Achieving Success in the Small Business

2. Types of Firms

3. The Hierarchy of Business Outcomes

4. Business life cycle Several models, with same general ideas: Multiple stages Key issues, lessons, and actions at each stage Level of risk business faces changes from stage to stage Every business looks a little different and proceeds at a different pace. But most firms follow a general path and encounter the same stages along the way. Every business looks a little different and proceeds at a different pace. But most firms follow a general path and encounter the same stages along the way.

5. Emergence: person thinks and takes action towards starting a firm Only 7% actually took steps in 2002 This pre-step seems obvious to those on the outside, but rarely is this formally done. Many firms start as hobbies or crafts that the entrepreneur never intended to turn into a business. It’s the ebay seller who started by cleaning out the basement and ends up with a consignment shop running full time. Or the hobbyist who carves wooden figurines for his grandkids and ends up selling them at craft fairs. It is a small percentage of entrepreneurs who actually stop and think “I’m going to come up with an idea and start my own company”.This pre-step seems obvious to those on the outside, but rarely is this formally done. Many firms start as hobbies or crafts that the entrepreneur never intended to turn into a business. It’s the ebay seller who started by cleaning out the basement and ends up with a consignment shop running full time. Or the hobbyist who carves wooden figurines for his grandkids and ends up selling them at craft fairs. It is a small percentage of entrepreneurs who actually stop and think “I’m going to come up with an idea and start my own company”.

6. Existence: having the business in operation, but not yet stable Risk is high Owners lack key information Success: develop information, skills, and routines to grow the business’ profits This is a stage that lasts a long time Existence means you’re just barely getting by. In this early stage, you made the choice to run a business but you’re not established and stable. Your customer base is small and unsteady. Entrepreneurs are generally new to running a business and haven’t figured out all the details yet (that’s why you take a class like this one). Owners may need to learn about reading balance sheets, how to hire employees, wage laws, taxes, etc… These skills are necessary and learned over time. The more quickly they are learned the more quickly you move into success. The success stage is a comfortable one and it can last for a long time. Sales and employees increase during this stage. Processes become more formalized. The owners role becomes more managerial.Existence means you’re just barely getting by. In this early stage, you made the choice to run a business but you’re not established and stable. Your customer base is small and unsteady. Entrepreneurs are generally new to running a business and haven’t figured out all the details yet (that’s why you take a class like this one). Owners may need to learn about reading balance sheets, how to hire employees, wage laws, taxes, etc… These skills are necessary and learned over time. The more quickly they are learned the more quickly you move into success. The success stage is a comfortable one and it can last for a long time. Sales and employees increase during this stage. Processes become more formalized. The owners role becomes more managerial.

7. Resource maturity: stable level of sales and profits Functional areas, the market, and the products or services are being dealt with consistently and efficiently Challenge is to avoid complacency Stage 4 sees a leveling off of sales and company size. Consistency breeds efficiency which breeds complacency which needs to be avoided. Marketing is minimal at this time, steady reminder advertising. Stage 4 sees a leveling off of sales and company size. Consistency breeds efficiency which breeds complacency which needs to be avoided. Marketing is minimal at this time, steady reminder advertising.

8. 4 key components to staving off customer complacency: Recency: be among the people your customers have seen in the last few days Frequency: stay in touch with customers on a frequent basis (visits, phone calls, emails, etc.) Potency: be remembered for the right reasons Recommendation: making clear recommendations to show your customers you care about them

9. Takeoff: a period of exceptional growth Might come from landing an unexpectedly gigantic contract, expanding into multiple locations, or just being in the right place at the right time Most small businesses never go through the take-off phase Take-off is a unique phase which most small-businesses will never see. This comes from an unexpected wind-fall and can be either good or bad depending on whether the firm can meet the demand. Sometimes a large contract may come through but if payment is at the end it may require all the firm’s resources to complete the contract. Take-off is a unique phase which most small-businesses will never see. This comes from an unexpected wind-fall and can be either good or bad depending on whether the firm can meet the demand. Sometimes a large contract may come through but if payment is at the end it may require all the firm’s resources to complete the contract.

10. Example How Quickly Should I Grow? "How Quickly" you attempt to grow your business is called your "pace" of growth Growth occurs when your business is experiencing permanent increases in profit as a direct result of measurable and sustainable increases in sales volume Growth is best achieved by matching the timing and pace of your business's growth initiatives to market demand Example How Quickly Should I Grow? A matter of timing and starting on the exact date on which you will begin applying the elements of any one, or multiple, growth strategies "How Quickly" you attempt to grow your business is called your "pace" of growth Growth occurs when your business is experiencing permanent increases in profit as a direct result of measurable and sustainable increases in sales volume growth is best achieved by matching the timing and pace of your business's growth initiatives to market demand Example How Quickly Should I Grow? A matter of timing and starting on the exact date on which you will begin applying the elements of any one, or multiple, growth strategies "How Quickly" you attempt to grow your business is called your "pace" of growth Growth occurs when your business is experiencing permanent increases in profit as a direct result of measurable and sustainable increases in sales volume growth is best achieved by matching the timing and pace of your business's growth initiatives to market demand

11. Growth Strategies High-growth ventures: aim to achieve growth rates of 25% or more and sales of $1,000,000+ High-performing small businesses: level off after success stage, sales between $100,000-$1,000,000, grow at rates of 5-15% a year While take-off is unplanned, there are 2 strategies for controlled growth. High-growth ventures aim to achieve 25% or more growth and sales of over $1,000,000. Many times these are designed to grow quickly in order to harvest the business. High-performing small businesses level off under $1,000,000 but continue to grow at 5-15% per year. Growth is steady, but manageable. Owners tend to stay with these businesses rather than sell them.While take-off is unplanned, there are 2 strategies for controlled growth. High-growth ventures aim to achieve 25% or more growth and sales of over $1,000,000. Many times these are designed to grow quickly in order to harvest the business. High-performing small businesses level off under $1,000,000 but continue to grow at 5-15% per year. Growth is steady, but manageable. Owners tend to stay with these businesses rather than sell them.

12. Growth Strategies (cont.) Traditional small business: smallest full-time business, schedules defined by customer, sales between $25,000-$100,000 Lifestyle or part-time firms: sales of $25,000 a year or less, start and stay very small 53% of all small businesses Traditional small businesses are very small “mom and pop” operations. They are full time, they are open when it is convenient for the customer. Sales and profits are small but reasonable. Lifestyle firms are the largest percentage of small businesses. They are part time, and thus have very small sales Many owners of these firms have stable full time jobs or have retired and are content then to keep it part-time. Traditional small businesses are very small “mom and pop” operations. They are full time, they are open when it is convenient for the customer. Sales and profits are small but reasonable. Lifestyle firms are the largest percentage of small businesses. They are part time, and thus have very small sales Many owners of these firms have stable full time jobs or have retired and are content then to keep it part-time.

13. Sales Growth: comes from several ways Increasing sales to existing steady customers Make occasional customers into steady customers Expand areas where you have small customer base Technological growth: can take two forms Use technology to Improve efficiencies and profits Use it to create new products or services Nearly 4 Million firms change existence a year. They may change ownership in a variety of ways, or close. Harvesting is one popular method particularly with high growth firms. IPO happens with larger ideas but not the typical small firm. Other method are charted on the next slide. Nearly 4 Million firms change existence a year. They may change ownership in a variety of ways, or close. Harvesting is one popular method particularly with high growth firms. IPO happens with larger ideas but not the typical small firm. Other method are charted on the next slide.

14. Closing the Small Business Every year, nearly 4 million go through changes in ownership and existence Harvest: get maximum value they can for the business Initial public offering (IPO): selling stock to public on major stock exchange Nearly 4 Million firms change existence a year. They may change ownership in a variety of ways, or close. Harvesting is one popular method particularly with high growth firms. IPO happens with larger ideas but not the typical small firm. Other method are charted on the next slide. Nearly 4 Million firms change existence a year. They may change ownership in a variety of ways, or close. Harvesting is one popular method particularly with high growth firms. IPO happens with larger ideas but not the typical small firm. Other method are charted on the next slide.

15. Example The ABCs of IPO's Company begins the process by retaining a law firm to assist in producing a detailed firm disclosure Company will interview various investment banks and then select one (or more) to handle the underwriting of the IPO On the IPO date, the company and its team do their last-minute edits and negotiate the final offer price, and the last version of the prospectus is filed with the SEC, usually within the half hour prior to the opening of trading on the exchange. Example The ABCs of IPO's Entrepreneurs, venture capitalists and angel investors are openly discussing the IPO as a realistic benchmark Company begins the process by retaining a law firm to assist in producing a detailed firm disclosure Company will interview various investment banks and then select one (or more) to handle the underwriting of the IPO On the IPO date, the company and its team do their last-minute edits and negotiate the final offer price, and the last version of the prospectus is filed with the SEC, usually within the half hour prior to the opening of trading on the exchange. Example The ABCs of IPO's Entrepreneurs, venture capitalists and angel investors are openly discussing the IPO as a realistic benchmark Company begins the process by retaining a law firm to assist in producing a detailed firm disclosure Company will interview various investment banks and then select one (or more) to handle the underwriting of the IPO On the IPO date, the company and its team do their last-minute edits and negotiate the final offer price, and the last version of the prospectus is filed with the SEC, usually within the half hour prior to the opening of trading on the exchange.

16. Transfers: ownership is moved from one person or group to another 2003: around 860,000 firms were transferred within the family Nearly 1 million business sales took place Occur only among the largest small businesses Transfers are about 25% of changes in small business per year. Most family companies will transfer ownership still within the family. Only the largest of full time small businesses are worth transferring. Smaller one will simply close.Transfers are about 25% of changes in small business per year. Most family companies will transfer ownership still within the family. Only the largest of full time small businesses are worth transferring. Smaller one will simply close.

17. Transfers: cont. One key goal is minimizing the tax effects of the transfer Business can lose as much as half of its value to the government Pass off: owner gives the firm to someone as a gift, without compensation; 38% use this Sell off: everything is sold to another business, with proceeds paying off remaining debts One problem with transfers, as seen in the opening story, is to minimize the tax effects. A pass off is used fairly often because of the tax implications. It works particularly well within a family. The sell off is also frequently used and works will if a close competitor exists and is willing to buy the company or inventory.One problem with transfers, as seen in the opening story, is to minimize the tax effects. A pass off is used fairly often because of the tax implications. It works particularly well within a family. The sell off is also frequently used and works will if a close competitor exists and is willing to buy the company or inventory.

18. Terminations: more likely for young firms 1.8 million per year Three types of terminations: Walkaways Workouts Bankruptcies Younger firms are more likely to simply close. A walkaway means closing the firm and quickly paying off any debts. This is the ideal situation for small stable firms. A workout happens when the debt can’t quickly be paid off, but the owner can make arrangements to pay it off over time. The worst situation is declaring bankruptcy for the firm, the owner, or both. This may happen if a lot of money was invested and the company never hit the successful stage.Younger firms are more likely to simply close. A walkaway means closing the firm and quickly paying off any debts. This is the ideal situation for small stable firms. A workout happens when the debt can’t quickly be paid off, but the owner can make arrangements to pay it off over time. The worst situation is declaring bankruptcy for the firm, the owner, or both. This may happen if a lot of money was invested and the company never hit the successful stage.

19. The Not-So-Secret Secrets of Success Critical Success Factors (CSF): processes, benchmarks, or components of the business that are essential for the business to be profitable and competitive Come from sources external to entrepreneurs Fall into two categories Outside help Entrepreneurial experience There are several steps which can be taken to improve the chance for long term success of a firm. Incorporating requires the use of a lawyer. And lawyers often can share their vast experience with the novice business owner. Hiring employees allows companies to take advantage of larger contracts and helps to reach and serve more customers. Additionally by hiring employees with differing skill sets, the firm can can more experience and expertise with each new hire.There are several steps which can be taken to improve the chance for long term success of a firm. Incorporating requires the use of a lawyer. And lawyers often can share their vast experience with the novice business owner. Hiring employees allows companies to take advantage of larger contracts and helps to reach and serve more customers. Additionally by hiring employees with differing skill sets, the firm can can more experience and expertise with each new hire.

20. Entrepreneurial Experience Being incorporated: a lawyer is likely to give small business owners advice and help them avoid some of the major pitfalls of a new firm Employees: get more done, appeal to a larger market, source of expertise There are several steps which can be taken to improve the chance for long term success of a firm. Incorporating requires the use of a lawyer. And lawyers often can share their vast experience with the novice business owner. Hiring employees allows companies to take advantage of larger contracts and helps to reach and serve more customers. Additionally by hiring employees with differing skill sets, the firm can can more experience and expertise with each new hire.There are several steps which can be taken to improve the chance for long term success of a firm. Incorporating requires the use of a lawyer. And lawyers often can share their vast experience with the novice business owner. Hiring employees allows companies to take advantage of larger contracts and helps to reach and serve more customers. Additionally by hiring employees with differing skill sets, the firm can can more experience and expertise with each new hire.

21. Entrepreneurial Experience Extreme start-up capital: business starting with no start-up capital, and those starting with more than $50,000, are among those most likely to survive long term Protectable intellectual property: patents or trademarks Too much money is a good thing. Businesses with no start up capital tend to watch every penny they spend very closely and control their costs. Businesses with over $50,000 in start up capital have a major investor who will do everything he or she can to make sure the company survives. Businesses in the middle are at a significant disadvantage. Protectable property also helps increase the chance of survival by reducing the risks of copycats. Your competitive advantage is protected and thus unique.Too much money is a good thing. Businesses with no start up capital tend to watch every penny they spend very closely and control their costs. Businesses with over $50,000 in start up capital have a major investor who will do everything he or she can to make sure the company survives. Businesses in the middle are at a significant disadvantage. Protectable property also helps increase the chance of survival by reducing the risks of copycats. Your competitive advantage is protected and thus unique.

22. Entrepreneurial Experience Brand name affiliations or partners: have been checked out and found to be acceptable Optimal strategies: picking and starting a business in a growing industry Presales: pilot test through contracts, orders, or letters of interest Being able to affiliate with a proven brand name also lends legitimacy and recognition to your firm. And of course, it helps to start a company in a growing field and take advantage of the trend. Even a mediocre firm can see growth using this method. Pre-sales are more difficult and rarely done. However, by contracting for the order before production is ensures that only the necessary product is produced.Being able to affiliate with a proven brand name also lends legitimacy and recognition to your firm. And of course, it helps to start a company in a growing field and take advantage of the trend. Even a mediocre firm can see growth using this method. Pre-sales are more difficult and rarely done. However, by contracting for the order before production is ensures that only the necessary product is produced.

23. Measuring Success with Four Bottom Lines The Firm: Define the level of profit that they seek Leadership of the industry Employee satisfaction and well-being

24. Community: how the business relates to the community Community impact Building trust Promoting a positive culture Enhancing flexibility Fostering innovation

25. Family: spend the time with your family Leave personal time to make the transition from work to family Clear your work list and your mind Yourself: personal returns Variety of expectations, dreams, and goals Keeping the dreams alive

27. Summary