Tuesday, May 9, 2017

3 Reasons Entrepreneurs Should Be Financially Literate


By Wyn Lydecker
If you are like most entrepreneurs, you have a big idea you want to develop as quickly as possible. While you may wonder how you will raise funding for your startup, chances are that you have not had much exposure to accounting or finance. You may even have no idea how you will keep track of the money flowing through your business. But your degree of financial literacy can make a huge difference in how much success you achieve. Here are three reasons why every entrepreneur needs to acquire at least some of the knowledge taught in an Accounting 101 course.
Reason #1 – To Know How Much Money You Make
           Several years ago, when I was working with an innovative energy-efficient lighting company that wanted to raise half a million dollars, I asked the CEO why he needed to raise funding. His answer was typical: so he could grow his business. He and his partner had used home equity loans to finance their launch, and now they wanted to expand. But when I asked him how much money his company was making, he had no idea. “I have to ask my accountant,” he said.
I was stunned. How could someone who had put his home on the line and now said he needed to raise capital, not keep track of the money his business was making – or worse – maybe losing? This man was an intelligent and effective salesperson, highly capable of attracting new business. But he and his partner, who provided the technical brains, had completely outsourced the financial side of the business to their accountant. Once we had the financial statements in hand, it was obvious that the company had plenty of income and plenty of cash flow to fund a good, steady rate of organic growth. They just needed to keep plowing their earnings back into the business. 
Reason #2 – To Enable You to Raise Financing
           Blindly trusting an accountant or using QuickBooks to do your books yourself when you don’t have a basic understanding of accounting or of general financial management can hurt you when you try to get financing from a bank or an equity investor. In another case, I was developing a business plan for a fashion designer. Even though she kept meticulous spreadsheets detailing the amounts and the costs of every item that went into the clothes she produced – everything from imported fabric to buttons – she left her bookkeeping to her accountant. The statements he provided convinced her that she was losing money, and she desperately wanted to get a line of credit from a bank to enable her to create samples and inventory. She had to spend money on raw materials, labor, warehousing, and shipping months before she was paid by the boutiques that sold her line.
           When I saw the statements, I was incredulous. Using QuickBooks, her accountant had allocated 100% of her raw materials to her cost of goods sold as they were purchased. A key principle of accounting is to match revenues and expenses. Some of those raw material costs should have been capitalized on the balance sheet. Then, as she sold her merchandise, she could match the revenues and the cost associated with producing those revenues. When we took her records from her own spreadsheets and developed fresh financial statements using Excel, it was clear that the designer had excellent gross margins and even made a net profit in some quarters. Her biggest problem was timing of receivables and payables through the different fashion seasons. She needed working capital to tide her over from season to season.
Armed with the revised statements, the designer went to her bank and received an unsecured line of credit, enabling her to produce new samples to sell at New York’s Fashion Week and to expand distribution to more boutiques.
Reason #3: To Build Financial Resources for Expansion
Contrast these last two scenarios with the following. Ed McLaughlin, with whom I coauthored a book on entrepreneurship titled, The Purpose Is Profit: The Truth about Starting and Building Your Own Business, did not have a degree in business, so he asked his accountant for instructions on how to keep track of his cash and his accounts. His company did all the bookkeeping in-house, and he took home a print-out of the financial statements at the end of each day. Ed wanted to know where his company stood because he had bootstrapped his real estate services outsourcing business, USI Companies Inc, with personal savings, and he had a young family that relied on his income.
As USI grew, Ed hired a CFO who put in more sophisticated accounting software. With the CFO in charge, Ed stopped taking statements home every day, but he continued to read his financial reports each week throughout the life of the business. Armed with such knowledge, the company was able to built a war chest of retained earnings, which they used to invest in regional and product-line expansion. Ultimately, when Ed and his partners sold USI to Johnson Controls, they realized the value of their financial discipline.
It didn’t take an MBA for Ed to understand and track his revenue, expenses, payables, and receivables. He found people who showed and explained the concepts to him, so he could grasp how much cash was flowing through his company. It is cash flow, after all, that determines whether a company can stay alive or not.
The accounting systems we use today were first developed in the Renaissance by the merchants in Venice to keep track of the trade flowing through their ventures. If you are starting a business or own a business, it will pay to invest some time in understanding the power of these systems and in developing financial literacy. If you are starting or building your own business, take the time to learn about basic accounting principles. You can get advice online, in books, or from your banker or accountant.                 
        
Wyn Lydecker is the coauthor of The Purpose Is Profit: The Truth about Starting and Building Your Own Business with Ed McLaughlin and Paul McLaughlin. This article first appeared on the Wharton Entrepreneurship Blog.      

Friday, April 21, 2017

How Your Customers Can Help You Scale


by Wyn Lydecker

When Ed McLaughlin was growing his business, United Systems Integrators Inc. (USI), he realized that retaining his initial customers and serving them in new ways would help the company grow faster than just focusing on new customer acquisition. It turned out that his strategy paid multiple dividends. Experts estimate that new customer acquisition costs can be five to 25 times more expensive than retaining a current customer.
Your most valuable asset
Your customers are your most precious asset. Your goal is to build a customer base of repeat buyers who promote your business to other buyers. An effective customer-referral system is the business equivalent of obtaining the Golden Fleece.
If you expect to build a powerful customer-referral system, you should have solid answers to the following questions:
·         Do you deliver on your value proposition?
·         Do you maintain a clear competitive advantage?
·         Do you provide superior customer service?
·         Do you make doing business together a pleasurable and rewarding experience?

Listed below are 10 key ingredients you can provide to deliver superior customer service:
1.      Make a cultural commitment to superior customer service from the outset.
2.      Assess, manage, and satisfy the customer at every single interface point.
3.      Provide a significant product performance guarantee.
4.      Assign a dedicated account manager to each customer relationship.
5.      Be available 24/7 to log and address customer concerns.
6.      Provide a 24-hour-response-time commitment.
7.      Schedule customer engagement forums for feedback.
8.      Reward team members for providing superior customer service.
9.      Make sure that senior team members get directly involved with customers and lead by example.
10.  Develop customer-feedback systems to stay in touch with customers and ahead of the competition.

USI's commitment to customer service enabled USI to enjoy a 95 percent contract renewal rate, while growing the business at a compounded annual rate of 40 percent. And they never entered a courtroom to resolve disagreements.
The long-term relationships you build add tremendous value, as shown in an analysis by Josh Chapman,  a finance expert at TOPTAL. His article, The Importance of Customer Retention — An Empirical Study, uses financial modeling to demonstrate the financial impact of customer retention when growing your business.



BUILD TRUST

To build trust with your customers, take the following actions:
·         Develop an advocate or coach within the customer organization.
·         Ensure your product’s benefits align with your customers’ needs.
·         Work together to formulate plans to solve problems.
·         Jointly develop and sign contracts for trial work.
·         Exceed customers’ expectations on every assignment.
·         Jointly market your success within the C-Suite.
·         Execute a master contract for an exclusive relationship.

ADAPT TO YOUR CUSTOMERS
When Ed was growing USI, he made listening to his customers and adapting his business model to meet their needs top priorities. This practice enabled the company to grow by adding product line extensions. During the early growth stage, USI had the good fortune to land an exclusive real estate service contract with the Olsten Corporation on Long Island. Olsten was a high-growth temporary service firm competing with the likes of Manpower and Kelly Services. Olsten had hundreds of offices throughout the United States. USI was tasked with the responsibility to find, negotiate, and open new Olsten office locations. We also built and managed Olsten’s real estate information database.
        Olsten's needs opened up a path for a new hire Michael Casolo to leverage USI’s business model and relationship base to sell design and construction services to Olsten. Under Michael’s leadership, USI’s service lines expanded to include space programming, space planning, project management, furniture management, signage, and workplace consulting. Each service line was managed as a profit center, which rolled up into USI’s Design and Construction P&L. USI became the first real estate outsourcing firm to offer comprehensive design and construction services. Michael’s contribution played a significant role in USI’s profitability and penchant for expansion.
As you grow your business, invest the time to listen to your customers. Your customers will tell you about their problems and help you to figure out the best way to solve them. Then hire entrepreneurial people who will listen, observe, innovate, and execute. Once you have them on board, listen to their ideas, and let them lead and build in their areas of distinctive competence. Give your leadership the opportunity to challenge the status quo and create genuine change. They will take you to places you never thought possible.


Parts excerpted from The Purpose Is Profit: The Truth about Starting and Building Your Own Business (Greenleaf Book Group), coauthored by Ed McLaughlin, Wyn Lydecker, and Paul McLaughlin. 


Tuesday, March 21, 2017

What Now? 10 Questions to Help You through Life’s Challenges



By
Wyn Lydecker


One of my favorite co-workers was fond of saying, “It’s not what happens to you that matters. It’s how you respond.” Jim (not his real name) was a person who had faced many high-stress events and bounced back. He had trained the Apollo I astronauts how to use their onboard computer just before they were killed in the tragic fire. He had been injured in a plane crash. And he had re-engineered a division of a corporation in such a way that he designed himself out of a job.

Jim and I were running a small business resource center at a small college together when a regime change resulted in our resource center being shut down and our positions eliminated. At the time I had no idea what I wanted to do next. But Jim offered to take me through a process of redefining my personal and professional goals. This was the same process we had used when we were counseling other people in transition who were thinking of becoming entrepreneurs.

If you are in transition and need a method to help you decide where you should head next, work on answering this series of 10 questions that Jim and I used in our counseling. You may be surprised with the results.

Weigh Your Trade-offs


Before we launched into the questions, we gave a preamble:

We all know that we are on Earth for an unpredictable amount of time. We also know that time is a non-renewable asset. For those reasons, it’s good to make sure that we are using our time in the way that is best for us. There is no one right way for everyone. And what was right for someone at one point can change.

As we weigh the trade-offs of life, most of us rely on some set of basic values to guide us. From time to time it’s good to step back and revisit those values and reset our goals. Normally, we do this at time of transition. We’re all living with change in our personal lives, our country and the world. All such events force us to look at life from a new perspective. When we are in touch with our core values, that helps re-center us and gives us strength to make good decisions.


Your definition of success reflects your basic values. It also provides the basis for determining your goals and the direction you will have for your life. As you consider the different paths that might be open to you, assess the probability of achieving success along each of those paths.


10 Questions to Ponder


1.      How do you define success?       

2.      Consider five times you have felt that you were in high-performance mode. What made you feel that way?

3.      What situations or actions led to the highest and lowest points of your life?

4.      How do you set your short-term and long-term priorities?

5.      What process did you use to set your major life goals? 

6.      What were your core values at that time, and did you base your choices on those values?

7.      Do you want to transfer those values to the next stage of your life, and how can you do that?

8.      What are your goals now, and how do they differ or align with the paths that are open to you?

9.      How can you use the resources (internal and external) that are at your disposal to achieve your goals?

10.  How will your decisions affect you, your family, and other important people in your life?

 Be Open

I spent about two weeks thinking about the questions, writing down answers and discussing them with Jim. In the end, I felt amazingly renewed and very sure of how I wanted to use my talents, education, experience and time. I became confident and open to new opportunities. 

Shortly after my last meeting with Jim, a fellow Wharton alum called to see if I would like to write business plans for startups. He was with a business plan writing company in New York, and it was right at the height of the dot-com boom. We had met at one of the events run by our small business resource center. Because of the assessment process I had done with Jim, I knew this opportunity was exactly the sort of work I wanted and grabbed it. The work was immediately rewarding and reinforced my realization that I love writing and working with entrepreneurs.

Where are you in your life? Are you at a point where an introspective process could help you look at your situation from a new perspective? Try thinking through and answering these 10 questions to redefine your goals and open yourself to a new, more fruitful and satisfying direction.



Originally published in the Wharton Magazine Blog under the title of “Weighing Career Transition Tradeoffs.” Wyn Lydecker is the coauthor of The Purpose Is Profit: The Truth about Starting and Building Your Own Business (Greenleaf Book Group). 

Wednesday, February 22, 2017

Does Your Startup Need a CFO?



By Wyn Lydecker

When my coauthor, Ed McLaughlin, was starting his business, USI Companies Inc, he kept his expenses as lean as possible. In the beginning his wife was the bookkeeper. She used a simple, single-entry system coordinated with the company checkbook. But as the business expanded, Ed migrated the bookkeeping to QuickBooks and handed the financial management and record keeping to his COO.

From the time USI started, Ed took home summaries of the company’s financials every night. He knew he would sleep better at night if he understood exactly where the business stood. Understanding the numbers is essential for any founder who wants his or her business to thrive. Eventually, Ed realized that even his faithful COO couldn’t handle the complexity of the expanded company, which had opened offices in cities across the country. It was time to hire a CFO who could be a strategic leader. Ed likens the move to hiring “lightning in a bottle.”

The new CFO redesigned the internal operating model, re-engineered the accounting and financial system, put together USI’s technology development team, and played a crucial role in facilitating USI’s eventual sale to a Fortune 100 company.  


When Should You Hire a CFO?


CFO are expensive, and many startups and small businesses can get along just fine using software like QuickBooks and hiring a bookkeeper, or even an accountant to keep track of the financials, file taxes, and manage cash flow. But eventually, a growing business can cross over the line when stronger strategic leadership is needed, as it was at USI.

Scott Brown, a freelance CFO-for-hire, recently wrote an excellent article, "How Long Can Your Startup Survive without a Full-Time CFO?" Published on Toptal, the blog drills down into the reasons you may or may not need to hire a CFO. Following something akin to Maslow’s hierarchy of needs, Brown says to assess your company’s needs for financial control and analysis. He takes the reader through the stages that necessitate differing levels of financial and accounting expertise. Importantly, he explains why business owners need to keep analyzing their levels of need.



 After delving into analyzing your business’s finance needs, Brown then takes the reader through five questions the owner must ask in order to make the right decision as to the level of financial expertise she or he should hire. If you are a business owner or founder, Brown’s blog is well worth reading and keeping as a reference point.

Wyn Lydecker is the owner of Upstart Business Planning and is coauthor of “The Purpose Is Profit: The Truth about Starting and Building Your Own Business” (Greenleaf Book Group) along with Ed McLaughlin and Paul McLaughlin. The opinions expressed here are her own.

   

Monday, February 13, 2017

How to Make U.S. Businesses Instantly More Profitable (and Put More Money in Your Pocket)



By Wyn Lydecker


Intrigued?

I learned the secret to increasing the bottom line when developing the business plan for an Australian startup. As the COO and I went over the key assumptions behind the financial projections, he instructed me take out the expense I’d built in for healthcare benefits. Why? Because Australia has a single-payer healthcare system – i.e., universal healthcare coverage.

All the money that typically goes toward employer-provided health insurance in American companies went straight to the bottom line! Furthermore, the Australian company’s projected path to profitability was dramatically shortened. I was stunned.

Why should we keep in place such a high barrier to new business formation? Why do American businesses want to keep themselves saddled with this enormous, growing health insurance burden? In 2016, health insurance premiums cost employers an average of $18,143 per employee. Furthermore, workers had to contribute an average of $5,277 toward that cost, lowering their take-home pay (Kaiser Family Foundation).

Why a Single-Payer System Would Benefit Entrepreneurs


With a single-payer system, we could immediately lower the cost of starting up and growing a business. We could reduce the personal cost and risk entrepreneurs take on when walking away from employer coverage. In fact, starting up would become far more attractive without those burdens. The risk of shouldering out-of-pocket healthcare costs would go down. In a recent New York Times article, small business owners complained that the current system is unbearable. A single-payer system would be affordable for all.

·        Besides the bottom-line benefit, healthcare costs would plummet because the administrative costs would shrink significantly. Currently, transaction costs account for one third of our health costs. Think hospital bills are high? Fully 25 percent of the hospital costs are administrative – think all that paperwork, negotiating with insurance companies, etc. (pnhp.org).

·         Americans are now paying an average of 10 percent of their income for healthcare premiums, deductibles, and copays, up from six percent a decade ago. Even with Obamacare and its subsidies, healthcare costs are hurting all of us.

·         With a single-payer system, more money would flow into workers’ wallets and stay there because they would not have to contribute their share of the health insurance premiums or be faced with onerous deductibles and copays. 

How to Replace Obamacare


President Trump and the Republicans who control Congress have promised to repeal and replace the Affordable Care Act, aka “Obamacare.” I believe it should be replaced with a single-payer system that provides universal healthcare coverage for all.

A lot of people are afraid of a single-payer system. But countries that have it enjoy better health and longer life expectancy. Moreover, the other systems are more efficient. The U.S. ranked 50th out of 55 countries for healthcare efficiency (Bloomberg).

In countries with universal care, research does continue. And their healthcare is no more rationed than ours is – how many times has an insurance company denied to cover a visit or procedure? How many people don’t visit a doctor or take medicine because they cannot afford it?

Best of all, with a single-payer system, the government would be able to exert its buying power to lower the cost of much-needed drugs. The big pharma lobby would fight this, but the lower costs would be a boon to our economy and to our entire population.

With universal healthcare coverage, everyone – sick or well, young or old, rich or poor – will be covered and will pay into the system via a tax. With everyone covered, and without the high administrative overhead, the cost per person should be far less than employers and individuals are paying now for their health insurance or through the taxes paid to subsidize the plans for poor and moderate income families. Thus, the tax for universal coverage will be more affordable than the costs we are now bearing.   

If you want to learn more about the benefits of a single-payer system and about how this could work, go to: http://www.pnhp.org/facts/single-payer-faq


Wyn Lydecker is the owner of Upstart Business Planning and is coauthor of “The Purpose Is Profit: The Truth about Starting and Building Your Own Business” (Greenleaf Book Group) along with Ed McLaughlin and Paul McLaughlin. The opinions expressed here are her own.

Tuesday, January 24, 2017

Does Silicon Valley Own the New Wave of Entrepreneurship?

(From Toptal's blog, The New Wave of Entrepreneurship;Photos from http://www.ablogtowatch.com, http://securityaffairs.co, http://geniusapp.com, and http://www.rakenapp.com )
I recently read a blog by Matt Swanson on the Toptal site that discussed the difficulty for innovative startups outside Silicon Valley to raise capital from Silicon Valley VCs (The New Wave of Entrepreneurship). Swanson says that Silicon Valley suffers from a closed ecosystem and accompanying tunnel vision. (I suspect this same exclusiveness is what keeps most of those VCs from funding women-owned or minority-owned businesses as well.)

He makes the point that developing the next cool app or the next iPhone is all people in Silicon Valley focus on, when instead there should be a way for entrepreneurs looking to solve problems in varying own industries in other parts of the country to have access to the capital and the brain power that is concentrated in Silicon Valley.

Swanson predicts this situation will change. I believe it already is. CB Insights says that AI deals are at an all-time high, and they are being done in 35 states. AI is only one fast-growing industry that is not just concentrated in Silicon Valley - think Real Estate Tech, FinTech, and HealthTech.

Harness Technology to Change Your Industry


Entrepreneurs come from all sorts of backgrounds and industries. But they can be uniquely successful if they can harness technology to fill a need in their field. My coauthor, Ed McLaughlin, did that with his real estate services business by starting a separate company called Sequentra. Sequentra delivered a proprietary software solution that enabled workflows, improved access to critical information, and tightened his company's link to their customers. (You can read more about it in our book, "The Purpose Is Profit: The Truth about Starting and Building Your Own Business")  

How can you harness technology to create a new business in your own industry? As he says in his blog, Matt Swanson wants to help you do that.


Wednesday, January 18, 2017

Writing a Book Is Like Starting a Business



When you've worked for 3 1/3 years coauthoring a book, the feeling of seeing the actual physical book offered for sale on Amazon and in brick and mortar bookstores is one of pure elation! But what makes my coauthors, Ed McLaughlin and Paul McLaughlin (pictured above), even more excited is when someone tells us that our book has actually helped them with their business. Comments like that make all the work worth it.

When we started out to create a book for entrepreneurs by entrepreneurs, we didn't realize that the endeavor would be just like starting a new business. Before we knew it, we found ourselves immersed answering a lot of the basic questions all entrepreneurs must answer:

  1. What was our main idea for our product?
  2. What was the purpose of our book?
  3. Who was the target audience? (Who was going to buy and read the book?)
  4. What unique value would we deliver?
  5. Were we filling an unmet need?
  6. How would we create the content and design its final form?
  7. Who were our competitors?
  8. How would we manufacture and distribute the book?
  9. How would we market the book?
  10. What other resources would we need to bring our creation to the market successfully?
These were not easy questions to answer. We spent hours discussing them and doing the homework necessary to develop our product, build an audience, and finalize and distribute the final product with the help of our publisher, Greenleaf Book Group. We not only wrote, edited, and rewrote every chapter; we also spent hours developing and executing our marketing strategy, which included feeding the social media machine, writing blogs, and developing an email list, in addition to using traditional marketing tools such as public relations.

The Purpose Is Profit

Here's a description of the book in a nutshell:

My coauthor Ed McLaughlin bootstrapped his first company, USI, grew it into an Inc. 500 company, and 14 years later sold it to a Fortune 100 company. The book uses the full arc of McLaughlin’s journey, including the failure of a second startup, to reveal the essential business principles all aspiring entrepreneurs need to know, including:

  • Why distinctive competence trumps passion in selecting the business to build.
  • Where and when to get funding without losing control.
  • How to build an entrepreneurial brand that lasts.
  • Why profit should be factored into every business decision.
  • How ethical behavior breeds trust and unlocks profit.

As a special feature, the appendix includes two essential guides: The Startup Roadmap and The Startup Funding Guide.

In the End

In the end it was worth the effort. A columnist for Entrepreneur.com wrote, "Here's a book every entrepreneur needs to read." Not only that, the book was the #1 New Release on Amazon in the New Business Enterprise category. All that made us feel pretty good.

If you want to learn more, go to: www.ThePurposeIsProfit.com. I'd love to know what you think of our book. Email me at wyn@thepurposeisprofit.com.