Innovation in Small Business

The latest Intuit Future of Small Business Report, written by Emergent Research, focuses on the key factors that drive, enable, amplify and shape the outcome of innovation, and the six characteristics of innovative companies. The report is part of the ongoing Intuit Future of Small Business series, conducted by Emergent Research and the Institute for the Future.

Small business owners are natural innovators, the study found, with their inspiration driven by three needs: necessity, opportunity and ingenuity. Whether prompted by changes in the marketplace, competitive pressures or simply the desire to create something bigger and better, small businesses are constantly refining and redefining how they work and what they produce.

Innovation Enablers

Compared to large corporations, small businesses have a number of innovation advantages that enable them to more readily identify opportunities, quickly react to changing conditions and remain competitive. Their smaller size makes it easier and cheaper to try new approaches faster than larger businesses. These six enablers include:

  • Personal passion: Personally invested, most small business owners are willing to try new approaches to make their business more successful.
  • Customer connection: A deep and direct relationship with the market and customers helps small businesses understand customer needs, identify new opportunities, and fix problems quickly and efficiently.
  • Agility and adaptation: Unlike large corporations, small businesses can quickly adapt to changing market conditions and implement new business practices.
  • Experimentation and improvisation: When pursuing new opportunities, many small business owners and managers aren’t afraid to experiment and improvise, accepting failure as part of the path to success.
  • Resource limitations: Small businesses are adept at doing more with less. And these resource constraints lend to their innovative mindset.
  • Information sharing and collaboration: Small businesses traditionally rely on strong social networks to share information and inspire innovative thinking.

Creating More Accurate Revenue Forecasts

This week my Tennessean column looks at the link between a strong marketing plan and more accurate revenue forecasts:

Making accurate revenue forecasts is the single most important step in developing a credible business plan.

Missing the mark on revenues can be catastrophic.

If sales fall significantly short of the forecast, a business can fail because of lack of adequate cash flow. And if sales wildly exceed forecasts, the business may not be prepared to meet customer orders in a timely manner.

Forecasting revenues can seem like an overwhelming task. Entrepreneurs often feel like they are trying to look into a crystal ball that is just too cloudy to see clearly. But rather than do the work that is necessary to improve their revenue forecasts, they take shortcuts.

They simply plug in numbers that have no real basis in fact, often simply putting in enough revenues to give them the profits they hope to achieve.

Fortunately, a well-developed marketing plan, which is the core of a business plan, can significantly improve the odds that revenue forecasts will be on target.

Keep in mind that revenues are calculated with a simple formula: price times the number of units sold. A good marketing plan will give you insight into the two basic numbers in this formula.

First, study the market

One of the questions addressed in a marketing plan is pricing. For most new businesses pricing is dictated by the competition.

Entrepreneurs need to set a price that puts their product squarely where they want to be when compared to the existing competition.

Closely matching existing prices says to the world, “We are as good as the rest.”

If the customer wants even more features or services, a premium price can be set.

The marketing plan also should help forecast the other half of the revenue formula — how many units will be sold. First, learn the size of the target market for the business.

Then conduct thorough market research to figure out what customers want and how well the competition is meeting those needs.

Finally, the marketing plan should explain how the entrepreneur plans to use personal selling, publicity and advertising to reach the customers and give them the information they need to make the decision to buy.

Taken together, this information brings into focus a more realistic estimate for potential sales.

When investors and bankers read business plans, they read the marketing plan first. And as they do, they will flip back to see if the revenue forecast tells the same story in numbers that the marketing plan tells in words. If the revenue forecast and the marketing plan do not tell the same story, they will read no further.

The Essence of Bootstrapping

One of the better descriptions of bootstrapping that I have read in a long time comes from the blog Shmula when writing about lean thinking:

A Simple Principle

An unsaid principle of Lean Thinking is this, said in two different ways:

  • Mind Before Money
  • Creativity Before Capital

No explanation needed — before you spend money, think first; before you beg for resources, use your creativity first.

(Thanks to John Wark for passing this along).

 

Half Empty or Half Full?

 

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A new Fortune Small Business/Zogby Poll has found that a little less than half of small business owners say that they have been affected by the recession.  What is really remarkable to me about these results is that if you listen to the media, every business in the US is on the brink of disaster. 

The fact that 57% have not been damaged gives us hope that the entrepreneurial engine we need to pull us out of the recession is ready to grow when the time is right.  This fits with what I am hearing from entrepreneurs. 

Here is a summary of this poll:

  • 43% of small business owners say their businesses have been damaged by the recession
  • 22% say they have cut the price of products or services
  • 17% say they have downsized through layoffs or attrition
  • 14% say they have cut salaries
  • 27% say their businesses lost money in 2008; 22% say they broke even
  • 45% say they would still choose to start a company if they were entering the workforce during the recession

A Message from Czech President

In a speech at Columbia University yesterday Czech President Vaclav Klaus offered advice to US policy makers.  From Rueters:

“I am therefore convinced that fighting for freedom and free markets, something we always appreciated here in this country (the United States), remains the task of the day,” Klaus said….

“The best thing to do right now would be to temporarily weaken, if not repeal,” business regulations on labor, the environment, social issues and health, he said.

Keep on Course

Darrell Freeman, chairman of Zycor, Inc. and former chairman of the Nashville Chamber of Commerce, says in an op-ed piece in the Tennessean that he draws on his piloting experience to help him stay on course as an entrepreneur navigating the recession:

As an instrument rated pilot…I learned that if you get too distracted by a storm or commotion in the cockpit, you’re in danger of neglecting vital indicators, getting off course or even stalling the airplane. So today, amidst the perpetual distractions of negative media reports heaped at small-business owners, I offer a message of resilience that centers around one basic principle: keep flying the plane.

Entrepreneurs today must keep a steady hand on their control sticks, make the necessary adjustments, and have confidence in their ability to maneuver through this economic storm and land whole on the other side.

Freeman goes on to highlight the four principles for business success that are keeping his business on course:  quality, team, basic marketing tactics, and innovation.  Some good advice that is well worth the read.

Glimmer of Hope for Employment?

William C. Dunkelberg, chief economist for the National Federation of Independent Business issued the following statement on February job numbers based on NFIB’s monthly economic survey that will be released on Tuesday, March 10.

“There was a decline in average employment per firm of 1.0 workers reported for the past three months by small business owners in February, the largest decline in survey history.

“However, 11 percent reported unfilled job openings, unchanged from February and a positive sign going forward. Job openings are a significant predictor of the unemployment rate. Over the next three months, 13 percent plan to create new jobs (up four points), and 10 percent plan workforce reductions (down four points), yielding a seasonally adjusted net-negative 3 percent of owners planning to create new jobs, three points better than January but still historically very low. 

“Not seasonally adjusted, job-creation plans were positive in all industry groups except manufacturing. It looks like the service sector may be finding its legs. Of the nine census regions, job-creation plans turned positive in all census regions except the East South Central and South Atlantic states.

“By year end, growth should be positive again, perhaps as strong as a 4 percent annual rate. Large pools of pent-up demand are forming and will soon begin to be transformed into actual spending.”

Let’s hope he’s right!

Steep Job Loss in February in Small Firms

According to today’s ADP Small Business Report, small businesses lost 262,000 jobs in February.

 

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This marks the fourth consecutive month of decline in the small-size business sector.  February’s number shows greater job losses than January demonstrating the recession’s continued impact on small businesses.  Since small businesses are the backbone of the economy and our primary source of new jobs (80% of new jobs over the past 20 years), today’s report gives an indication of the long road to recovery.