Keeping the Courts in Their Place

From the NFIB:

This spring the U.S. Supreme Court will hear arguments in a case that may limit employers’ abilities to discourage discrimination in the workplace. At issue is whether employees must first take a discrimination complaint through an employer’s internal discrimination policy, or if instead an employee can take an allegation directly to court.

By now most employers, including small businesses, have set up internal processes to deal with employee complaints and grievances. Entrepreneurs have learned that without internal protocol to deal with such issues, they can be open to serious employment law problems.
Even fifteen years ago we had such policies set up in our business, and they generally worked quite well. We were well trained by our attorney to make such processes legitimate and fair to employees.

“In prior decisions, the Supreme Court has created ‘safe harbors’ from discrimination complaints for employers who do the right thing by establishing and utilizing internal policies designed to prevent supervisors from violating employees’ civil rights,” said Karen Harned, executive director of NFIB’s Legal Foundation. “If employees can circumvent internal procedures and take a discrimination complaint directly to court, the incentives for employers to resolve complaints are eliminated.”

This case threatens to take complaints and grievances out any internal reviews within businesses and take them right to court. Under the current system, there is always the option for outside review if the employee is not satisfied with the outcome or the process. But, we found that we were able to address the vast majority of issues internally. If this case goes against employers, it will clog the courts even more than they already are and drastically increase the costs to small businesses.
The current case is known as Burlington Northern & Santa Fe Railway Co., v. Sheila White.

Rural Entrepreneurial Economic Development Successes

The National Dialogue on Entrepreneurship highlights several programs that are having success in supporting rural entrepreneurial economic development.

For example, in Monroe, LA, Renewal, Inc., is operating a successful microenterprise program that trains new minority and women business owners. In West Virginia, the Conservation Fund is investing in businesses that utilize local natural resources in a sustainable and ecologically-sound manner. In Michigan, the Land Use Institute operates programs that link farmers to restaurants and food stores that are promoting “buy local” campaigns. All of these examples highlight innovative and effective means to link enterprise development, sustainability, and rural community revitalization.

All of these programs are featured in the latest issue of Routes of Change, an e-newsletter published by the W.K. Kellogg Foundation.

Short-cut to Trouble

Accurate revenue forecasting is one of the single most important steps an entrepreneur takes in planning for a new venture. And yet, we find that most entrepreneurs do not spend enough time determining how much revenue will come in their front doors. Although underestimating expenses is a common mistake in business planning, missing the mark on revenues can be catastrophic.
If sales fall way short of expectations, the business can fail due to lack of adequate cash flow. And if sales wildly exceed expectations, the business is not prepared for demand and customers will abandon the new start-up due to inability to meet their needs with products or services in a timely manner.
Some estimates indicate that entrepreneurs spend only about 20% of their time forecasting on revenues and 80% of their time on expenses, when they should spend most of their time trying to gain an accurate forecast of revenues.
Specifically accurate revenue forecasting is important for a number of critical reasons:
– Bank financing and equity investment are based in part of these forecasts. If the entrepreneurs misses the mark and as a result needs more cash than they first thought, this will cause a significant loss of confidence on the part of the banker or investor.
– Inventory assumptions are based on this forecast. Inaccurate revenue assumptions can lead to either too much or too little inventory. Both are potentially fatal errors for a start-up.
– Staffing decisions are also made in anticipation of future sales. If the forecasts are wrong, the business is either over or under staffed.
– Revenue forecasts will determine how much space is needed for the business. Again, too much or too little space are both detrimental to the new venture.
Revenue forecasting can be overwhelming for the entrepreneur. Some say they feel like they are looking into a crystal ball, and it is too cloudy to see the future. So rather than do the work to improve these forecasts, entrepreneurs take short-cuts. They simply plug in numbers into revenues that have no real basis in fact. Often they put in numbers that seem to give them the profits they hope to achieve. Expenses are easier to estimate as we can do fairly simple research to get these numbers. So we spend time getting good expense forecasts and then plug in revenues that make things look right.
There is a time tested approach to revenue forecasting that can significantly improve the odds that they will be more accurate. Revenues are a simply formula:
Revenues = Price X Number of Units Sold
A well developed marketing plan should be able to give you these numbers. Pricing is one of the questions that are answered in the marketing plan, so that will give you half the equation. Knowing what our customers want, how many customers we can likely expect, and how much of what we have to sell they will want will tell us the rest. That is why a good plan helps us to “Think Like the Customer.” If we know how the customer thinks, that helps us determine how to position our product.
Knowing more about the overall market, including size and competition, can help us to begin to estimate demand. The promotion plan will tell us how we will reach these customers to tell them about our new business.
Experts on reading business plans, such as investors and bankers, usually do not read a business plan in the order it is written. They will often read the marketing plan and then go back to the revenue forecast to see if it numerically represents what is said in words in the marketing plan. That is the backbone of any good business plan. If the revenue forecast does not make sense based on the marketing plan, the investor or banker will usually read no further.

Looking for a Good Read?

Tim Faley from the University of Michigan offers his picks for the best books for new entrepreneurs at StartupJournal:
Crossing the Chasm, by Geoffery A. Moore
I have not read this book, but have heard it recommended by others. It is written from a marketing perspective.
e-Boys: The First Inside Account of Venture Capitalists at Work, by Randall E. Stross
I would not recommend this one. It is dated and for almost all new entrepreneurs venture capital is not going to be an issue anyway.
Instinct: Tapping Your Entrepreneurial DNA to Achieve Business Goals, by Thomas L. Harrison with Mary H. Frakes
Kind of a fun book, but not a must read on my list.
The World is Flat: A Brief History of the Twenty-First Century, by Thomas L. Friedman
I strongly agree with this recommendation! It really helps you understand opportunity recognition from a unique perspective, and helps get you focused on dynamic change in the market.
Innovation and Entrepreneurship, by Peter F. Drucker
Read it. Read it again. And read it one more time. Calling this a classic does not do it justice. Even though is was written over twenty years ago it is still at the cutting edge.
The Art of the Start: Time-Tested, Battle-Hardened Guide for Anyone Starting Anything, by Guy Kawasaki
Some good insights, but again this one is too focused on the venture capital experience, which is a rare path for entrepreneurs to take. I find that too many entrepreneurs read books like this one and the eBoys tend to get entrepreneurs off track in their thinking. Entrepreneurship is not just about raising money and doing a quick exit. I like books like Drucker’s that focus on building sustainable businesses. I like his web site better.
A few that he missed that I think should be on your shelf:
Growing Pains, by Flamholtz and Randel
Helps you think about and get ready for growth. It will come sooner than you think, and growth is what kills most businesses.
The E-Myth books by Gerber.
Some good advice from a small business perspective.
You Have to Be a Little Crazy, by Moltz.
Not as well known as some of the others, but a great read.

Entrepreneurship Being Used to Fight Social Problems in Africa

A new approach using entrepreneurship to fight social problems is beginning to find success in Africa.
The effort is being led by Ian MacMillan and John Thompson of the Wharton School at the University of Pennsylvania:

“The basic thesis is that many social problems, if looked at through an entrepreneurial lens, create opportunities to launch a business that generates profits by alleviating the initial problem,” says MacMillan. “In essence, it is a shift in activity from the public domain (governments and non-governmental organizations) to the private domain (businesses and private individuals). This sets in motion a virtuous cycle: The entrepreneur is incented to generate more profits and by doing so, solves more problems.”
…”What we are arguing is that this is another dimension of socially oriented work and philanthropy that can have significant impact with relatively low levels of funding support. For people who understand true entrepreneurship, it resonates. They get the business angle” and they understand that profits are accompanied by “doing social good.”

Initiatives include projects to deal with disease management issues associated with the HIV/AIDS crisis and with the health care system. The projects are initially focusing on Botswana.

Sometimes it is Just Time to Pull the Trigger

There are many really good business opportunities that never make it past paper. Would-be entrepreneurs agonize over every detail of their plan to the point that it never gets off the ground, or they miss their window of opportunity.
One of the virtues that Mike Naughton and I are writing about in our new book The Good Entrepreneur is prudence, which entails being good stewards of the resources we have at our disposal. Entrepreneurs who agonize over getting started are often concerned with being good stewards of their own resources they plan to put into their business and of the resources they will get from friends, family, other investors, and creditors.
But there are two critical errors that one can make when looking at how the entrepreneur manages their resources. One error is being careless, reckless and wasteful with resources. In this case the entrepreneur spends money without thought often on things that will do little to create sales and grow the business. For example, they lease expensive space or build huge and opulent buildings, they pay themselves huge salaries, or they hire more staff all that the business cannot support. They burn the investment on things that will not create a sustainable business within the time that their seed resources will carry them.
However, another error is to not ever put those resources to use. It is like the parable in the Bible of the man who buried the money that was entrusted to him, never putting it to use.
StartupJournal has a case study of Gary Doan and his innovative design for a network router that illustrates this error.

He proudly showed it off at trade shows and to industry reps. Amid the late 1990s tech craze, he raised some $19 million from investors over a couple of years. “We got feedback from all sorts of places, what it should look like and how it should be different,” he recalls. His 70 engineers on staff continued to refine it with every new review. “It most definitely took too long to get out the door.”

I tell entrepreneurs that they often have to be comfortable with a plan that is 80-90% ready. The time it takes to perfect the plan is often time that will keep them from ever getting their business started. Here are some things to keep in mind if you are having trouble “pulling the trigger” to launch your business:
– Your business will most likely not look anything like your plan within six to twelve months. Your plan is a living document, not a blueprint that prescribes every step in detail for the entire life of your new venture. You will learn with each step along the way and that learning should inform and shape your planning as you go.
– You are most likely entering a dynamic market. That is usually what creates the opportunity you are pursuing in the first place. Be ready for what Peter Vaill call the permanent whitewater that you are about to enter. The assumptions you make today in your plan will likely look very different in a few months as your market evolves.
– You can never eliminate all risk and uncertainty, no matter how long you plan. That is part of the game. There will be surprises around every turn. Your success will be determined in how flexible and nimble you are in adjusting to all of these surprises. You cannot plan it all away no matter how hard you try. Entrepreneurship will always have some risk. Plan for as much as you can, and then forge ahead.

“The Dance”

Guy Kawasaki has a great post on “the dance” that goes on between entrepreneurs and VCs and venture capital forums and new product demos.

…entrepreneurs acting like they don’t need capital, and VCs acting like they don’t need entrepreneurs. (This dance is akin to acting prudish in a brothel, but I digress…)

He offers eleven great tips on what it takes to get the VC’s attention at such an event. You only have a few minutes, so it is critical to make the most of it. It is worth a read for anyone raising money, hiring employees into a start-up, or trying to make a sale.
(Thanks to Bruce Schierstedt for passing this along).