Headaches and Heartaches

Rob has an interesting post at BusinessPundit on the emotional toll of being an entrepreneur.
coffee trader.jpg
On the recommendation of by brother (and former business partner) Tom, I am reading a novel that really captures the emotional side of entrepreneurship. The Coffee Trader, by David Liss is set in the 1600s in Amsterdam, but the emotional roller coaster ride suffered by the main character, entrepreneur Miguel Lienzo, will hit home for almost any entrepreneur today.

Rock Solid Growth Plan

Bizjournals.com tells the story of the Westbrook family artisanal masonry business called QuarryHouse. A lesson to learn from this business is how they have approached growth. They have taken it slowly and conservatively, and it has paid off.
“Westbrook discovered that unexpected business issues cropped up after his company broke the million-dollar revenue benchmark. Westbrook had to relinquish the role of field supervisor and take a strong lead in business roles. Even more pressing issues came in the form of cash flow and payroll, as the company found itself paying employees without having been paid for the jobs they did.”
This transition takes place for almost every growing business, and it usually happens around $1-2 million in sales. Things start to happen that are symptomatic of growing pains that, without attention, can doom a business to failure. Bankers will tell you that this growth period is probably the most dangerous period for the survival of a small business.
“Today, Westbrook sounds like a seasoned financial manger: ‘Learn to grow and survive on the profits you earn. You can’t get into too much trouble if you stick with that.'”
Indeed, and growth should be focused on those profits, not on sales. Growing sales is irrelevant if they don’t also grow your profits.
“His three-prong approach to meeting a goal of $15 million to $20 million in revenue in five years includes continuing to emphasize training and continuing to reinvest in the company….QuarryHouse has had never had outside investment, but as it approaches revenue of $6.5 million, Westbrook is in talks with banks about adding outside capital to the mix. Said Westbrook, ‘They’ve done all the numbers and I don’t believe we’re done growing. There is a lot of work yet for us to look at.'”
No outside money until they hit $6.5 million in sales? Now that is prudent growth.

Harvard: Strong in Entrepreneurship or Strong in Socialism?

I found it more than a little ironic when I came across this post at Cafe Hayek about Harvard (via Coyote Blog). It seems the student culture at Harvard is not very enamored with free enterprise even though their school gets ranked consistently high for their entrepreneurship programs, the latest being a top 25 by Entrepreneur magazine. It seems that student leaders are not pleased with one of their classmates who is marketing a maid service to fellow Harvard students. Not egalitarian enough, so it seems….

The Art and Science of Pricing

At some point every new entrepreneur has to address the question of how much to charge for their product or service. For many entrepreneurs this is one of the most agonizing decisions they have to make during their start-up. For most, they fear charging too much and scaring customers away. Many go so far as to almost seem to be apologizing to the market for having the gall to actually try to compete. They end up charging significantly below what the market may be willing to pay.
There is a good article at NFIB on pricing strategies for new businesses. It offers a simple approach that helps take some of the guess work out of pricing. Do your homework of what the market is charging. Make sure that what you charge covers all of your costs, including overhead. An operating margin of 50% to cover overhead is a good rule of thumb. And finally, build profit into your pricing strategy. Making money is your goal, and you can only create profit if you charge enough.
My only additional advice is to keep your business strategy in mind. If you truly have a safe niche that no other business is competing within, you can charge a little more. However, make sure you really have a niche, as many who think they do are really just offering a variation on a theme. This strategy involves trying to differentiate your product or service to gain existing market share from others, which requires meeting or slightly beating existing market prices.
Remember, pricing your product or service is part science and part art. Gather data about the market, but also follow your intuition about what your customers will pay based on your business strategy.

Fed Raises Rates

From the Congressional Joint Economic Committee:
“The Federal Reserve’s monetary policymaking committee announced today that it is increasing its target for overnight interest rates from 2.50% to 2.75%, a move that was widely anticipated.
* The Fed views risks of substantial increases or decreases in inflation over the next few quarters as roughly balanced. Similarly, risks of substantial increases or decreases in economic growth are also seen as balanced.
* The Fed mentioned that pressures on inflation have picked up in recent months.”

Venture Capitalists Question Rankings

VCs in Silicon Valley question the latest technology rankings from the World Economic Forum, according to Red Herring.
“Singapore finished first in the report, which ranked ‘networked readiness.’ Iceland, Finland, Denmark, and Sweden moved into the second, third, fourth, and sixth spots, respectively.
“‘Those rankings don’t make sense,’ said Warren Weiss, general partner at Foundation Capital, a Menlo Park, California, firm that invests almost exclusively in America and whose portfolio companies sell globally. ‘The United States is still the number-one place you want to sell and market your IT products.'”

Displaced Workers as Entrepreneurs

National Dialogue on Entrepreneurship examines displaced workers choosing entrepreneurial strategies as a solution for their unemployment.
“North Carolina’s New Opportunities for Workers (NOW) program, which provides entrepreneurship training to displaced workers, is one recent example of such an effort. These strategies make sense according to a new survey of unemployed Americans by Right Management Consultants, a Philadelphia based career transition firm. Overall, 44% of the unemployed consider self-employment. Only 10% actually take the leap, a percentage equivalent to the levels of entrepreneurial activity found in the general US population. Another interesting survey finding concerns the age of those with this interest. Older workers (aged 61 plus) have the highest levels of interest in self-employment while younger workers (aged 21-30) have the lowest interest levels. These findings run contrary to other research that shows that entrepreneurial activity is most prevalent among those between the ages of 25-44.”

Small Business Excellence in Customer Experience Award

For the second year, NFIB and Dell will be honoring small businesses that represent a spirit of innovation in applying information technology in their business practices to improve the customer experience with their NFIB/Dell Small Business Excellence in Customer Experience Award.
A profile of last year’s winners can be found here.
If you are an owner, president or chief executive of a small company with 100 employees or less that has driven a significant change or developed a competitive advantage in delivering superior customer value and experience, we want to hear your story. In addition, we want you to share customer testimonials to show how technology has helped you improve customer relationships.
NFIB is now accepting applications for the 2005 awards.
The winner receives:
– A day with Dell to share best practices, including time with Michael Dell
– $30,000 in technology and professional services from Dell
– Recognition at Dell-sponsored event in September 2005
– Lifetime NFIB membership
Nine finalists win:
– Dell Latitude notebook
– One-year NFIB membership