Growth Slumps

And how to avoid with them.

It’s often been said that building growing and running a business is like running a marathon. And in the marathon, some miles will go faster than others, and some miles will be harder than others. No mile will be the same.

While I have never run a marathon, I suspect that you probably run the first few miles at a faster clip than the next dozen. At some point your body starts to slow down and you get into a rhythm.

I think the same is true for building a business. During the first few years, you’re building up your steam, and putting it all on the line. And then, hopefully, things start to stabilize and you get into a “new normal”. And while you’re happy that you’ve gotten through the first few miles, you don’t have the same urgency or type of energy you have right at the beginning.

At this point, your business will likely stop growing at the same rate as the first few years.

Are you at this point in the journey? Are you happy with how your business is growing? Do you feel like you are starting to slide a bit?

If so, take a pause from the marathon, pull out a piece of paper and ask yourself two questions.

On the one side of the paper answer this question: If the tooth fairy arrived with a million dollars under your pillow in the morning with the condition that you had to invest it in your business, what would you do with the money and what return would you expect from the investment. If you have a strong answer, why aren’t you doing it? And if you don’t have a good answer maybe you need to really invest the time to ask why not?

On the other side of the paper ask yourself the question: what is your stretch goal for your business in three years if all your dreams come true. Then think about what ingredients in your cake you are missing to get there. It might be equipment, sales, a management team, acquisition targets etc. What capital infusion, if any, do you think you need to get there?

Now compare your answers on both sides of the paper.

My hope is that this exercise will get you out of your growth slump, and keep pushing onward.

How Much Money Should You Be Investing in Your Business Today?

There is no simple answer.

The simple rule in business is that you must be willing to invest and take risks to grow, expand, and make money. While the rule might be simple, how you choose to execute against it is a personal choice and there are no right answers.

Sometimes I meet successful entrepreneurs who have built strong and sustainable businesses without taking on any debt or equity along the way. Their rule is simple: you invest as you can afford it. They’re not concerned about competitive pressures or getting bigger faster. It’s one way to go and an admirable path.

On the other extreme are those who choose to ride the venture capital treadmill. In these cases, years or even decades of losses can be acceptable as the company focuses on growth and market share. These entrepreneurs are constantly in fundraising mode. While this path is not for me personally, some of the greatest icons and success stories of our time have chosen this path.

I would argue that 98% of entrepreneurs don’t fall into either of the bookends that I describe above. At different points in their journey, they will rely on equity or debt to spur their growth.

In the early stages of these ventures, I find that entrepreneurs are often stuck on thinking that they need a lot more money than they do to get going. Instead of struggling to try and raise a million dollars to accomplish A, B, and C, they might be much better off raising enough money to get A done, and start to prove their concept and get some cash flow moving.

On the other side of the coin, often later in the life cycle of the company, when ideas and concepts have been proven, there can be a real need and benefit for expansion capital. Yet the entrepreneur either has the no debt badge of honor (they don’t want to take on any more debt), or they’re used to their routine and can’t think out of their box to think about how to expand and grow.

Where do you fit in this paradigm? One way to answer it is to ask yourself the question, “If you were presented with a gift of $1,000,000 and had to invest in either your business or a mutual fund of your choice, how would you divide the gift and what return do you expect from each investment?”

This is the theme of the book I am working on entitled “Your Million Dollar Question”, that will come out later this summer. My hope is that it will help you think through these important issues.

Looking for Some New Insights into Your Business?

Dump the fancy consultants and hire some interns this summer.

Building and evolving a business always requires new insights and new ideas about what’s happening inside and outside your organization. And one of the toughest things to do is to shake out of the daily grind and find new ideas about what we can or should be doing differently. Routines become monotonous, and we go about our business.

Organizations often bring in consultants for as “outsiders perspective”. Sometimes, the consultants have an area of expertise, and other times they simply come in to bring in a different perspective. As experts, they charge by the hour or the project, and bring their prior experiences and biases to the table.

How about trying something new this summer. Dump the consultants and bring in some young interns to bring those ideas to the table. Don’t send the interns on coffee runs or stick them in a cube sorting out papers. Give them hard and challenging projects to work on, and take the time to teach them.

Will the interns learn and benefit a lot? You bet. However, you will too. Often, the best way to learn is to teach. If you take the time to dig into the basics and explain concepts and listen to the questions that the interns ask, you will invariably get new ideas that you have not thought about before.

We have four interns at our small company this summer. They have four very different projects that have been well thought out. At the end of each of their assignments, they will have something tangible to add to their resume, and we will have something we benefit from. We seat them right smack in the middle of the office so they can listen and learn while they work on their projects. And they come to lunch with us every day and we try to take the time to answer their questions. And that is often where we learn.

Want some new insights this summer. Find a smart intern and make their brains hurt. If you do it right, your brain will hurt as well.

The Key to Being an Effective Public Speaker

Listen to your audience.

My entrepreneurial journey has included a lot of public speaking over the past year. And as I have tested and tried different approaches I have learned one key rule to success: don’t assume you know what the audience wants to hear.

Have you ever sat through a PowerPoint presentation and dared to ask the speaker a question somewhere in the middle of their talk? The result is often an awkward pause, and then an answer to hold on 6 or 8 more slides when they will be coming to that. In this case the speaker is presuming that you want to learn in the way they have organized the information. That’s a mistake. As a listener and learner, I turn off every time.

My speaking this year has included a lot of work with Vistage Peer groups, which typically consist of 12 – 18 CEO’s of small and medium sized businesses. These small groups can be a particularly tough crowd. The members pay a lot of money to be there, their time is important to them, and they don’t want it squandered.

As a speaker preparing for this audience, the natural reaction is to prepare for every minute and be well orchestrated. Maybe it’ a slide for every two minutes.

I tried that the first few times, and I fell on my face. And then I realized that I had to stretch into the way that I want to learn, by setting up exercises for the audience, and then discuss their situations, and digging deeply into what they want to learn.

No slides. A workshop with a few exercises on a handful of pages. And a discussion.

One time, I was scheduled to present for an hour, we worked for three and a half hours. Once, a three-hour presentation only went for two. But when the audience was done, and had gotten everything they needed. It worked.

As I learned this style, I have tried it in bigger crowds at conferences with an audience of 100 or so folks that don’t know each other. Here I might set the stage with a few warm up questions, and then the balance of the time is open to Q & A.

In a typical hour presentation, a presenter will talk for 50 minutes, and then leave ten minutes for questions. Recently I have been talking for ten, and leaving 50 for questions. Guess what – most people seem to love it. And everyone is learning from everyone else, not just me.

Getting ready to make your next presentation. Try to dump the PowerPoint. Listen to the crowds. The results might surprise you, and them.

The Shark Tank Myth is Alive and Well

Yet there is often a better way.

Last week I attended and participated in the Inc. GrowCo conference in New Orleans which is my favorite conference of the year. It is exhilarating and stimulating to be in a community of about 600 entrepreneurs who have come together to learn and grow. Everyone has an idea, and the energy is powerful.

Kevin O’Leary, aka “Mr. Wonderful” from Shark Tank was one of the main speakers at the event and many of the CEO’s of his portfolio companies were on site participating in panels.

His presence and the excitement around him reflects what I call the ongoing “Shark Tank Myth” which is the belief by many entrepreneurs that the key to their success and fortune is to get that one famous or great investor who has all the answers and will lead them to the golden land.

The reality is that there is often another way. And sadly, despite the dream, Kevin O’Leary and his counterparts would probably only consider 1 in 100 companies they meet potentially investable.

While entrepreneurs pursue the “Shark Tank Myth”, many of them are wasting a fortune of time pursuing a path that will likely not work for them.

I met with many CEO’s during the conference whose goal was to raise about a million dollars from an investor like O’Leary. And I would automatically challenge them to ask what they would do with a $350,000 SBA loan at a reasonable rate with a long amortization.

Invariably, most of them had not considered the debt to be an option. And based on the existing cash flow in many of their businesses they could likely get a loan.

They can likely get a lot further with a $350,000 thousand infusion in their business today, than the pipe dream of a $1,000,000 raise that may never come to fruition. In fact, many of them could not clearly articulate what they would do with the bigger sum of money.

My best advice is do not fall for “The Shark Tank Myth”. You can do more on your own than you think.

The Number One Misconception about SBA Loans

The SBA is not a lender.

Business owners and entrepreneurs often think that the SBA is a lender. If they walk into their local bank and are told they are not eligible for an SBA loan, they assume that the program will not work for them.

This is the furthest thing from the truth.

The SBA is not a lender. It is a government guarantee program that encourages banks (and a handful of non-bank lenders) to take on riskier loans then they otherwise would. There are over 2,200 lenders in the country that utilize the program.

While every lender follows the same SBA rules, there are vast differences between lenders to be considered.

Every lender has their own credit policy and criteria. A loan that is not interesting to one lender, could be a home run for another one.

Furthermore, there are many different loan programs within the SBA. The lender whose branch you walk into might not utilize the loan program that is perfect for your business.

And finally, the person you are talking to at your bank (particularly if it’s a bigger bank) might not know anything about SBA loans, even if the same bank has a department three floors up that specializes in them.

SBA loans can be an incredible tool to help you grow and expand your business at reasonable rates with a long amortization. Be sure you speak to an expert who understand them, before ruling them out.

As a side note, this week is Small Business Week and in honor of it we published a detailed research piece called “Demystifying the Small Business Administration” with our partners at Vistage. If you’re interested, you can download it here.

A Lesson We Can All Learn From President Trump

Today’s challenges are different then yesterday’s lessons.

Whether you love or hate Donald Trump, there is an important lesson we can all learn from him. Simply – you must adapt to your new set of circumstances, and what worked for you previously might not be relevant to your new circumstances.

I have read dozens of articles talking about how Donald Trump is applying his previous management techniques and methodologies to how he is structuring the White House. If the stories are true, he is following his instinct of working in the way that he is comfortable.

Whenever we face a new challenge, it’s natural to reflect on prior experiences to try and solve what is on our plate today. And while this is useful, it’s also critical to think through how the new circumstances are different to what we previously encountered.

President Trump is now running the biggest and most complex government in the world. His prior experiences may have no relevance to what he is working on today.

The same analogy is relevant to different experiences in business. If you move from working in a big company to a start-up or vice versa, you need to adapt to the different structure you’re dealing with today. If you don’t realize your new surroundings or learn to adapt to them quickly, you won’t survive.

This lesson is also critical when you ask for mentoring or advice. Does your mentor or coach understand the current lens you are dealing with, or are they advising you through their prior experiences. If they cannot understand the new situation, the bias of their advice might not be useful.

And likewise, if you are the one giving the advice, take the time to really make sure you understand the current circumstances, and aren’t only making suggestions based on your previous experiences.

Good decisions are a balancing act between understanding what we’re facing today, and what we learned yesterday. Embrace both elements, and you will make the best possible decisions.

Looking to Raise Debt or Equity for Your Business?

Beware of scammers looking for upfront deposits.

Almost every entrepreneur will face different points in their careers when they need capital for various reasons. And sometimes to hopefully get the money faster and more efficiently they will turn to advisory companies (like my own) to help get the job done.

Here is the tricky part. Advisors come in all shapes and sizes with different ethical standards. And sometimes their clients feel like they are in desperate situations, and will give large non-refundable deposits to unscrupulous brokers to retain them.

Simply put, it is an awful idea to give any broker a retainer that does not go into an escrow account or have some performance guarantees behind it.

I can understand that sometimes brokers want a commitment from a client to lock them in. If this is the case, the money should be escrowed in a third-party account.

Over the past sixty days, we have direct experiences with two situations (one for equity and one for debt) where business owners paid large deposits to brokers, where led on for months to believe that everything in the process was moving along, only to find out months later that there was a scam and nothing was happening. These brokers have websites and no negative reviews on the web.

And now, two honest business owners have wasted deposit money and perhaps more importantly, months of their time derailed by a fraudulent scheme that was never getting off the ground anyway.

Typically, the brokers disappear to their next victim, and the entrepreneur doesn’t have the resources to fight to get their deposit money back.

To combat this, I am considering launching a web site like ripoffreport.com, where these scams can be discussed and pointed out publicly. Do you think such an initiative would be a good idea to help the entrepreneurial community? Anyone want to volunteer some time or resources to make this happen?

The fraudsters need to be stopped.

Five Steps to Consider in a Rising Interest Rate Environment

Today the Federal Reserve raised interest rates again.

Over the last several years we have lived through a period of extraordinarily low-interest rates. And for some business owners, they assume this is the norm.

I am often asked, “what do I think will happen with interest rates going forward?” And until recently I always answered with a joke “If I knew for sure, I would be on the beach in the Bahamas drinking martinis !!!”

But recently my answer is different. I think interest rates are going to keep going up (as they have the last few months) and this is a smart time to lock up long term fixed interest rates where possible.

We are in a period of economic growth, and tremendous uncertainty. There are new sheriffs in town in Washington. And as I wrote about in my last column, we have seen business lending by banks slowing down.

Here are five steps business owners should consider.

  1. If you foresee real estate purchases over the next year or two, you might wish to accelerate your search. Interest rates could be much higher in a year, and make the cash flow prohibitive.
  2. Look at the SBA 504 program for equipment and real estate purchases or refinances. This program offers exceptionally long fixed interest rates with ten percent down.
  3. Review your current loans and be sure you understand what happens at different trigger points in the agreement. If you have an arm, what happens at the next bump?
  4. If you own real estate without any debt it on now, considering getting a loan against it with fixed rates and use the cash to pay off other variable debt or invest in your business.
  5. If your line of credit is close to maxed out, consider terming some of the balance out with fixed rates.