Economic Growth is Creating Staffing Challenges

Inc.com reports that staffing is becoming a growing concern among entrepreneurs now that the economy is heating up.
One of the ways that smaller companies can compete for staff is to make them convenient and flexible places to work by offering perks that employees want. StartupJournal has a good overview of the types of conveniences that many growing companies offer.
There are other ways to attract good talent. I found that just listening to what the employee really wants and being flexible in how you structure the offer and the job can be very effective. Here is a story from our business that I told in a post from last year.

There was a manager I wanted to hire to run a new program we were starting, as he was one of the best in our industry. He worked for a large, national company. I knew I could not match his salary, but I did not give up.
I got to know him and found out what he was really looking for in his career and in a job. He wanted to have more control over his department. That was easy as we were small and our structure was quite decentralized. He wanted to have some real ownership in the business he worked in. We could do that, too, as we set up separate corporations for each new program we started and we had already planned to offer a small ownership stake for the right manager.
There was one more thing he wanted, however, and it was clear it was a deal breaker for him. His current employer had very strict rules on vacations and holidays. He was a Viet Nam veteran and had wanted to go to Washington, DC each Veterans Day to remember his fallen comrades. His current employer’s rules did not make it possible to guarantee that, and he had missed the last two Veterans Day observances. So, in my offer I promised him that he would be guaranteed Veterans Day and one work day on either side of it off each and every year (they were counted as vacation days). That was all it took to convince him that we were the best place for him to work. He came to work for us taking a significant cut in base salary from what he had been making before.

Many from the Entrepreneurial Generation (those born between 1977 and 2002) are actively seeking out smaller entrepreneurial firms to work in. Work with your local universities to let their graduates and recent alumni know about your company and the opportunities you can offer. The best contact point would be the career services office in the college of business. Don’t be afraid to hire a new graduate. If your business is small, they should be able to handle scope of what you need right now and can continue to develop their skills as your company grows.
I wrote a post last summer with my list of specific suggestions on how to manage your staffing effectively as your business grows (click here to see that post).

Franchising 2006

Entrepreneur.com presents their annual review of the “hot” franchising opportunities. Here is my take on the pros and cons of franchising as an entrepreneurial strategy should any of these oppotunities look tempting to you.
There are several very good reasons to pursue a franchise as a first time entrepreneur.
First, most franchises have a business model already in place that has been tested and refined. In most cases, the model must have already been proven to attract the financing that is necessary to launch most franchised concepts.
Second, the systems should be well established and ready to go. Much of the trial and error that first time entrepreneurs have to go through with their specific ventures is in the operating processes and procedures. The devil is most often found in the details, so having these systems in place at start-up can save time and money.
Third, a franchisor should be able to provide significant help in marketing. Not only can the franchisee benefit from any regional or national promotion supported by the franchisor, but well tested content and strategies for local advertising should also be available.
Fourth, many would-be entrepreneurs I meet with are struggling to find an idea to pursue. A franchise eliminates the need to come up with an original, creative business opportunity. If creativity is not your strong suit, a franchise may be a viable option to investigate. But, make sure to look at several options, as costs and quality can vary significantly between franchised businesses.
Finally, a franchise is a good option for someone who has an interest in a specific type of business, but who has little experience or knowledge about the industry. Although specific experience is not always necessary for success as an entrepreneur, it does create a major advantage in certain industries such as restaurants. Franchising allows you to “buy” that expertise.
With all of these advantages, there are several sobering disadvantages of franchising that should be carefully weighed by any aspiring entrepreneur. Lawsuits by franchisees against franchisors are actually a fairly common event. And almost every major franchise at some point in time establishes a franchisee relations committee to help deal with complaints and grievances from franchisees. In fact, both franchisees and franchisors both have their own national associations to deal with public relations and the mounting legal and regulatory issues facing this form of business. Beyond the contractual issues that arise in franchising, there are some fundamental business and personal concerns that many franchisees experience after it is too late.
One of the biggest sources of frustration among franchisees is that they perceive that the value added they get from association with their franchisor diminishes over time. A franchise will charge a significant monthly percentage fee (this can average about 7% of sales) associated with all that they offer in terms of systems, marketing, purchasing power, and so forth. Over time, many franchisors realize that they can be just if not more effective on their own without paying the monthly percentage of sales to the franchisor. This on-going monthly fee is often glossed over by franchisees during start-up planning, as they tend to think only about the initial fees and capital expenditures in their planning. These on-going fees can eat away at profit margins if there is not real value added in what the franchisor provides.
Another concern expressed by franchisees is that with all of the rules and standardized procedures, they tend to feel more like an employee than a business owner. Those who try to break away from the predetermined model and processes can face the wrath of the franchisor. Larger franchisors have entire staff dedicated to franchisee compliance.
A financial risk to consider is that many first time entrepreneurs can only afford newer franchised concepts, since well established franchises can cost hundreds of thousands of dollars to buy in. These start-up franchisors can begin to experience their own growing pains. Some don’t survive. In some cases they may take the franchisees down with them.
It is critical to understand all of the ins and outs of franchising as a general business strategy first. Then if the idea of a buying a franchise still makes sense, do your homework on the company and its concept. All franchise opportunities are not created equal.

Priming the Pump

The time between opening the doors and the first month of positive cash flow can be harrowing for many entrepreneurs. Certainly anything you can do to keep expenses in line through bootstrapping is critical. But as this piece from StartupJournal points out, we should not ignore things we can do to boost revenues during this time.

Some experts say that smaller, lesser-known companies are particularly well-suited to buzz campaigns. While at large companies, there is more pressure from upper management to maintain control of a marketing message, “the whole point [of a buzz campaign] is to get consumers talking,” says Max Kalehoff, vice president, marketing at BuzzMetrics, a New York word-of-mouth research and planning firm. “Word of mouth is the ultimate form of consumer engagement,” he says.

Creating a buzz or word of mouth can start well before the doors open. This helps to increase the customer flow from the first day of operation. I call this priming the pump.
Some entrepreneurs find blogging to be a good tool for this in their businesses, such as Jason, who we have been following as he prepares to open his coffee shop in Montana. Street teams are a common tool used in the music business.
One of the keys when creating a buzz before the business opens is timing. You want to do it soon enough to actually build a buzz, but you don’t want to do it so soon that people lose interest or assume you are never going to open. Keep in mind that there are inevitable road blocks to almost every business opening, so don’t pull the trigger too soon on your buzz marketing.

Buy-Sell Agreements

Kauffman’s eVenturing site has put together a new collection of articles on buy-sell agreements. Clear buy-sell language needs to be a fundamental part of any shareholder/partnership agreement. Although you and your partners get along great as you set up your business, things can change. Partners may need to part ways for any number of reasons:
– One partner wants to retire
– One partner is just ready to go “in a new direction”
– Fundamental business disagreements
– Death or disability of a partner (Insurance can be an important tool for this situation)
What ever the reason, the rules of a partnership break-up require a clear understanding of how and under what circumstances the partner can leave, and what it will cost the remaining partners for his/her departure.
The collection at eVenturing includes a nice group of war stories, some how-to’s, and a few tools and techniques.
The best time to set up a buy-sell is when you start-up the business. And while it is never too late, the longer you wait the more complex and expensive it can get.
You and your partners should use the type of resources this site and others can provide to iron out how you want your agreement to look. Don’t just think about how and when a buyout might happen, but the valuation method to use as well. Think about how you want to be treated if you are the one to leave. Too many entrepreneurs assume that they will be the last one in the business and try to find ways to “stick it to the other partners” when they leave first. This is the classic situation where you should “do unto others as you would have them do unto you.”
Once you get a clear understanding between partners, then you should go to your attorney to get it formalized. It will cost you much more and not be as true to your wishes if you go to the attorney too soon. And never just completely defer this important agreement to your attorney to figure out. The attorney’s job should be just to put into legal language you and your partners’ understanding of what would be fair to all.
This is hard stuff to talk about, but I believe it is one of the most important things to plan for in your new business.

Classic Example of Arrogant Use of Eminent Domain

I have written in the past about the city of Richfield, Minnesota and their use of eminent domain to allow Best Buy to build a new world headquarters. At least two long time small businesses were driven off their own property in favor of Best Buy.
It seems the city fathers and mothers of Richfield are at it again. Now they are using eminent domain on more small businesses to make way for a Target store. From an op-ed piece from the Pioneer Press:

“Our business is location-driven,” says Marv Johnson, founder of Air Carego Shipping. “It’s essential that we be next to the airport.” But Richfield doesn’t see it that way. Its plans call for Target, Home Depot and other stores to push Johnson’s business out of the location it has been in for nearly 22 years — even though there are other Target and Home Depot stores less than five miles away.

This is a well written op-ed that I encourage you to read in full.
(Thanks to Rex Hammock for passing this along).

Good Time to be an Entrepreneur in Nashville

Change, uncertainly and chaos are an entrepreneurs best friends. There has been a lot of change and uncertainty in the music industry over the past few years. In spite of the industry giants’ best efforts to stop the changes taking place in how we will be buying and listening to music, we are in the middle of a transition in the industry that will rival the impact that radio had on music in the 1900s. A new report from Nielson SoundScan reported in today’s Tennessean shows the changes that are just beginning to take hold.

The good news was that overall sales of CDs, ringtones, albums and digital downloads passed the 1 billion mark in 2005, climbing 22% in terms of units sold thanks to the rapid expansion of digital offerings.
Sales of digital albums and tracks soared by triple-digit percentages last year, offering industry insiders a fresh plate of data on the impact of the paid download market.

Does it mean that the giants will go away? Probably not, but how they do business, who they do business with, and how much of the music business they will control in the future will change. There are lots of glum faces among the traditionalists on Music Row in Nashville. There world is changing forever and their business models are unraveling.
And there in lies the opportunities in this industry. A few home runs will be hit, but most the action will be in lots of singles and doubles hit by savvy entrepreneurs who will embrace the product and distribution changes that are taking place.
Right now the changes seem slow to the entrepreneurs I know. They are ready for the industry to embrace their new business models. Revolution in an industry takes time to get traction, but when it does, hand on because change and opportunity will explode.
I saw this as an entrepreneur in the health care industry in the 1980s. We knew managed care was coming and that it would completely change our industry. But of those of us who were early entrants into the new health care world, we felt like kids waiting for Christmas to arrive — it seemed to take forever. But when the day arrives, it is a joyful and even chaotic time.
Music industry entrepreneurs get ready. The next five to ten years are going to be a wild ride!

A Decade of Transition

The next decade may see an unprecedented transfer of business ownership. As reported in StartupJournal, the first baby boomer entrepreneurs turn 60 this year and many are looking to retire. The story takes an interesting perspective on exit planning. It is not just about the business and financial planning. A sixty year old today will likely live at least another twenty years, so these entrepreneurs need to think about planning their lives, as well.
Already having a doctorate (thanks to Jimmy Carter’s horrible management of the economy when I was getting my MBA in the late 1970s), my next step in life after we sold our business was relatively easy to decide. I say relatively, because my adrenalin was still pumping when we sold our business and I was ready to jump into another deal. Thanks to my wife. I slowed down and thought about my life and what I should do next.
Exit planning needs to focus a great deal on what you are going to do after you go through the exit.