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Talking Business: The Ugly Truth About Small Business
A Conversation With: Kevin Delaney (insurance agent), Barbara Molvar (business broker), Bernadette Mroz (business counselor), & Nicole Samolis (entrepreneur)
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Kevin works for Brown & Brown providing business insurance. Barbara is currently a business broker (Amazing Business Broker); she started in social work and spent time working in insurance before she bought a tombstone business. She later sold the tombstone business and became a business broker, helping buy and sell businesses. Bernadette has worked in a variety of sectors, including agriculture, construction, retail and manufacturing; she currently works in the Small Business Development Center (SBDC) at Onondaga Community College (OCC). Nicole's entrepreneurial venture is an event planning business (Biz Events).
Jill: Nicole, what was an unexpected early positive experience in starting your business?
Nicole: "I put on rose-colored glasses" and did a lot of research while getting started. Everything has gone well, as all of her prior experiences set her up for success. She started this business in Syracuse when she was new to the area, joining the Chamber of Commerce right away. She gained confidence from her early success, which helped lead to her later successes.
Jill: Barbara, your positive experiences?
Barbara: Many wonderful referrals keep her business going.
Jill: What's not so pretty about starting out?
Bernadette: Nicole said she did a lot of research to get started. Many new businesses don't do enough research - on startup costs, target market, and so on. Research and networking are keys to success.
Jill: An example of a poor business plan due to lack of research is a computer repair business targeted at startup companies, which have no money.
Nicole: She started with a business plan, not one to take to the bank, but something to keep her focused while she got going. Now she uses a more mature business plan as a tool to help her decide what contracts to take.
Kevin: The business plan is very important. A 5-year plan is required by most insurance underwriters. You need to project the market and demand for your product or services, and insurance is required for most business partnerships. He gave an example of a very successful woman-owned business that was working with multi-million dollar construction projects. They were considering a business partnership but then he discovered that they did not have insurance, which was required in order for them to do business.
Jill: Nicole, you say nothing ugly has happened in your business. You work with other businesses; what about them?
Nicole: The situations where people who want to start a business but are afraid to give up their full-time job. If your business is ever to grow past a part-time venture, you will have to give up the full-time job. "You have to put 150% of your effort into getting your business going."
Jill: For many companies, business comes and goes in flows; how do you handle this?
Barbara: In insurance, when she trained new hires, she would teach them 30 ways to get leads, and would tell the new people that all of these methods are required all of the time. Each one works a little bit. Taking a systematic, organized, and structured approach is important when you are prospecting all of the time. She used to send out 500 letters per week when she worked in insurance. In the tombstone business, it didn't work that way - the Do Not Call list was one of the reasons she decided to sell her business.
Bernadette: How do you tell people to deal with ebbs and flows? The current economy is hurting retail; consumer dollars are going to gas instead of other purchases. Like Barbara said, you have to treat your business systematically. Even though you're passionate about it, treating it like your baby instead of a business often causes problems. Steven Covey's 7 Habits of Highly Effective People relates well to business with the "Sharpen the Saw" metaphor - what in your business helps you sharpen the saw? Sometimes stepping back from business is what you need, or taking a class, or attending events like this one. You must think about your target market as well; if you have a product line you love but it isn't selling - what do you do? You must look at the product line from the customers' perspective.
Jill: Don't treat clients as friends and family; it's a business, not family, and client contracts should be taken seriously. Don't treat your business as a hobby or a baby, or you will encounter problems.
Nicole: You also have to know what you're good at. She hates doing accounting, and outsourced it as soon as possible. All businesses are selling something, though maybe not in the retail sense, so customer service is really important and is a major part of her business. She maintains 80% sustainable (repeat) business. You have to be out there selling and making new contracts, and not just working on ongoing business. If you don't continue to bring in new business, you cannot maintain growth.
Kevin: Everything you do is selling yourself to your customers. Very few businesses don't have to sell themselves in some regard. Professionalism in your approach is very important; be professional and confident. Listen to your customers' needs first, and start a personal conversation. Take the negatives out of selling, because if you don't keep an eye on future efforts, the work will dry up. It's all about relationships, and you must protect the relationships that keep your business going.
Jill: With networking, it's not just who knows whom, but also who likes whom.
Nicole: Reputation really is key. Referrals from business partners help her get new business, and customer service keeps the clients coming back.
Jill: How about the situation where some people buy a business, but some buy the wrong business?
Barbara: She thinks it's better to buy a business than to start a new one, but of course, that's her business. An existing business has assets like reputation, customers, and production systems in place. When she bought the tombstone business, it came with a bleach-blonde Harley T-shirt-wearing chain-smoking attendant who could make a sale even when the owner was away. One innovation she created in that business was starting an industry secrets newsletter, because every industry has secrets. She used it to educate customers and structure relationships. She was the first business designing monuments with CAD at the point of sale. If you're innovating and doing things differently from an entire industry, it can be very intimidating.
Jill: The advertising for the event gave teasers about things that go ugly in business: losing money, acting on the wrong business ideas, businesses with no customers, and so on.
Barbara: I can talk about money, because I have a background in "lack." She started with a paper route as a child, and that early experience taught her how to collect payment. She would smile at her customers and say, "Fifty cents, please" with an open hand. She knew even then that it was important to keep cash flowing. Saving is particularly important in a seasonal business; pay your bills first, and then pay yourself.
Kevin: At Brown & Brown, he collects his own account receivables (AR). Collection calls are difficult, but keeping AR protected can save your business money. Turn around your expectations about payment; you get paid for your services just as your clients get paid for theirs.
Jill: All companies have different payment calendars; some turn around payments more quickly than others, so you must be aware of these expectations to manage your own cash flow.
Nicole: Don't undervalue your services; you must know your expenses and overhead. In her business, capital outlay has a markup (5%) for the service. She requires retainers and deposits, so that 70% - 80% of the funds are secured in advance for most events that she plans, and 100% for social events like weddings. She's now up to a 50% profit margin, and that is good for her industry, which is usually at a 30% - 35% profit margin. She has developed systems and procedures that help her to increase her margins.
Bernadette: I love Nicole's advice! Research is needed to systematize the work; McDonald's systematizes in order to make money, and if you want to make money, relationships, cash flow, business plans, customers and service are all very important. So are appearances; if you're answering the phone for your home business with kids screaming in the background, how professional is that? You must also look professional; "you're selling yourself every minute of every day." Jill and Nicole always look professional, for example. She knew of a business that spent $100K in startup funds to get the business going but has no customers; they came to the SBDC for help but by then, it was really too late. If you have no customers, no one will loan you money.
Jill: We will open for questions after just one more: name one book, event, or course that you find most valuable. Jill's pick is The eMyth Revisited, which is a book about the value of systems and planning.
Nicole: The One Minute Entrepreneur, a new book with key pieces of advice.
Bernadette: The SU Bootcamp, or the SBDC's 20 or 24-hour course on starting a business. The SU Bootcamp is a 6 week course with great speakers; the SBDC does a similar thing on a smaller level. Even business school students should attend these training events, as professional perspectives are valuable in addition to the knowledge gained from reading books.
Barbara: Firmly believes that education is key; having a theoretical framework to understand the business context and the ability to strategize appropriately are really important. The Syracuse University (SU) Bootcamp is worth every nickel of the fee.
Kevin: Steven Covey's 7 Habits of Highly Successful People has already been mentioned. He also recommends The Secret by Rhonda Byrne, which is very useful for both business and personal pursuits. It started as a movie several years ago and is based on the "law of attraction" not just in attitude, but also in work.
Question: Thinking about financial management for small businesses, how does one handle business finances differently from personal finances? For example, she hates carrying debt but knows that sometimes it's considered desirable from a business perspective.
Nicole: She also hates carrying debt. She entrusts many of these matters to a team of professionals: her banker, attorney, accountant, and insurance agent. Use these business partners to help protect your business.
A business banker in the audience also commented that credit scores are important. Clients who have declared personal bankruptcy and have low credit scores can have a hard time getting business financing. You need to have some credit in order to get more; use a credit card to establish some credit and pay it off right away, because your personal finances do impact your business.
Kevin: Depending on the type of business, bonding might also be required, and this goes into personal finances as well as business finances. A bonding agent is looking for a good credit history and responsible financial management - they expect to have no claims.
Question for Bernadette: 6 years into a new business, and they are planning to bring a significant new development to market soon. When and how should one revisit and redevelop a business plan in light of a major change? He currently revisits his business plan annually.
Bernadette: You have to update your business plan to factor in the new product; both the introductory statements of purpose and the financials. Often clients really don't want to touch their business plans once they are in place, but this is really necessary. A business plan is a living document.
Kevin: One of his clients calls his advisors for advice about potential changes to his business strategy. This is a reasonable thing to do as the insurance broker and banker have opportunity to see business activity from a broader perspective, so they may be aware of new developments in the industry.
Question: What advice regarding working with contractors?
Kevin: We're always focused on risk transfer; the contractor should take on the risk for the work that they're doing.
Jill: Even this speaker series requires both informal and formal agreements so that expectations are known. Handshake agreements are only worth a handshake, and sometimes that's not enough.
Barbara: The technical differences between contractors and employees can be tricky; contracts take care of any ambiguities.
Nicole: All the services for the events she plans are subcontractors. The A/V contractor need to make sure that she's happy, not just her clients - they must understand who they're working for. Her vendor partner selections are based on the quality of their service or product, their customer service, and then the price. You have to set expectations appropriately, so she always works with a contract.
Question: Do you formalize referral relationships with subcontractors?
Nicole: Her vendors don't want to jeopardize their relationship with her business, so they make sure the expectations are laid out ahead of time.
Question: In the event of a government audit, if the question of a vendor versus employee comes up, this is part of the business known as regulatory affairs. How do you know that you're not going to trip over something in this area?
Barbara: You must pay attention and handle the potential problems in advance, before they become issues - do your research!
Jill: You can also get help on areas of concern from the SBDC.
Event photography courtesy of Kelvin P. Ringold, Custom Photogenics
