#35: Networking – Part 2

Today we are going follow on from my last article where we looked at the first type of networking – your existing network – and how to develop it further.

The second type of networking is opportunistic. You go to an event, an exhibition, or a trade fair, where you will have opportunities to “work the room”. You can talk to people – at registration, and in the breaks.

If you attend an event that is relevant to your business, in that room could be potential clients, competitors, potential service providers to you and people you can team up with. I have not gone to an event where I have not come away with at least two or three cards of people to follow up with, however good or bad the event was.

The third category is planned networking. This is where you join a networking group for the specific purpose of building relationships and promoting your business. The only one I have time to do now is the Gatwick Diamond Business Association, which meets once a month. The website will give you a pretty good idea of what an organised networking group is all about.

Other networking groups are run by Chambers of Commerce, BNI and the IOD. For the ladies there is one which is called “Women in Business”. It’s worth going along as a guest/visitor to a few events to gauge which ones suit you best.

Once you have made a decision you will need to stick at it though, as it takes time to build trusted relationships. They are all variations on a theme, and generally give you an opportunity to tell your story to either your table, or the full group, depending on how many attendees there are.

This usually takes the form of an “elevator pitch”. An example of what I might say is displayed below:

Good morning everyone, my name is David Mellor from David Mellor Mentoring, based in the Gatwick Area.

• What do we do? We help business owners make more money and free up their time.

• How do we do that? We take them out of their natural habitat, we help them review where their business is, identify where they would like to take it, but most importantly we work alongside them for as long as it takes to help them get there.

• Benefits for them are that it puts them back in control of their business, and it gives them a direction and a focus, all of which lead to increased profitability.

• Typical issues that we find are that they are working far too many hours, they are not making enough money, they don’t trust any of their staff to do the job as well as they can and quite often they are lonely.

So if you know any business owners that show any of those symptoms, I would love to hear from them; just remember my name is David Mellor from David Mellor Mentoring in the Gatwick area – you have my contact details on my card.

Oh and don’t forget – you don’t want to end up like Christopher Columbus, who when he set off did not know where he was going, when he got there he did not know where he was, and when he got back he did not know where he had been. He did it all with somebody else’s money, but you probably don’t have that luxury. Thank you.

In an elevator pitch you tell people who you are, where you are based, what your business is, what you do, what makes you different, the kind of clients you are looking for, a reminder of how to contact you and finally some kind of memory hook or strap line which makes you memorable – in my case the Columbus story!

#34: Networking – Part 1

Gathering business contacts to create a valued network can take time, as not everyone will be on the same page as you in terms of what they want and need. Some people will be on board from the start, others will need a bit more convincing.

The obvious place to start is your existing network of family, friends, neighbours and people who you have worked with in your career thus far. What I suggest you do is collect all the names on an excel spreadsheet (particularly the work contacts) and classify them 1 – 5.

1. People you are convinced will buy from you at some stage in the future.
2. People you are pretty certain will buy from you but you are not quite so sure.
3. People who realistically are never going to buy from you but you like them, they are well networked, and they are useful for market intelligence.
4. People where you really have no idea whether they are potential buyers or not.
5. People you consider to be irrelevant in your new world.

Having numbered them, you should immediately archive the 5s; the 4s and the 2s. The next stage is to create a diary system where by you get in touch with them every other month; the 3s you do the same with but on a quarterly basis; and the 1s you find a reason to be in touch with once a month without irritating them.

By the end of Year 1, you should only have 1s and 3s left. The 2s will become 1, 3 or 5s, same with the 4s. The 5s have already been archived. You can still be reactive towards the 5s, but you cannot afford to spend time on them; you have to spend time on those who are the most relevant.

You also need to have enough time to add new and highly relevant people to your network. There is nothing to stop you getting on and doing this now! You don’t have to wait as you know who they are.

This forms the basis of your business network, the key is to keep it updated and continue to add new people to your lists. The more you have, the more chances there are of making a sale, increasing not only your profit but also how many people hear about your business.

#33: Awareness

Now that you have learnt how to successfully structure and run your business, as well as hearing some horror and success stories of business partnerships, you should be in a place where you are ready to get your business out there.

Let’s try a little mental exercise:

Today is “Launch Day” – you have opened for business today, but no one out there knows you exist. So what are you going to do to let them know? What you can do probably depends on what your business is, but will be a “cocktail” of the list below:

• Word of mouth
• Launch party
• Flyers
• Press release
• Promotional offer
• Trade show/exhibition
• Advertising
• Business cards
• Traditional networking
• Website
• Brochures
• Social networking – e.g. LinkedIn
• Promotional gift or gadget
• Direct marketing (mail, e-mail, telephone)

Networking is so important it will have its own section shortly.

And a few words on websites: Five years ago I would have said that a website was a “nice to have” on launch day, as opposed to a “need to have”. Things have moved on and if you are going to be taken seriously you really need one, however minimalist.

There are two reasons for this. Firstly, if you launch your business and don’t have a website you run the risk that your potential clients will question your seriousness. Secondly, increasingly it is becoming the icebreaker conversation if you are meeting somebody new. If I meet somebody at a networking event, and we agree to meet up at a later date, the opening conversation at the subsequent meeting often relates to the website. If you don’t have one you take away the icebreaker conversation.

Routes to Market

• You should have more than one of these. The obvious route to market is people who will buy direct from you, or direct marketing.

• The second route to market is people who will refer prospects to you, in the expectation that you will do the same for them, also known as reciprocal indirect marketing.

• The third route is people who would be prepared to sell on your behalf, i.e. they would introduce clients to you but they would expect to be paid in some way. This is what we call fee-based indirect marketing.

• The fourth route is people who do something that is either similar to you or complementary to you, with the result that you can sell alongside them and the two of you can win business together that you could not win on your own. You each help the other.

• And finally, the fifth route is networks that you could join with the specific purpose of building relationships and promoting your business. This would be the biggest change for most people, but it could also well be your biggest source of business.

Which takes us on to networking…something we will cover in the next article! Until then you can always contact me with any queries you have on routes to market and launch days.

#32: A Success Story

Last time I told you a harrowing tale of a business partnership that went south due to one members change in commitments. I’d like to contrast this unhappy tale with my working relationship with Stephen, which demonstrates a successful mechanism to deal with changing circumstances. Stephen and I met in 2002; we are very different in terms of the way we work, and indeed the work we do, but the arrangement is very successful. One of the key aspects I think is that we see eye to eye on the issues that matter; we have never had a cross word in seven years!

When we met – and we met through networking – we saw opportunities to work together. What we did, without involving any lawyers, was draft out one page of A4 with some basic but important terms of reference, detailing how we were going to work, what we were going to call ourselves, what kind of business we were going to look for, our pricing model, the amount of money we were going to invest, and the amount of time we were going to commit.

After twelve months we planned to take stock and then decide what to do next. Well, during that first year I think we made a small profit, which was not bad in view of the market conditions. During that year we were lied to, cheated, and played off against each other; so the year was not without its excitement.

We sat down and had a beer at the end of the year and we decided you learn more about people during adversity than when things are going well. So we set the company up and away we went.

A postscript to this story though – we eventually experienced the drift… but it was me, not Stephen. I heard the siren call of doing other interesting work, and became set on developing a portfolio career, whereas Stephen was still channelling all his effort and energy into the company.

I raised the subject before any resentment could set in. So what we did was adjust the shareholding from 50-50 so that Stephen became the majority shareholder, which reflected this change in circumstance.

The way we went about it was adult, professional and it made sense.

We were still aligned but in a way that better reflected our respective levels of commitment. You could imagine how, if that conversation had not taken place, there could have been resentment.

So if you are going into partnership with someone else, be very careful of how you set it up, why you are setting it up and how you will deal with it if it does not go according to plan.

For more advice on this or if you feel you or your business partner may be feeling “the drift” and are unsure about what to do next, please don’t hesitate to contact me.

#31: Further Problems

In the past two articles we went through the different reasons for why small businesses fail, namely because they were unaware of what they were getting into and issues with client payments.

But there can be other reasons why a small business would stop trading, such as choosing the wrong business partners.

It is shame to have to say that most business partnerships do not work. This is not because people are bad; it’s mainly because circumstances change. If you take a simple example of two people who decide that they are going to work together, on the day they agree to start they are both 100% on the same page. But sooner or later one of them will drift and once the drift starts it is very hard to reverse the process.

That drift could be caused by something more exciting coming along for one of them, their priorities changing, a health scare, or a family issue of some sort. I have seen all of these happen.

Unless you put in place a mechanism to deal with changing circumstances when you start, you will begin to see resentment, as one party senses that the commitment and effort are not balanced anymore.

Case Study:

I was doing a strategic workshop with a small consultancy run by a man and a woman, who operated a partnership with a group of about 12 associates. They had been going for about three years and doing very well.

They had an idea for a big new venture which was going to be capital intensive and they wanted to be put through an intensive “stress test”; the purpose was to see that if they went to the bank/business angel community they would be taken seriously.

They wanted the assurance that their new business idea made sense, and that their existing business was in good shape. The woman was doing most of the delivery and the man was the ambassador creating the awareness and lining up the prospects.

One of the issues I usually try to establish is how people allocate their time.

The lady was “on fees” doing client work pretty much full time, so it was clear what she was doing, but he was not doing a lot that was fee related; I was thinking that there was only a finite amount of networking and prospecting that he could be doing each week, so what was he actually doing?

I kept trying to explore how he spent his time, but he was resistant; mid-afternoon, however, it came out. All the time she thought he was out there marketing and prospecting for the partnership he was doing something completely different.

The man had recently married, and whilst his business partner was out there bringing the money in, he was helping his new wife set up a restaurant business. You could have heard a pin drop. When they had both calmed down we had a very difficult conversation about the next steps.

I had a long, depressing drive home, but two days later I received a letter and a cheque for the work. She said it was the best day’s consultancy she had ever experienced, and she did not know how many years of deception I had managed to short circuit.

I have no doubt that on the day they set their partnership up they were both 100% matched, but his priorities changed and it is hard to imagine a situation where they could get back to a genuine partnership of equals. The partnership was dissolved within three months.

Take this as a lesson in how important it is to be honest with your business partners at all times, you don’t want to be on the receiving end of a business relationship that goes sour because one party changes their priorities without consulting you.

#30: Why Small Businesses Fail – Part 2

In my previous article we stared to look at the main reasons why a small business might fail, and today we are going to continue with this.

If you are doing business to business it is a different game.

If your clients are other small businesses you will need to be careful. Some of them will try every trick in the book to delay paying you. It is amazing how creative other businesses can be! If your terms and conditions say you want payment in 30 days do not believe that they are making every conceivable effort to comply, because they are probably not! If you think they are, then you are potentially deluded.

If, on the other hand, your clients are going to be big companies then you still need to be vigilant, as they are quite often inefficient in terms of paying product and service providers. They are not paying you because they don’t want to, they are not paying you because they can’t find the invoice, they can’t match it to the transaction, or they have paid someone else.

One of my clients is a software company who sells to large companies. The husband does the selling and delivery, and the wife does the bookkeeping and invoicing. She is on first name terms with at least two people in the accounts payable department of their clients.

She knows whose tray the invoice has to be in and by what date to hit the next payables run. From time to time she will send them tickets to the theatre, or a case of wine, to say thank you for their on-going business and prompt payment; they have never had a bad debt in 18 years, and their days sales outstanding is as low as you can possibly get it.

But it is time consuming. One of the small business consultancies where I used to be actively involved has a secret weapon in the form of their bookkeeper, who also does the invoicing.

If you assume that all the invoices from the previous month are going out on the first of the next month, then this is easier to follow. So let’s assume that the next wave of invoices is going out on the 1st October. On the 30th September she will call each of the clients, advise them that the invoices are being done, and then check that the amount in question is what they are expecting.

The reason she does this is to prevent a situation where after several weeks silence they are chased and then claim that it was not what they were expecting. So, she is taking away the ability for them to play the “not what I was expecting” card. Having sent the invoices, she will then telephone to check that they have been received, which takes away the “never received it” card.

She does both of those in the immediate timescale of the invoice going out and as it gets closer to the contractual payment date (30 days), she is all over them for payment. That is the way that you have to do it if you are a small business, but it is time consuming.

Try to keep this in mind when you start taking regular clients on, otherwise you may find yourself in the red.

So, a final word of advice: Don’t assume that people will pay you, or pay you in a timely fashion, if you have done the work.

#29: Why Small Businesses Fail – Part 1

Today we are going to move on from the financial aspects of running a business and how to structure a start-up correctly. Now is the time to really focus and concentrate instead on the main reasons why small business fail.

If I put my black hat on and talk about the main reasons that small businesses fail, it’s not because I want to depress you just at the point of launching, it’s mainly to tell you where the traps are so that you can avoid them.

Small businesses fail because they run out of cash; and we already know that probably the biggest reason that this happens is because they did not fully understand what they were getting into. But there are other reasons that can come into play:

• Lack of self-awareness – they have been unrealistic about their strengths and weaknesses, i.e. they thought they were good at sales when they were not. I can think of somebody down in Sussex who thought they were the best thing since sliced bread in terms of sales, but they were selling at the wrong price which meant the more business they did, the more money they lost.

• Research – they came up with a product or a service which was a solution looking for a problem; their research was insufficient for them to clarify that there was a market for what they wanted to do.

• Underestimating costs – you should be able to figure out your costs; for example, don’t guess what your insurance costs will be – find out. If you use as many real numbers as possible, you can then figure out what your breakeven point is, and then you know how much money you have to make to cover your costs before you start making money.

• Allowing customers too long to pay – if you talk to any owner of a small business and ask them what their biggest gripe is, number one is almost always bad debts. If your model is business to consumer, and you are dealing with the public, it is slightly different; by and large you will be paid by cash, cheque or credit card so you are safeguarded to a certain extent, and also the timeline is shorter.

Any of these scenarios will have dire consequences to the success of your business, so make sure you are fully prepared to tackle them should they arise.

Next month we will look at some more reasons why businesses fail, but if you think you need some more guidance on this please don’t hesitate to contact me.

#28: Financial Plan

Last time we went through how we going to structure and run your business, as well as the different options you will have when setting it up financially. This puts us in the perfect position to complete the finance part of our one-page plan.

What I have assumed (for you!) is that by the year-end, your run rate will be 16 billable days work per month, so pretty full! You are working on an average rate of £250 per day.

You are not diluting your income by using anyone else. You are going to be stringent on costs, and you are going to keep your costs at 20% of turnover; and finally, whilst you will “upgrade” to a value business in due course, in Year 1 you are going to organise your net earnings to support yourself and, if applicable, the family.

If you need external finance to launch your business, then realistically you have three main options, in addition to any government grants or funding schemes which are specific to your locality (your local Business Link is the best place to research this).

1. “FFF” – This is short for Founders, Family, and Friends. This represents the logical starting point.
2. The Banks – The government introduced a new scheme in 2008 to stimulate lending to small businesses, which has a partial government guarantee. If for any reason you are not eligible for this scheme (known as the Enterprise Finance Guarantee or EFG Scheme), you will probably have to provide security (e.g. guarantee probably supported by a mortgage over your home) to obtain either working capital finance or asset finance.
3. The business angel community – there will be one or more business angel communities in your locality, as they do not usually like to be more than 2 hours away from their investments.

Below I have set out my top tips on dealing with banks and angels:

Top Tips for Dealing with Banks:

• You need to prove your ability to service the debt (plus interest) with something to spare
• They will be looking for security when lending to young businesses
• They will fund assets and working capital
• They will very rarely fund people and salaries
• They will have concerns re risk and reward

Top Tips for Dealing with Investors:

• Exit Strategy is often their No. 1 priority
• Return on investment is critical
• They will be looking closely at the potential of your business
• They will also look closely at the management
• They will not fund the owners’ lifestyle

Next time we will look at the main reasons why businesses fail and how you can avoid them. In the mean time, do get in touch should you have any questions.

#27: Operations

Now that we have finished going through your strategic plan which we covered in my previous two articles, we can move onto something even more important; Operations. How are we going to structure and run this business? I am grateful to my Accountant David Beckman who has helped me greatly over the years.

The most popular choice is between sole trader and limited company. This is an area where it makes sense to take professional advice, but there are three reasons why, from the layman’s point of view, incorporation needs to be seriously considered.

• One is legal
• One is commercial
• One is financial.

The legal reason is all around limited liability. If you set up a company, then it is the company that has the trading relationship with your client, and not you. If for any reason something went wrong and the client, or anyone else for that matter, came after you seeking compensation, the risk would generally be limited to the company’s ability to pay, unless you had been criminal or fraudulent in your activity, or had given a personal guarantee. If you are a sole trader then your entire personal wealth is on the line, including house, savings etc.

The commercial reason: why I think it makes sense is the fact that unless you are offering a traditional “trade”, e.g. electrician, carpenter, plumber or gardener, having a corporate structure may make you more likely to look more credible in the eyes of the potential client; furthermore you may not otherwise be able to obtain access to approved or preferred supplier lists now favoured by many businesses.

The third reason is that, despite Government tinkering, there is still a very marginal tax advantage in being incorporated rather than being a sole trader. I think in reality this is outweighed by the commercial and legal reasons, but this is my own personal opinion; please talk to an accountant or lawyer.

If you opt for the sole trader structure, you just need to open a “number two” account at your bank set up in your trading name.

If you go down the corporate route, you will need to open a company bank account, which you can’t do until you have a Certificate of Incorporation and Memorandum of Articles of Association.

In terms of Incorporation you have three options. In order of cost you can do it yourself (and the Companies House website is very user friendly), you can pay a company formation company to do it for you, or you can get your accountant or lawyer to do it for you.

Finally, there are five basic legs to your supporting infrastructure:

1. Finance
2. Legal
3. Insurance
4. IT
5. HR

These five areas, together with marketing and sales, will be where you incur costs.

We will now have a business structure. We will have robust documentation. We will have a simple but effective CRM system to keep track of your clients and prospects. We will have a delivery process to maximise repeat business and get referrals from satisfied clients. We will have a culture of quality control, with regular client reviews and business improvement reviews.

I know this sounds like a lot, but don’t get put off! Running a successful business does not happen overnight, and there are bound to be times that are a little difficult. But just remember why you are doing this and what you aim to get out of the business, and don’t be afraid to ask for help! If you need a little extra guidance you can always contact me.

#26: Business Plan

Over the last few articles, we have looked at your business image, the importance of research and your strategic plans. Now it is time to turn our attention to your business plan.

There are a vast number of templates available to you, which are all pretty much variations on a theme. You could well find that the one-pager which I suggested, and which we are building, may be sufficient for your initial purposes.

If however you need to go to a bank or an investor then you may need more; if you can answer the 10 questions listed below in robust fashion then you are in pretty good shape.

Key Questions A Business Plan Should Address

• Where is the company today?
• What is the product or service?
• What is the market/sector?
• How will the market be reached?
• Who is the competition (today and tomorrow)?
• How will the product be produced?
• Who are the people?
• What are the financial projections?
• How much funding is required?
• What are the risks?

You may have to tweak the questions a little to fit your business, but if you can answer them all in confident fashion you are well placed to proceed. I reckon I have looked at over 5,000 business plans over the last 10 years from a fundraising perspective.

A few comments on these:

• Lifestyle versus value business – we talked about this earlier. Remember, banks and investors do not see it as their job to fund your lifestyle!
• Unbalanced team with key skills gaps – unless your plan indicates how you propose to address this, financial backers will be nervous.
• Unclear product proposition – if you do not make it easy for the reader to grasp your proposition, he or she will quickly lose interest. Remember to avoid jargon.
• Limited analysis of competition – if you put in your business plan that you have no competition your plan will go straight to the discard pile; – people will either believe a) that you are lazy or b) that if there is no competition there is probably no market.
• Unproven revenue model – this is difficult if you are a pre-revenue start-up. How can you prove how much you can sell at what price and with what kind of frequency unless you have done the type of research the florist.
• Incomplete sales plan – you need to give the reader a clear indication as to how you are going to reach the people who will buy from you. If you mention your route to market, your sales qualification process, your pipeline management process, and your activity and conversion ratio model, you will make them comfortable.
• No sensitivity analysis – it is helpful if you do a best case, middle case and worst case, so that the reader has an idea of how you financial model looks in different scenarios.
• Attention to audience – if you are talking to a bank their main interest is your ability to service the debt and pay them back; if you are talking to investors, their interest is your ability to give them a higher return than they can get from any other project, or from the stock market.

Back to our one-pager. We have talked about the pitch, and a little bit about the website. The details behind sales qualification process, pipeline process, and conversion ratio process will become clear when we have covered sales in a forthcoming article.

Until then, do get in touch with me anytime with any questions you may have.