Seven Deadly Sins of Selling

Barry Moltz has a great article on the mistakes that entrepreneurs can make while trying to sell their products and services:

“In order to find new customers or keep the ones you have, every entrepreneur
needs to be able to sell. The biggest fear is that when someone says no to your
product, you think they are really saying no to you.

“Most of us take it personally. Fortunately, the customer does not care that much
about you! In fact, we actually can’t sell anything to
anyone; we just need to be there when they are ready to buy.


“This is why marketing and sales
are so important to any growing business”

Learning to see has always been an important skill for start-up entrepreneurs, but in today’s tough economy it can be the difference between the life and death of your business. 

Small Business Credit Report

Denny Dennis, senior fellow with the NFIB Research Foundation, let me know a while back that he was working on a new small business survey looking at the impact of the recession on credit.  The NFIB released the report “Small Business Credit in a Deep Recession” today. Here are a few highlights of the report:

  • Fifty-five (55) percent of small employers attempted to borrow in 2009; 45 percent did not, although five percent of owners, so-called discouraged borrowers, did not try because they did not think they could obtain credit.
  • Forty (40) percent of small business owners attempting to borrow in 2009 had all of their credit needs met; 10 percent had most of their needs met; 21 percent had some of their needs met; and, 23 percent had none of their credit needs met. The current level of borrowing success is significantly lower than in the mid-2000s when up to 90 percent had their most recent credit request approved.
  • The financial institution extending a line of credit changed the terms/conditions of the line(s) during 2009 for 29 percent of small employers having at least one. About 10 percent with a business loan had the same experience as did 22 percent with a business credit card. The most frequent change was increased interest rates.
  • The best predictors of success in meeting credit needs were higher credit scores, customers of banks with less than $100 billion in assets, more properties collateralized for business purposes, and fewer second mortgages held.
  • Overwhelmingly, the most common planned purpose of credit rejected was to fill cash flow needs.
  • Broad and deep real estate ownership is a major reason why small businesses have not yet begun to recover, why larger businesses have been able to recover more quickly than small businesses, and why this recession is different, at least for small business owners, from recent ones.

Dennis puts the findings in a clear context.  “The findings show that while obtaining credit has become more difficult, declining sales and/or depressed real estate values typically lie at the base of credit problems,” said Dennis.  “That means current small business problems will not be solved by simply focusing on lending issues.  Policymakers need to tackle weak demand and real estate.”

Tackling weak demand requires growth in the economy, not more liquidity in financial markets.  Weak demand will also not be cured by Keynesian government spending initiatives.

This is an important study that I plan to go through carefully.  I am sure it will inform future posts on small business credit.

Kenny Chesney App Released by Belmont Alums

Belmont alums have scored a big hit with a new iPhone app.  Aloompa, a venture co-founded by Belmont alums Kurt Nelson and Tyler Seymour, has just introduced the Kenny Chesney app for the iPhone.

Kurt and Seymour were practicing entrepreneurs and entrepreneurship minors during their time here at Belmont.  They were students who used their time at Belmont to create a runway for their entrepreneurial pursuits. 

They were one of the two businesses granted a runway loan by the Belmont University Center for Entrepreneurship to help grow their first business, Just Kidding Productions, a video production venture they started during their undergraduate studies.

They used the success of that venture to bootstrap the start-up of Aloompa, which has introduced iPhone apps with a music focus.

kenny with app2.jpg

Another View of Small Business Owners’ Thinking

Forbes has just released a survey of small business owners that offers some interesting insights.  “Small Business Outlook 2010” is a study issued by Forbes Insights, in association with CIT (the full study is available free on-line, but you do need to register to see it).

Here are highlights of this study with my comments:

  • “Declining revenues brought on by the 2009 recession have put additional pressure on small business cash flow, forcing many firms to make tough decisions around cutbacks.”

Those entrepreneurs who have been able to make the hard decisions and get back to their bootstrapping roots have survived the first phase of the recession.  While Wall Street seems to be trying to convince themselves that a recovery is around the corner, every indication is that we will be facing a prolonged period of high unemployment with a possibility of a double-dip downturn and significant inflation.

  • “Small business owners are feeling the impact of this economic pressure, working harder and longer than ever before. Still, there could be a payoff: many feel they are now smarter about running their businesses and are better leaders.”

Good!  They will need these skills to navigate the next several years, which will test them with many new challenges.

  • “While cautious about the general economy, most small business owners expect their 2010 revenues to grow. But coming out of the recession, they see the world changing and they will have to do business in new ways to succeed in a more competitive marketplace.

As I mentioned in my comments on the American Express OPEN survey released earlier this week, we need the optimism of entrepreneurs more than ever.  We need them to have the confidence to put their collective heads down and forge ahead to rebuild our economy.

  • “Small business owners know the importance of planning and want to spend more time doing it, but they appear to have trouble putting those intentions into action. Many also seem to be unclear about how to focus their marketing and employee retention efforts.”

This finding rings home with something I have been working on.  I have become increasingly convinced that we have been focusing too much on the minutia of business plans and moved away from the critical art and science of business modeling.  We need to focus more on how all the moving parts of our business fit together and how the dynamic nature of the marketplace in today’s economy demand an ever evolving business model.  I will be writing more on this in coming weeks, but want to thank my colleague and friend John Wark for challenging my thinking on all of this.

  • “Economic stimuli enacted by Washington have had little to no effect on small businesses, but they remain hopeful that recent proposals to raise SBA loan limits will provide some benefit in the coming year.

No kidding!  Entrepreneurs understand that it is their efforts that stimulate economies, not massive government pork and waste. 

Regarding more available debt?  Be careful what you pray for…this is not the time to be leveraging your business.

Funding Start-up with Retirement Money

With the growing ranks of unemployed, there is an increase in people looking to finance new businesses using 401-k retirement funds. 

Many of these accidental entrepreneurs have not built up much savings beyond their retirement accounts, or if they did, may have depleted them once any severance ran out.  And if they try to get bank financing they soon find out that without a job, they are not bankable.

There are two ways to tap into 401k’s for funding for a new business: a traditional 401k loan or a Rollover as Business Start-up loan.  Hardship 401k distributions should not be used to fund a new business.

The traditional loan is fairly simple, but not all 401k plans allow for loans.  If they do, IRS rules place restrictions on such loans: 

“Generally, if permitted by the plan, a participant may borrow up to
50% of his or her vested account balance up to a maximum of
$50,000. The loan must be repaid within 5 years, unless the
loan is used to buy the participant’s main home. The loan repayments must be
made in substantially level payments, at least quarterly, over
the life of the loan.”

Note that the dollar limit is a total cap on what can be borrowed, not a limit per loan.

Christine Dugas points out at an article at USAToday that there is another type of 401k loan for funding a business called a Rollover for Business Start-ups loan (also known as a “ROBS” loan by the IRS — is this an editorial comment from the IRS about using your own money for funding a venture?):

“Entrepreneurs using this option typically need help from a
firm specializing in such work.

“For a fee, these firms help the new business create its own
401(k) plan and transfer funds from the owner’s existing 401(k). The retirement
money is then used to purchase company stock that’s held in the new 401(k) plan.
This provides the entrepreneur’s corporation with start-up capital.

“Some experts believe that it is harder for a new small
business to meet IRS guidelines for ROBS loans.”

Given that IRS regulations on ROBS are rather vague, I would STRONGLY caution against using this approach.  Many of the 75,000+ pages of the IRS code come from court cases that were used to interpret other unclear tax legislation. 

I usually shy away from any new tax laws that require IRS interpretation — let others have their names placed on court cases that help sort out what was really meant by the new law.  I had a hard time finding much information on the IRS website on this alternative, which is not a good sign. 

I was able to track down a memo and a newsletter from the IRS that seems to indicate that ROBS loans are not looked on very favorably by the IRS:

“For these reasons, we intend to scrutinize ROBS arrangements. Our guidelines will serve as instructions to our technical specialists to resolve issues they encounter when evaluating these plans. We believe that ROBS arrangements may endanger the qualified status of otherwise tax-qualified employee plans and may be prohibited transactions, requiring complete undoing of the transaction, and imposition of excise taxes.

“In recent years, the IRS has taken steps to combat transactions that we believe are abusively tax avoidant. At the same time, we have noted an upswing in the number of these transactions that seek to exploit the generous tax benefits enjoyed by qualified retirement plans. While we are not ready to throw ROBS into this category, we are certainly mindful of the old adage that things that appear to be too good to be true usually are.”

So even the IRS cautions about the ROBS loan option — not a good sign! 

If an “expert” tries to convince you to use a ROBS loan from your 401k, find another expert.  This type of loan is at too much risk for IRS scrutiny — your start-up will have enough risk without adding IRS problems to the mix.

To career entrepreneurs, using retirement money may not sound that risky.  Most have always viewed their businesses as their retirement funding.  But, these are folks who have gotten comfortable with that level of risk-taking.  Make sure you think through what you will do next if the deal fails and your retirement is badly depleted.

Using a 401k to fund a business may be a reasonable risk.  Make sure you have done your homework on the business before you draw down retirement to fund it.  Develop a sound business model and develop a business plan.  Once you do that, find some experienced people who will poke holes in your plans before you finally pull the trigger.

(Thanks to Ben Cunningham for suggesting this topic).

Entrepreneurship as Community Builder

Entrepreneurship is more than just a driver of economic development. It can help build communities.

Two recent examples from Tennessee universities help illustrate this important lesson.

The first one comes from Jackson. In fall 2007, a group of entrepreneurially minded students at Union University came together to create a vision for the school’s first campus-based business.

The students represented majors from all over campus, including business, art, communications and philosophy. They wanted to create a space on campus to foster conversations and collaboration among academic departments and social groups.

After months of planning and preparation, Barefoots Joe — a coffeehouse and concert hall — was proposed to the administration. But a lack of finances delayed construction.

Then on Feb. 5, 2008, an F-4 tornado devastated the campus, causing millions of dollars of damage. Only hours after the tornado, Dean of Students Kimberly Thornbury began to search for a common place for faculty and students to come together to deal with all that had happened.

The administration invited the student team to implement its idea for Barefoots Joe. With donations from the community for funding, materials, equipment and time, the team began to implement its plan.

On March 1, just three weeks after the tornado, the coffeehouse and concert hall opened. More than 500 curious and excited students gathered to celebrate the grand opening and start the process of rebuilding the Union University community.

Two years later, Barefoots Joe continues to be a meaningful space that helps foster community spirit and collaboration.

Another example comes from a group of Belmont University students who traveled to Guatemala as part of their entrepreneurship studies.
Effort improves farmers’ lives

The town of Chajul, located in the mountainous region of Quiche in northern Guatemala, suffered some of the most brutal violence of the country’s 30-year civil war. Its predominantly indigenous community continues to be one of the most economically distressed in Guatemala.

The Belmont students, led by College of Business Administration faculty Jose Gonzalez and Marieta Velikova, traveled to Chajul earlier this year and worked with the farmers who are seeking to diversify away from their reliance on coffee by adding fair trade honey production.

What started as a small initiative to support coffee farmers is beginning to have a major impact on the economic and social development in the region.

The students are now seeking funding from a social innovation competition sponsored by Dell to fund expansion of the project. They also want to use the funding to support the expansion of a micro-loan fund.

Funding from the competition is based on votes at this Web site: http://www.dellsocialinnovationcompetition.com/ideaList?lsi=3.

Some 85 percent of the population of Quiche lives on less than $2 a day. Creating a more efficient opportunity for revenue growth for a cooperative that is a central part of the community will greatly improve the livelihood of the honeybee farmers, their families and the community.

Given the depths of this recession, we need to help entrepreneurs around the globe once again thrive. Small business growth is the key to rebuilding communities that have been devastated by unemployment.

(This post ran as a column in today’s Tennessean).

Thanks, Barry!

We were privileged to have Barry Moltz on campus again today here at Belmont University.  Barry is an entrepreneur, author and motivational speaker. 

He is always so gracious to our students, taking the time to get to know them and help them take that next step in their entrepreneurial journey.

If you have never heard Barry speak, do so when you next get the chance.  If you have never read one of his books, order one today (I promise I get no kick-back for this endorsement!!!).

Barry offers Honest, practical wisdom that any entrepreneur can benefit from, and he does so with a clarity that makes it possible to put his ideas right to work for you today.

Thanks, Barry!  We will have you back again, soon.

New Firm Helps Entrepreneurs Find Credit

Ami Kassar, who I got to know in his ideablob days, has just co-founded a new venture. 

I like business models that address inefficient markets.  Ami’s new business, MultiFunding, looks to bridge the gap that now exists between entrepreneurs and banks issuing commercial credit.  Commercial credit is certainly an industry that fits the bill of a market that is in disarray.  And out of such chaos comes opportunity. 

From the Philadelphia Business Journal:

MultiFunding has a strategic partnership with Biz2Credit, a New York-based
company that has developed a computer technology to match loan applicants with
the right lenders. Kassar said lenders provide MultiFunding with criteria for
potential commercial borrowers. Instead of applying for a loan one bank at a
time as borrowers normally do, MultiFunding helps small businesses find what
loan product is best for them, and then helps put together a centralized credit
application — which it distributes to the more than 100 lenders in its network.
MultiFunding works with the business through closing.

They are starting with a local market, but intend to roll this out nationally.  We’ll keep an eye on this venture as it develops.

The New Nature of Work

An curious aspect of the unemployment data of late is that even though unemployment rates seem to have stabilized, and even dropped a bit this past month, we keep losing jobs.  One of the reasons for the discrepancy is that a large number of people are no longer looking for payroll-based jobs, but becoming consultants and freelancers. 

Even during the boom time a few years ago 20 of the 25 million small businesses in American were actually people who were self-employed — also labeled as small businesses with no employees.

This restructuring from traditional employment to entrepreneurial freelancers and self-employed is accelerating the longer this recession continues.  We soon may be hearing the cry, “We are all small businesses now!”

Andy Tabar sent along a short video from CNNMoney of the boom of self-employed and freelancers and how the market is accommodating them.