little company was doing. They ranged in size from the dinky one-person shop to the Fortune 500 subsidiaries. The bigger the company, the bigger their budgets and the fancier their offices. They had equipment and salaries that were way out of my price range.

So it forced me to think differently and more creatively in order to survive. It also made me work harder to get our name out to our clients. And sure enough, what I discovered was that many large companies did little to attract clients, thinking that the clients should already know them. They rode their glorified reputations, their glossy Madison Ave brochures, and fancy-pants sales people, but there’s something insincere about that approach especially when the client calls and finds out their contact quit two weeks ago.

On the flip side were the little guys, mainly made up of decent technicians who were really good at what they did but never studied business, sales, or marketing. They too sat around waiting for the phone to ring. So I was neither—couldn’t stand the phony, insincere large corporation and wasn’t quite anal enough to be a technician. Instead, I thought of myself as an urban guerrilla, an underdog, disguised as a mild-mannered business person moving tactically amongst the small business jungles of downtown San Francisco.

On the Cheap

Given my perception of my competitors, I decided the best and least expensive way for my company to gain business was stomp the pavement, go into the largest buildings, and start jotting down company names. (I thought about this strategy as an economy of scale—large building contained lots of companies and, if we could capture numerous clients in each of these big buildings, then it would be immensely more efficient and a lot cheaper for my technicians to park once and service multiple clients just by riding the elevators rather than driving and parking umpteen times.) I then ordered a reverse phone directory from PacBell (AT&T) which gave out the names and phone numbers of the addresses I visited.

You might think that there are better ways to contact potential clients these days, say like through LinkedIn, Facebook, and Twitter, but I still like the notion of talking to people face-to-face or by phone. There’s an emotional attachment that we all get by interacting with each other, although websites like www.elance.com provide an initial introduction that can then be parlayed with a phone call. Check it out. Given that your best business strategy will be through word-of-mouth recommendations, you should always make it a priority to go face-to-face because that emotional connection coupled with excellence in your service will build your reputation and increase the odds for paying customers.

The Paper Clip Game

Back in the old days when the phone was the main means of communications, I played a game called “100 Paper Clips.” Each day, I would place those paper clips on the right side of my desk. I would then call all the companies I wrote down earlier and gave them my best sales pitch. In the beginning, I was downright lousy but I’d go through 100 phone numbers each day and, as I made each call, I would take one paper clip from the right side and move it over to the left side. When I had emptied out the right side, I called it a day—that is, in making sales calls. What this little game did was take away the apprehension of making cold calls. It was a game and the emotional rejections gave me an eagerness to make the next call, quickly assess what didn’t work and optimism for the next call.

Talk about experience teaching us! After a few weeks of making these calls, I increased the response rate to my calls. From nine or ten respondents out of a hundred requesting information, I was able to raise that rate to 60 out of a 100 in about six weeks just because the more I made those calls, the more I learned what worked. I became more confident, I relaxed and I began to understand who should make up our ideal targeted client. With each positive response, I would do a follow-up call and make sure my potential client received the information, and it provided me with another opportunity to learn more about them.

Here’s a critical lesson I learned from the thousands of calls I made: you don’t need to blab much about the wonders of your company – whether by phone, by social media, website or in person - because the calls aren’t really about your company. It’s about learning who’s on the other end. You need to make a simple, short statement about what you provide, followed by asking questions about their company and then listen.

Listening to what your prospects are saying is the most important segment of your interaction. There’s an art to hearing and taking in the tones of key words as well as the words being used. By listening, you can actually adjust your tone so that it becomes more comfortable for the person on the other end. When that happens, you are building the first level of trust and putting one foot forward towards a meaningful relationship. If this sounds like the Platinum Rule, you’re right: “Treat others as they want to be treated.”

Better Than Cold Calls

From those simple calls, we were booking about 20 to 30 new clients from the 60 who expressed an interest. At one point, we were taking in over 500 new clients a month. And 20 percent of them were businesses I hadn’t contacted before; they were referrals. So, I concluded that being client centric and giving them the solution they needed, not only made them loyal, it made them an enthusiastic arm of our marketing regatta. (But a danger you’ll want to avoid at all cost is to not forget about your loyal clients. Many businesses tend to pay less attention to their loyal clients thinking they’re “in the bag” and needing no additional tender loving care. Not only will you lose their business, they’ll spread nasty things about you and your company just because they’ll feel like the neglected wallflower that you brought to the senior prom and abandoned.) There is a rule about bad reviews called the “Law of 250” which says that when someone has a bad experience with your business, 250 people will know about it through word-of-mouth.

In the meantime, my competitors were still waiting for the phone to ring. Three years later, of my 24 competitors, only three others remained. The moral of the story is that it doesn’t take money to win over clients; it takes three simple, cheap tactics:

A well-honed message followed by your superb listening skills
Your initiative to go after your prospects like diamonds in the rough
Polishing them with tender loving care and assuring your TLC is constant

Names, Names, Names!

In their bestseller Made to Stick (2007), Chip and Dan Health they tell a story about a newspaper publisher named Hoover Adams in North Carolina who has one of the few nationally known local newspapers on the planet—the Dunn Daily Record—that’s thriving. His secret: “Names, Names, Names!” His reporters are required to write stories that feature people in the community rather than events or people unknown to his readership. His rational: there are plenty of newspapers providing state, national, and international news. People in his city can get that information easily, but do any of these other papers include local news and names? People want to see their names, their neighbor’s names, and their friend’s names in local stories. For this publisher, it was that simple because he understood his client base.

Similarly, how many people do you think you could connect within the business world who would appreciate someone interested in them, their work and their company? You already possess what you need to get started, and it ain’t money—it’s the honesty and quality of your business and you.

Some Personal Issues about Money

Going into a business requires a decent knowledge of finance, enough to know whether you’re making money or not. But our understanding of money comes from how it was treated and viewed as we were growing up. I’m going to make an assumption that money is somewhat of a mystery to you because like me, you just never had much of it around when you were young. Nevertheless, we all know how important the role of money plays in our world, so it’s a wonder that we don’t teach it as required curriculum starting in our primary schools. Even if it’s as simple as helping our children start a dinky bank account at an early stage. Giving ownership of that money to kids provides a real world experience that will serve such a valuable lesson as they grow to adulthood.

I remember in the second grade, we were visited by a representative from the Bank of America. He was this big guy with a bowtie and a gentle demeanor. He gave us our first lesson in financial literacy and encouraged us to start saving now either with a saving account or the now-defunct Christmas Account. I couldn’t afford the monthly deposits for the Christmas account (which was a way to save for Christmas gifts slowly over the year while earning interest) but I had $3.50 to put into a savings account making four percent interest per annum. Man, I was so stoked about growing my money that I would stand in line at the bank on the first of each month along with dozens of retirees to collect my interest! It gave me the incentive to make it grow through chores and entrepreneurial ideas even then because I wanted a baseball glove and later a bike.

With that bank account, I was able to get both even though it took what I thought was a hellava long time—the glove in the fourth grade and the bike in the fifth grade! But looking back, the most rewarding part of that experience wasn’t buying the glove or the bike; it was in reaching my goals. I’m sure that little $3.50 was the best teacher of my financial literacy I could have had because it was touchable and provided a reward for my diligence.

Never Enough Money?

I know that for most of us, as we grew to adulthood, there never was enough money and as a consequence, we ended up borrowing, thinking that we could make payments in manageable increments. And sometimes, those increments kept growing because we didn’t understand how interest rates worked and how they accumulated on top of our original amount even as we continued to make payments. In the meantime, the bills kept coming, inflation was lowering our buying power and our ignorance about money left us anxiously clueless. For some of us, filing for bankruptcy was our only choice. For others, it came close but knowing the backlash of bankruptcy kept us from filing.

If we’ve experienced this embarrassment directly, we know the detrimental effect it has on us. If we haven’t, we know how devastating it has been to some people, even to the point of suicide. If you couple these scenarios and then watch TV or look through glamour magazine, you get a distorted, inflated image of what money brings and means. The federal guideline for poverty in 2008 is $10,400 annually for a single individual or $200 per week. For a family of four, it’s $21,200 or $100 per person per week. I saw a bumper sticker recently that read: “Fulltime Workers: 64 percent at the poverty level.”

According to the US Census Bureau, the present median income of Americans is $24,325 meaning that half of us are making more than that and half are making less. Given the overly inflated bonuses and salaries of many large corporate executives, that 64 percent who are in poverty may be right on. And according to United for a Fair Economy, a nonprofit financial training and advocacy organization in Boston, MA, more than 80 percent of the American wealth is held by 10 percent of the population—meaning that 90 percent of us own less than 20 percent.

A Messed Up Perception

Money has been given more power than it should and it has wrecked our sense of logic and humanity. How often have you been denied a special medical treatment by your HMO because it’s too expensive and how many stories have you read where the decision-maker for your denial is given a bonus or a raise for how much money he’s saved his company? In the meantime, we suffer through our ailments and in the worst case, we die because money mattered more than our existence. In 2010, the projected cost to each insured individual is now over $10,000. That means medical insurance is collecting an average of $10,000 from each person under their coverage.

This kind of scenario crops up in many other fields as well but its effects hurt us exponentially. Take Big Oil. During 2007 and 2008, Exxon, Gulf, and Chevron-Texaco reported combined record earnings upwards of over $30 billion for a quarter (April-June 2008), the highest profit in American history while many at the poverty level cannot eat nutritious foods because the price of diesel has made many foods too expensive. Instead, we’re heading for the fast-food joints because as greasy and unhealthy as they are, they provide a filling meal (and addicting) even at the expense of making us dangerously overweight and ready for the emergency room—an expense we’ll never be able to pay anyway, adding to our mounting debts and eventual bankruptcy.

Even though Martin Luther King made this speech in 1968 at the Riverside Church, sadly, it holds its truth 40 years later:

. . . We as a nation must undergo a radical revolution of values. We must rapidly begin the shift from a "thing-oriented" society to a "person-oriented" society. When machines and computers, profit motives and property rights, are considered more important than people, the giant triplets of racism, extreme materialism, and militarism are incapable of being conquered... America, the richest, most powerful nation in the world, can well lead the way in this revolution of values.

When You First Start Your Business

Your knowledge of money will completely affect how you start your business. My advice is whatever your relationship to money is now, just go with it, and don’t worry about whether it’s enough. Well, it won’t be, but go with it anyway because you won’t have many alternatives. But as I said earlier, it’ll always be a blessing in disguise: it will be one of your best educations in financial literacy as long as you stay awake during the lesson.

I can’t tell you how many suffering first-year business owners I’ve met who skimmed over their entrepreneurial education, and were under the illusion that money would save their hides when things were tumbling. While too little money and too much money are always cited as two reasons that businesses fail, I would say the underlying root cause is the lack of financial understanding and their over-dependence on money as their savior. Always ask yourself: “who’s controlling the money?” It should be you every time.

Money to Start Your Business

While I don’t want to contradict my philosophy of starting your business with the available cash on hand, I think it’s also important to suggest a few ways to obtain money as you grow as long as you feel comfortable with the repayment criteria.

First and foremost, consider the Small Business Administration as a last resort. For the majority of you, you won’t qualify because 1) you’ll need to build up a track record and 2) you’re way too small for their loans. The current criteria for example require retailers to have an annual income of $3.5 million; for service companies to gross $5 million annually and manufacturing to have 500 employees. Yes, the definition of “small” is in the eye of the blind.

When I applied for their loan, I felt pretty demoralized from the experience. Back then, you also had to have been rejected by two conventional banks in order to apply for an SBA loan. So doesn’t that make an SBA banker take the attitude that you’re already a loser? The questions and attitude of the bankers was overly personal, demeaning and cluttered with unnecessary red tape. It’s a stupid way to encourage small business growth, but one thing I realized is that large banks who participate in the SBA-guaranteed loan program are also the brains who begged to have their money borrowed by foreign governments in the billions only to have those reneged. So who do they take it out on? Yep, the little guys because we’re so readily accessible. But we’re the guys with a much better repayment history than the dictator of some corrupt regime who probably pocketed most of the money into a Swiss bank account or partnered up with a drug lord to harvest heroin for the American market. (If you think I’m exaggerating, read Confessions of an Economic Hitman (Perkins 2006)—if even ten percent of it is true, you’ll get a better picture of our misguided and corrupt lending programs both here and abroad.)

I did finally end up with a SBA loan from a small community bank in Walnut Creek where the banker I was dealing with was much nicer and a great deal more helpful. Unfortunately, the bank eventually sold the loan to a large bank who hired the Evil Witch of the East to hassle all SBA clients to make sure we paid up on time even if we never were delinquent. It got so bad each month that I decided that dealing with such assholes was not part of our business plan. We had enough equity by then that we paid off the remainder of the loan and told the bank to kiss our corporate butts good-by forever.

In his book, Growing Your Business (1987), author Paul Hawkin calls the SBA “one of the strangest institutions known to mankind.” He too had the same experience as I did but goes one step further: the time it takes to get an SBA loan is so long, that by the time you get the funds, it’s probably too late.

Your Best Money Sources

Your best bet is you. It’s the money you’ve saved whether it’s in a cash account or any investments that if you were to lose it, wouldn’t do too much harm. To keep it straight, loan the money to yourself as a sole proprietor or use it to purchase shares in your company as an LLC or corporation. Then deposit it into your business bank account; not your personal bank account. Possible areas of money you have right now are your savings accounts, earnings from your job, retirement fund, life insurance policies (whole life which has an accumulated cash value), lines of credit from your home equity loan and inheritance.
Family and friends are also a decent source but the one thing you must be clear about is the lenders’ relationship to your business. If you do not want their voice or decision-making within your company, create a written agreement for the loan and make it clear that they are making a loan with no powers. You control everything. They either loan you the money on this basis and shut up or no deal. Believe me, there are family members and friends who’ll want a piece of the action when your business starts to fly. Also make sure you detail how you’ll pay back the money either in increments or a one-time payback and whether there is interest built in. Even if it’s your mom and dad or best friend, do the loan papers with the utmost precision as if you’re dealing with a stranger. Money has a way of screwing up even the best of relationships.
Community lending programs offer micro-loans from $500 to $100,000 based on your equity, your company’s equity, and your ability to pay back the loan. In Oakland, there are several agencies including the Oakland Business Development Corporation, Opportunity Fund and Working Assets. (In the pipeline is a proposal by Goldman Sachs (of all people) to develop a microloan program with $300 million distributed through such organizations as those mentioned above.
Community-based banks such as OnePacific and Community Bank of the Bay will work with you to secure either SBA-backed or special government backed programs. But you must do your due diligence and if you start the paperwork with them, be persistent until you get an answer.
Some entrepreneurship training programs have accumulated a reserve or grant to help their graduates launch their businesses. Normally, you must be a graduate of their program in order to qualify.
Private investors who are looking for high returns in lieu of other types of investments such as stocks, housing, etc. In these cases, you will need to have a strong track record and a well-conceived prospectus.
Our Urban Luau fundraisers, which is made up of Urban FIRE graduates, coordinate and take part in raising monies for fellow graduates who don’t have the funds to pay for a business license, fictitious business name, and minor startup costs (up to $200 per).
Other possibilities but unlikely: credit cards (unless you can pay back the principal amount each month to avoid high interest rates), venture capitalists, and going public.

So What’s Included In Your Business Plan’s Financial Section?

The critical financial information for your business plan starts with the initial capitalization. The information I’ve provided from the first paragraph onward of this section should be considered with all due seriousness in order for you to plan how you will finance your business. Our business plan - which you’ll compose in Urban FIRE II or LaunchPad - is for a one-year period). Through the two dozen business plans I’ve written and hundreds that I’ve read, I can say without hesitation that 100 percent of all business plans are changed within the first year. And 90 percent of them have been written out of reluctance because their financial institution required it or the writers felt it was the required process to go through.

Our business plan is about reality and it only covers the first year to get you up, running and stabilized. This business plan is a living document for you, not for investors, the bank or your parents. First figure out where the money will be coming from, whether it is a loan or investment and the starting amount. Also describe how you’ll spend the money to launch your business. Will you buy office equipment, inventory, marketing materials, a website, or will you hold it as working capital for each job you’re able to win?

Just for the Heck of It

As an option when you have nothing better to do, draw up a three year projection of your sales, possible profits and expenses, and what your cash flow will look like. I use to do this with the utmost consideration for accuracy just to see how far off I’d be in the coming years. But it’s also good practice for using QuickBooks. Do this by creating an annual profit and loss statement for each of the three years. You can do this by inputting all your starting expenses and capitalization in a dummy account that you set up as a sample business. I am so adamant about you installing QuickBooks before you start your business, that if I find out that you haven’t started using QuickBooks, I will have to strip you of your designation as an “entrepreneur.” Instead you will be officially titled as “nincompreneur” (from the Latin origin “non compos mentis” meaning “not of a sound mind”).

With your best estimates, show your monthly income and expenses and continue to input these details monthly for 36 months. The finer the details, the more precise your projects will look, and with these figures, you’ll also be able to come up with a balance sheet showing the net worth of your enterprise. All financial considerations should be made including any loans and their projected payoff, lulls and high points in the year based on your Industry’s records.

Not that anyone will be disappointed if your figures are off in three years, but do the best you can to come up with numbers that you feel are attainable and realistic. As you complete each year, you’ll see how close you came to your projections. As you gain financial data over the months, your annual projections will gain greater accuracy so that each year, as you readjust your projections, the numbers will calculate more precisely, and provide you with a powerful tool in predicting the future.

Startup Costs Estimates

In this space below, write in your costs (or estimated costs) for starting your business. These are general categories with various expenses. QuickBooks has a resource that can break down a more itemized list for your startup. You can also use the Profit and Loss Statement below for additional ideas.

Legal Startup costs and licenses (legal entity, fictitious name, etc.) __________

Capital Equipment (computer, phones, desk, chairs, copier, file cabinets) __________

Professional Services (legal, financial, insurance, marketing, webpage) __________

Office Expenses (phone, Internet access, utilities, rent, insurance, office supplies) __________

Sales Expense (inventory, manufacturing, warehousing, shipping) __________

Marketing Expense (business cards, letterheads, marketing materials, advertising, travel) __________

Wages and Benefits (paying yourself and any partners, employees if any) __________

Some Key Notes:

You can deduct up to $5,000 of your startup expenses when they are taken in the year you launch your business. This will include everything except for capital equipment. The odds are, you won’t be spending $5,000 and really, you should conserve and watch your spending habits. The “good stuff” can come later when you can afford to splurge. Capital equipment is “depreciated” meaning that the government says over the course of several years, they will be used and in each of those years, they can be deducted from your taxes. For instance, if you purchased a computer (or other electronic equipment) for $1,000, you can depreciate it for five years at the rate of $200 per year off your income taxes for the business (or your personal returns if a sole proprietor, partnership or LLC). For furniture, it’s seven-year depreciation. Once your first $5,000 is written off, any further deductions must be amortized (equally distributed) over 15 years, not exactly worth the expense.