Posts Tagged uncertainty
Alexander Graham Bell once said, “When one door closes, another opens; but we often look so long and so regretfully upon the closed door that we do not see the one that has opened for us” (Bell, n. d.).
Often the entrepreneur dwells on the negative instead of pursuing more positive leads. The doors of opportunity are all around us, but when a prospect shuts the door we spend too much time looking for reasons the door shut on us. The savvy entrepreneur moves on and does not dwell on doors shut by prospects. The novice entrepreneur spends too much time trying to find out what went wrong. Entrepreneurs can learn from the shut door, but should move on. Often the reason comes out later anyway. So why dwell on misfortune instead of focusing on new opportunities?
The next opportunity may show the entrepreneur what went wrong the first time around, but if the entrepreneur does not pursue the next opportunity, likely he or she will not learn nothing from the lesson of the closed door. Comparing experiences helps the entrepreneur see how effective different strategies are. The entrepreneur should not keep taking the same steps if the results do not change. Trial and error helps entrepreneurs open doors the next time around.
Extensive planning and analysis is for managers, not for entrepreneurs. Entrepreneurs find success by failing and trying new approaches. Dwelling on closed doors puts the focus on failing, but trying new approaches focuses on opportunities. The more the focus is on new opportunities, the greater the chance of succeeding by learning from mistakes (or failures).
Each failure is a step closer to the next success and entrepreneurs should look at failure not as failure, but as a mover closer to success. Failures are a challenge all entrepreneurs must overcome to see success, but they should not let failure paralyze them. Why fail when you can succeed?
I encourage you to start find the motivation to look at opportunities instead of failures. Start knocking on heaven’s door. You can start now by signing on with us to help you. Learn more.
Bell, A. G. (n. d.). QuoteWorld.org. Retrieved from http://quoteworld.org/quotes/1168
Think about why some companies succeed despite their characterization as risky. For example, one of the most risky businesses people think of is to start a restaurant. The failure rate for restaurants is high, but those that succeed have some special qualities. A good business needs to adapt to what people want.
I am originally from Chicago and I distinctly remember a restaurant chain that became very successful because of its ability to provide what people want. If you have ever heard of Lettuce Entertain You Enterprises, Inc. you may have a good idea what I mean. Richard Melman with Jerry Orzoff started Lettuce Entertain You in 1971 with $17,000. Melman wanted to start an upbeat restaurant directed at young singles interested in rock music, casual clothing, and healthy food. R. J. Grunts became the company’s first eatery in Lincoln Park followed by Fritz That’s It! in Evanston and Great Flying Food Show in 1974. In 1975 Lettuce Entertain you introduced Jonathan Livingston Seafood and Lawrence of Oregano opened in 1976. Lettuce Entertain You mastered the avante garde casual restaurant business with its unique themes (Anonymous, 2012).
A good business needs to anticipate what customers want like Melman did with Lettuce Entertain You. Traditional restaurant startups do not typically think about what will make a restaurant stand out to a certain crowd and will take a more conservative route. A good entrepreneur has an open mind and anticipates providing a service or product customers will want. Lettuce Entertainment did not stop with the off-beat casual idea, but opened more restaurants with more ambience like the Pump Room on Chicago’s Gold Coast and Ambria in partnership with renowned French chef Gabino Sotelino. Later Melman introduced several other themes by opening a series of other restaurants (Anonymous, 2012). My personal favorite is Tucchetti’s.
An open mind is important to becoming a successful entrepreneur. This notion reminds me of a TED talk by psychologist Jonathan Haidt I viewed not too long ago. Haidt explained five key differences between conservatives and liberals (Haidt, 2008). Entrepreneurs with closed minds often do not succeed because they fail to anticipate what consumers want. Lettuce Entertain You showed how new themes can entice people.
Think about your business! Does your business need an attitude adjustment? Lettuce Entertain You provides a good example of how an open mind can open doors for a new business and keep customers happy. If you want to start a new business I urge you to start now to explore how to keep an open mind by working with us. Learn more.
Anonymous. (2012). Lettuce Entertain You Restaurants. Lettuce tell you our history, from http://www.leye.com/about-us/history
Haidt, J. (2008). Jonathan Haidt: The moral roots of liberals and conservatives. Retrieved from http://www.ted.com/talks/jonathan_haidt_on_the_moral_mind.html?quote=339
One of the most important ways for entrepreneurs to learn is to watch others, and what better way than to learn than from watching the pets we love. I have learned so much from my dog, a yellow Labrador retriever, and I want to share some of the tricks I learned from her. Abby is my most loyal and obedient partner and I value the lessons she has taught me. I hope you can learn from what she taught me.
One of the first tasks an entrepreneur needs to learn is how to hunt when hungry. Abby has the distinct ability to sense when she needs a meal. She knows how to hunt and find food to satisfy her appetite. An entrepreneur is hungry often when first starting out and must also find a way to hunt to satisfy the urge to eat. Too often I find entrepreneurs taking hunting for granted mistakenly believing hunting is not an important task, but I find hunting is one of the most basic primal tasks an entrepreneur has. Good entrepreneurs learn to hunt early and often because they need to eat to prolong their existence. Hunt if you want to survive.
Abby also taught me to keep digging. An entrepreneur’s work is never done and to find what one needs one must always keep digging and not let obstacles stand in the way. If a fence or roadblock exists dig under it and find the way to what you need. An entrepreneur never knows what he or she might find, but keep digging and the treasure will come. Dig to find your way.
Another trick I learned from Abby is to keep my sights high. You never know what might drop from the sky. I have seen Abby look at the squirrels on the fence or in the trees and one misstep causes them to drop to the ground in striking distance. I have seen the same result when Abby kept an eye on the birds that did not leave themselves enough room to climb back up and dropped to the ground. Entrepreneurs should keep their sights high as no one knows if something good will drop in their lap. Keep up your head and salvage what drops from the sky.
On a related note, I also learned from Abby to make my presence known. Abby lets me know she is there and if something falls from my grasp she is there to reclaim it. Squatters rights matters! The entrepreneur can also claim something that falls from a competitor or supplier’s grasp and use it to make life better. Claim the prize by making your presence known.
Once Abby claims a prize she also never lets go. Once the squatter’s rights rule takes effect, entrepreneurs need to hold on to what they have gained presuming it has value. If the entrepreneur fails to protect the prize the same can happen to the entrepreneur that happened to the competitor or supplier. Never let go if you want to keep the prize.
Similarly, Abby taught me to keep an eye on the prize. If you have not yet gained the prize this step is most important because once you take your eye off the prize, the more apt you are to lose it. Entrepreneurs need to stay focused and continually look for what they are after. If you want a prize bad enough you have to keep your focus. Never let your eye off the prize.
Once Abby finds a prize, she taught me not to waste anything. Waste violates the survival rule as the entrepreneur should always set aside enough for down times. Squander what you find and do not use as it can come in handy when business is down. Never waste what you have, but keep it for when you fall on hard times.
Another trick I learned from Abby is to have a sixth sense and keep prepared. When someone comes to the door Abby is on her way before anyone knocks or rings the bell. Good entrepreneurs need to prepare for the unknown and have a sixth sense. Anticipation puts you in front of others. So prepare yourself by having a sixth sense and anticipating what is to come.
Abby has another natural knack that I learned that has to do with networking. Abby keeps abreast of the trends and setting by networking with her peers. Entrepreneurs need to scan the environment to find their niche and identify new opportunities. Sniff out opportunities by looking at what peers do!
One other find from Abby’s behavior is to play the game by your own rules. If Abby has the opportunity to define how to play the game she does and lets others play by her terms. Entrepreneurs need to define the rules by which to play the game or risk letting someone else control how they play. Define the rules to benefit how you play and do not rely on someone else to set them for you.
With what I learned from Abby, I have conferred on her the doctor of fine bones degree. I think she has earned her degree and can teach others many good lessons about entrepreneurship. I hope you have found her teachings informative. I continue to learn from Dr. Abby and you can too. I encourage you to act now and learn more.
One of the most often forgotten about benefits new business founders overlook is the ability to carry forward and carry back a net operating loss. Founders of new business struggle to find sources of cash flow available to bootstrap their way to sustainable profits. A new entrepreneur founding a business should consider the benefits of cash flow from the net operating loss.
A company has a net operating loss when its business expenses exceed it business income. Business expenses excludes any capital losses, personal exemptions, and 50% of the gain from the sale or exchange of a qualified business stock. Business expenses also exclude alimony paid, contributions to an individual retirement account or self-employed retirement plan, payments to a health savings account, and most itemized deductions with some exceptions.
A founder can carry back a loss two years before the year in which the company incurred the loss creating a refund of previously paid taxes. A company can carry forward any remaining losses for up to 20 years reducing future tax liabilities. When a new business struggles to make ends meet it should not lose sight of this important tax benefit.
Most new businesses take 3 to 5 years to achieve profitability, but meanwhile the company can preserve cash. Using the net operating loss deduction can produce cash from the refund of taxes paid previously. This refund produces cash a business owner can use in the business.
Have you built the net operating loss into your cash budget? If you want to take advantage of the net operating loss, but have not already done so I encourage you to get help now. Contact us.
I read a blog post today about how banks have started to lend to small business again. Considering the bad treatment banks have given their customers I wonder how they will treat small businesses after cutting off lines of credit and other lending to them during the financial crisis. I suggest considering the credit union as an alternative to a bank for small business lending. Personally, I like getting treated as a person instead of as a commodity and credit unions have many advantages. I just opened an account with a credit union and I found the I received much better treatment and the credit union valued not just my business, but me as a person.
I remember an SBA loan I had with a small bank that a larger bank later took over. For several years the bank and I had a good relationship. One day I received a notice the larger bank had bought the bank and the new bank no longer wanted SBA loans as part of its business. The new management made it difficult to preserve the good relationship by charging new fees for everything imaginable. A few years into the recent financial crisis I saw this bank on a list of the banks the Fed had shut down.
Because small business financing sources have evaporated during the global recession, small business should consider using credit unions. Credit union unlike small banks are cooperative nonprofit organizations. As nonprofit organizations credit unions have an exemption from tax resulting in lower costs allowing them more latitude in making loans. Credit unions also enjoy lower costs from volunteer labor and employer sponsorship giving them the ability to offer lower rates. Besides offering small business loans, credit unions also offer other products like credit cards and car loans (Feinberg & Rahman, 2006).
The trend is for large banks to buy smaller banks especially in larger markets. This trend has resulted in less lending to small businesses causing a need for alternative funding sources like credit unions to service small businesses. Consolidating small banks has created less of an interest in small business lending. The lack of interest stems from the difficulty large banks have dealing with soft data, the more hierarchical bank’s need for more approvals, and lower credit supplies by the larger organization (Ely & Robinson, 2009).
Oriz-Molina and Penas (2008) found one way to mitigate opaque risk from small business is to shorten loan terms to watch the progress of small businesses. The more conventional approach is to want greater collateral over a longer term. Credit unions also have the ability to gain a better understanding of owners’ personal wealth. Although credit unions can focus on better addressing opaque risks using these approaches, larger banks often rely on credit scoring to approve small business loans to achieve a competitive advantage (Immergluck & Smith, 2003).
Despite the ability of larger banks to gain a competitive advantage in lending to small business, credit unions are closer to small business customers and able to forge better relations. Large banks have shown poor behavior in recent years making them less attractive than more personal, smaller thrift institutions. For example, banks have added new fees and restricted lending to only the strongest small businesses. Improved relations with small businesses promotes long-term relations despite shorter lending terms.
Consolidating small community banks into larger banks has caused banks to become less personal and more selective. Credit unions fill a social gap in the market because of consolidation of these community banks and the cost advantage they have from the nonprofit status. Credit unions can expand from solely personal to more commercial lending to fill this gap.
What sources have you considered for your business in achieving financing? Are credit unions part of the mix? Do you want to know more about the value of commercial lending by credit unions? Find out more about how you can benefit.
Ely, D. P., & Robinson, K. J. (2009). Credit unions and small business lending. Journal of Financial Services Research, 35(1), 53-80. doi: 10.1007/s10693-008-0038-3
Feinberg, R. M., & Rahman, A. F. M. A. (2006). Are credit unions just small banks? Determinants of loan rates in local consumer lending markets Eastern Economic Journal, 32(4), 647-659. doi: 1241333261; 35361511; 11879; EEJ; INNNEEJ0000065491
Immergluck, D., & Smith, G. (2003). How changes in small business lending affect firms in low- and moderate-income neighborhoods. Journal of Developmental Entrepreneurship, 8(2), 153-175. doi: 502848551; 8351081; 38473; DVEN; INODDVEN0000469300
Ortiz-Molina, H., & Penas, M. F. (2008). Lending to small businesses: the role of loan maturity in addressing information problems. Small Business Economics, 30(4), 361-383. doi: 10.1007/s11187-007-9053-2
In another post I related my marathon experience to starting a new business. Let me tell you about the next episode related to my running experience. One of the people I met while training for the marathon included an avid triathlete. I started running with Bill who ran much faster than me, but liked shorter distances and preferred the challenge of the triathlon. Bill excelled most in biking, but ran fast at shorter distances. Bill often finished in the top three of his age group. Bill motivated me to buy a bike and learn how to swim. Soon after, I started training for my first triathlon. Unlike Bill, I found biking the hardest to learn and I had a fear of the water inhibiting me from learning to swim.
The triathlon taught me how to take on new tasks similar to learning new tasks involved in starting a business. Someone starting a new business has to learn new tasks all the time. The founder of a new business often fears new tasks just as I feared learning how to swim. Yet, as I jumped in the pool every day and started to swim laps, I started to enjoy swimming because it provided solitude and relaxation in the water without the pounding of running. I found this similar to a new business owner because sometimes a new business owner has to step back in solitude and reflect on what he or she wants to do. The founder of a new business continually seeks new ways to make the business fit and productive. Imagine having the resources to learn new tasks to avoid fear and learn new tasks.
Learning to bike created new challenges a as I learned to stay with the pack by drafting. I found bikers stayed close together in a pack to preserve energy and keep pace with other bikers. I also found this strategy is not without risk. I learned quickly if one biker went down, many would go down and when bikers go down together they are in great danger of injury. I also learned the best bikers pick themselves back up and continue the race despite their injuries. Good bikers learn from other bikers in the pack about preventing the danger and sticking with the pack. Experienced bikers work as a team to prevent mass wipe outs and hang together in unison.
Savvy entrepreneurs are much like the biker because they continually scan what other people in their business do. Entrepreneurs learn to keep pace and stay together to reach their goals, but sometimes take a spill and have to pick themselves back up and move forward. Risk is inherent in entrepreneurship and a business owner has to accept failure as a path to success. The savvy entrepreneur learns from mistakes and shares with allies to prevent further wipeouts. Think about having the resources of a team to avoid mistakes by working as a team.
When race day finally came I became nervous and had doubts about completing the race. When the gun went off I plunged into the water and began to flail away as people swam over me and bumped into me. I kept lunging forward and noticed the cold water had taken my breath away unlike the pleasing temperature I became accustomed to at the pool. I began hyperventilating and thought I would drown, but I kept stroking away and moving forward. I finally reached a turnaround buoy and caught my breath even though I had no safety outlet as I did in the pool. I started feeling good and could see the shore coming within reach. I realized I would make it to shore and still many people had struggled behind me.
Entrepreneurs also have their doubts when first starting out, but successful ones keep moving forward toward their goals. A business founder also takes his licks and recovers despite unfamiliar conditions. Sometime the entrepreneur feels like he is drowning, but catches a second wind by moving toward the goal. Successful entrepreneurs struggle just like the triathlete, but keeps the goal in sight and moves toward it. Imagine training diligently for an event like the triathlon and not finishing. Not finishing is not a choice for the entrepreneur. With a good coach the entrepreneur can find the encouragement to keep moving toward the finish line.
Upon finishing the swimming leg, I ran toward my bike and found my biking gear and prepared to mount my bike. The transition entailed finding my gear in a sea of athletes, bikes, and gear. I had to change and put on my socks and shoes after drying myself off with a towel. I watched others with more experience than myself who had the transition down to a science and minimized the time to launch into the biking leg of the race. Although I did not do too bad, I learned how to become more efficient by making the transition more of a process. I learned experienced triathletes practice the transition just like they do the three main legs of the race.
The transition taught me I can improve with experience just as an entrepreneur improves with experience. A small business also becomes more efficient the more process-oriented it can become. The entrepreneur learns how to become more efficient just like the triathlete in the transition phase. Consider how the entrepreneur can improve having someone with experience showing him or her the way instead of learning on the fly.
Once I began the biking leg I realized the pack of bikers I had to draft on had shrunk because instead of starting together, bikers began at different times following the swimming leg. I found I had to work harder to find enough bikers on which to draft and not let go. In some places I peddled by myself without a pack. I had no idea how to use what I learned in training.
An entrepreneur also faces uncertainties when conditions change unexpectedly. Just as the triathlete faces the lack of a pack on which to draft, the entrepreneur experiences unknown conditions through which to navigate by taking action. The entrepreneur at times feels alone without any support. The entrepreneur must work harder to find a solution just like the triathlete does without a pack. Imagine how the entrepreneur can improve by having some experience with change and how to adapt to it. Good entrepreneurs must learn to manage change just like a new triathlete.
As I approached the final leg I faced another transition from the bike to the run. The transition mainly entailed dismounting the bike and changing shoes. Again, I found experienced triathletes practiced the transition to cut down their time. The experienced triathlete made the transition so smooth it took very little time. Zaleski (2011) found entrepreneurs with experience have a competitive advantage.
The entrepreneur has to learn every facet of a business and gets better with practice, just like the seasoned triathlete. Entrepreneurs make running the business smooth through developing the right processes and checking them for problems. Although the triathlete measures the transition with time, the entrepreneur uses specific metrics to measure efficiency of different processes to develop a good working model. Blanchflower (2004) found entrepreneurs improve the chance of success by having a higher educational level. However, one does not need a traditional education to learn what the entrepreneur needs to succeed. Entrepreneurs learn on the fly.
As I started the run, I reaffirmed the running leg is my strength because I already had experience as a runner. I settled into a nice rhythm and looked for other runners to pace. Again, I found the field of runners much more spread out because of not starting all at once. However, I did find many people running on empty I could easily pass. I gained speed as I approached the finish because a 10-kilometer (6.2 miles) running leg is much shorter than a 26-mile marathon. I had the long-distance conditioning in my favor. Whatever time I lost in the swim and bike, I made up for in the run. I finished in a good time, but still could improve by learning from my experience.
The entrepreneur is similar to the triathlete because both gain from experience and learn along the way. Both the entrepreneur and the triathlete learn to pace themselves and deal with unknown conditions. Action is critical to both the entrepreneur’s and triathlete’s success, and both strive to achieve fitness.
Do you have the tenacity of the entrepreneur? Act now if you do and learn more.
Blanchflower, D. G. (2004). Self-Employment: More may not be better. (10286). National Bureau of Economic Research. Retrieved from http://www.nber.org/papers/w10286.
Zaleski, P. A. (2011). Start-ups and external equity: The role of entrepreneurial experience. Business Economics, 46(1), 43-50. doi: http://www.palgrave-journals.com/be/index.html
Finding financing for a small business is like playing Where’s Waldo. Where’s Waldo is a game in which a player looks for a funny guy in a red-striped shirt and stocking cap in a maze. Waldo blends into the crowd and is difficult to find.
Small businesses look to find a source of financing among a maze of potential financiers and hazards. Financing can include angel investors, venture capitalists, banks, and other sources of equity and debt. Ma and Gui (2010) classified direct small business financing in the United States into venture capital and securities financing. Ma and Gui explained indirect financing comes from commercial bank loans. Some commercial bank loans have a government guarantee from the Small Business Administration. Mezzanine financing is another hybrid source of financing valuable because a company can treat much of it as equity even though it combines features of debt and equity (Silbernagel, Vaitkunas, & Giddy, n. d.). The maze is difficult to navigate because the terms differ from one source to another. The small business should target equity financing whenever possible because debt financing is more risky. Micro financing and crowd funding are some new entries to the maze, but an old favorite is bootstrapping.
A person playing Where’s Waldo has to examine the maze with great scrutiny to find Waldo blending in to the crowd. Waldo is a friendly guy, but is crafty in making himself inconspicuous among the crowd. Waldo may have hidden motives in avoiding making himself obvious.
A small business needs to have an awareness of the hidden motives different financiers may have. Some financiers use convertible features to gain control of a company. The small business should have an awareness of these features to prevent a takeover. Small business founders work hard to find a working model for their business and should protect themselves from possible takeovers by reviewing the terms of the financing. Protecting a controlling interest in the firm is a critical role for a small business founder to keep control and avoid the board from firing him.
When one finds Waldo, the game is over and the player can start a new puzzle. A small business founder looking for the right financing locates it the search is over, but he must remember to make sure the terms allow for keeping control of the company.
What sources of financing have you considered? Want to learn more about small business financing and how to preserve a controlling interest? Learn more.
Ma, J., & Gui, J. (2010). Study on the small and middle enterprises financing mode in financial crisis. International Business Research, 3(1), 76-79. doi: 2225515451; 56706961; 137934; NBRS; INNNNBRS0000568443
Silbernagel, C., Vaitkunas, D., & Giddy, I. (n. d.). Mezzanine Finance, from http://pages.stern.nyu.edu/~igiddy/articles/Mezzanine_Finance_Explained.pdf