The 20/20 Solution - What is Your End Game?

A couple of quick notes – check out our news service from YouTube. This week we are featuring the true US monetary problems. My apologies to our non-American readers but given the size of the US economy, we want to supplement the main stream news services because they don't deal with the root cause behind issues. Additionally all developed and developing countries are experiencing the same problem; growing entitlement programs as reoccurring liabilities that eventually crowd out all other expenditures. As you review the YouTube segment, understand we are business scientists and economists – not politicians – and therefore take no position on who is in power, only their programs.

Additionally we are running a poll on two issues that will shape our next segment of Inc blogs – what is your end game for the business and what is its current growth stage – please take a couple of minutes and complete the polls in the left margin.

Now for this weeks topic – the 20/20 Solution

If you were a renegade from the corporate world before moving into the ranks of the self employed, you recognized this weeks advice on Inc. I was summarizing the techniques of lean manufacturing applied to startups and early growth stage companies. I will expand on those ideas over the next week.

The Poll and what it means?

How to grow your business is not a very difficult question to answer, the complication is What. Your decision on the end game is critical because it drives all other decisions about growth. As we discussed in an earlier blog, there are no right or wrong decisions - all the decisions are neutral until evaluated against your four general choices:

• Liquidate - at the end, you sell everything off and walk away
• Sell - you sell the existing business to new ownership
  
• Merge - another company purchases the business and merges it with an existing company
  
• Sustain - you intend to grow the business and hand it off to professional management; keeping it private or going public through an IPO
  

Given your decision on the end game, what are the factors to consider to establish a long term growth plan that maximizes your resource investment of time, energy, and money?

	Capital	Labor	Customers	Infrastructure	Core Issue
Liquidate	Create and hold cash	Outsource	Low investment High return	Minimal	Ease of disposal
Sell (Purchased as stand alone)	Invest in appreciating assets	Outsource	Low investment High return	Minimal	Balance sheet
Merge (Purchased to merge with existing business)	Invest in growth	Insource	Niche leader	Sufficient	Brand Customer base Infrastructure
Sustain (IPO or Privately Held)	Invest in growth	Insource	Market Leader	Robust	Brand Reinvention

We assembled our group of experts in the Angel Investment, Venture Capital, Mergers & Acquisition, and Brokerage disciplines to compile this chart. Tomorrows blog entry will detail of the categories and the rationale for each item. Please record any questions you have in the Comment Section or in the One2Many chat window.

Thanx and talk with you tomorrow.

Welcome Inc bloggers

Poll Directions – on the left side of the page are two polls important to next weeks Inc's blog. The first poll asks about your end game – when the time comes for you to leave the business, how will that happen? The second poll asks about your current stage of growth - what are the real priorities demanding immediate attention and what can be postponed to a later date? We intend to build next week’s article from your responses – so decide what we write!

Your End Game

Instead of discussing the pro’s and con’s of your end game options, lets start the discussion by working backwards – How are Businesses Valued? When an outsider looks at the business - how is value determined? By understanding how they will view the business, you can make a better decision about your growth strategy. There are three methods used by business brokers, merger & acquisition firms, and venture capitalists to determine value:

• Net Asset Value
• Market Multiple Value
• Income or Discounted Cash Flow Value

Net Asset Value looks at the market value of components of the business. It works well for acquisitions where the buyer wants individual pieces, not the whole operation. Some times the individual parts are worth more than the whole and this is a method to pull value out. It works well for companies that are comprised of mostly hard assets like real estate and natural resources.

Market Multiple Value looks at the expected earnings and cash flow over a period of time generated by the entire operation to establish a formula. The valuation establishes the worth of the business like 2 or 3 times sales. It works well for mergers where the buyer wants the operation to improve or enhance an existing business. In addition, it works well for companies comprised of soft assets like brand reputation and knowledge.

Income Value looks strictly at cash flow over a period of time. It's valuation is a function of how much this additional cash flow is worth to the acquiring business. It works well with companies that have large and predictable high velocity cash flows like pay day loans, pawnshops, bars and clubs.

Here is my rationale, if you know how the business will be valued, that should determine which growth strategies make the most sense. For example, if your end game is to grow and sell, then investing in either hard assets or functions that improve the amount and velocity of cash flow make sense. Making sizable investments in human resources or infrastructure will actually decrease your valuation! These investments make sense if your end game is to grow and hold such as taking the company public and the value will be captured as part of a Market Multiple approach.

We will investigate this further on next week’s 1:1 meeting @Inc. blog.

You Must See This Movie - IOUSA

We typically don't involve these blogs into the world of politics. However, occasionally there are issues that transcend politics because of its potential impact on the economy. As entrepreneurs, there are 26 million solopreneurs and small business (under $50m in revenue) in the United States representing 40% of the jobs, there are issues that cannot go unnoticed. We have been on this story for quite awhile and used these projections into our growth plans - our editorial board this information should be shared.

Review and let me know your thoughts.

5 Disciplines of Harp Corps

Although I wrote this 3 years ago while building an entrepreneur's version to the Franklin Covey self-management system, I thought a brief review is in order (see link above for the entire article).

I once said that being an entrepreneur was a calling, like perhaps a priest – rabbi – imam. That was not a flip remark; I have great respect the people who answer that call. Like a priest or even better a monk, if we are going to self-manage – we need rules to live by. Taking a page from the Order of Saint Benedict and their Benedictine rules, here is my operational version, the rules of hard corps:

• Embrace Objective Reality
• Understand Your Talents (and Weaknesses)
• Clarity of Purpose
• Courage to Walk Your Path
• Persist as Long as You are Right

Let me now superimpose research conducted over 20 years ago by Warren Bennis, the great commentator on Leadership. In his study of effective leaders in the public and private sectors – he identified five behaviors or disciplines they all had in common which I have slightly embellished:

1. Create a Compelling Vision of the Future
2. Fanatical Focus on the Critical
3. Embody Your Reality
4. Communicate to Inspire
5. Empower a Movement

Over the next five days, I will detail each discipline for the start-up entrepreneur.

1. Create a Compelling Vision of the Future

Your Future Must Make a Difference. Whatever vision you paint, it must have meaning beyond you and the boundaries of the organization. You are looking to inspire people to sign up and join so being focused on just you or the company will not provide a compelling case. People love being part of something greater than themselves.

• Example: our corporate vision is to change the math of business success. Entrepreneurs risk everything to turn a dream into reality, and the odds are against us. Within 7 years, statistically we all will go belly up! What if we could just raise the odds of success by 10%? With 25 million small businesses in the United States that is 2.5 million more successful entrepreneurs.

Encompass the Human Condition by Helping. Ultimately all organizations are about some good created for others. Whether this is humanity in general or the local community, we must provide value. Helping is just another way of saying – we provide value that people are willing to pay for.

• Example: our corporate vision is to address the entrepreneurial fear of risking everything, the fear of no presents under the Christmas tree, the fear of no food on the table or power in the middle of the winter, or the fear of losing the house. All entrepreneurs in the early stages live with this unrelenting terror, and if you are not one – you just won't get it. Our difference – we do and have built an organization to make the terror manageable.

You Must Believe in Yourself and Your Abilities. Entrepreneurs are not surrounded by much support, formal or informal. Most of our family and friends think we are a couple of bubbles off center for leaving the security of a paying job. Banks are certainly not an ally – try to get a loan when it is the difference between live or death. If you don't believe in yourself, nobody else will and you will play it safe which usually becomes a disaster. Entrepreneurs are not river boat gamblers, they take calculated risks but it is a risk just the same.

• Example: our corporate vision is take out most of the cost of knowledge and sell it to a highly fragmented and unsophisticated market. This is not about the intelligence of business owners, they simply don't have much experience with buying help and have no idea of what to buy or what to pay. Think selling this idea to our investors has been easy? I could return to large corporate consulting, make $3,000 a day and live comfortably.

Appeal to Everyone's Best Angels. Negative messages don't work, politicians that focus only on the negative lose elections. Also we live in societies that are geared to the lowest common denominator. Building a world class organization is about elevating everyone; employees, clients, suppliers, and investors. Feeling good about oneself is a function of success.

• Example: our corporate vision is to raise the bar for entrepreneurship, to appeal to the courage of business owners and help them make the dream a reality. Since we are living the same reality it starts with us. We are constantly pushing the bar higher and higher within to ensure will can do it outside.

Demand Everyone's Best Effort. This is about a balance between impossible and difficult. If people are going to rise to the occasion, they must be challenged to bring their A game every single day.

• Example: our corporate vision is to work collaboratively and be supportive, but to also tell the hard truths. Accountability is a two way street and our clients will honor their commitments to same the level we will or we will not do business together for long.

I find these behaviors to be true and effective, whether I look back on my past, review the literature of effective leadership, or the success of our clients.

Next post will discuss discipline 2., the Fanatical Focus on the the Critical.

Cant' Self Motivate - Can't Self Manage?

Wasted 3 days this week, can't seem to self motivate and therefor self manage. One big transition for me is the move toward becoming a survivalist in preparation for the coming disaster of America's suicide. Given the countries political incompetence, we have created a government and society that is not sustainable. A government that makes the wrong promises is having two unacceptable consequences: a society of dependence and a series of undeliverable expectations. People believe this government, regardless of political party, will take care of them and are living with that expectation. Our spirit of self reliance and independence has been seriously damaged at exactly the time when it will be the difference between living a life worth living and merely existing. The unfunded mandates coming due over the next 20 years will force the government to raise taxes on the remaining workforce to a level that will destroy the economy at the same time it reneges on those the promises leaving people destitute. The only people who will prosper are the self reliant and most of them are entrepreneurs and business owners.

I need to redeploy the principals of hard corps to self motivate and self manage. As I review my life, the greatest success occurred when I knew the rules and had a clear path to that success, and then made the purpose behind all activities; professional and otherwise, its achievement. My greatest success was working through the ranks as an enlisted member of the Coast Guard to attend OCS (1 of 18 from 2,000 candidates) and become an officer. Since that time, with every business venture, although successful - I have never achieved at the same level.

That is the excitement, at a very personal level, of building the library of best practices. I built it as much for myself as for my global brothers and sisters - entrepreneurs. My posts of the next weeks will be to address those principals and detail our path.

Starting Smart, Starting Cheap

I am writing this for all of our colleagues in the startup mode that either haven`t purchased their computer systems or are thinking of upgrading. If you are a subscriber or a casual observer of our blogs, you know our commitment to open source. However, don`t view this as a recommendation for moving to a linuxOS, see it as putting your toe in the water. For all of my MAC users, sorry this doesn't apply.

Instead of purchasing the entire MSSuite (word, powerpoint, access, excel, etc.), check out Open Office from Sun MicroSystems. It doesn't have all the whistles and bells of Microsoft`s package, it just has the ones we consistently use and IT IS FREE! You can work in its complementary programs (writer, impress, base, and calc) with the same functions as Microsoft and save your work in documents that are fully functional in MSSuite.

The only challenge is there is nothing at the moment to replace Outlook. This is where Mozilla steps in. By now you have seen all of the hype and even downloaded their browser Firefox. Mozilla (Netscape) has come to rescue with a free email client Thunderbird.

Thunderbird has all of the email and newsgroup features of Outlook and when you add their calendaring system - Lighting, it has everything you need to abandon Outlook. Lighting has the additional features of synching with icalendar formats like Google Calendar to create an online and sharable calendar with you clients, partners, and suppliers. You can even synch it with your phone or pda like our nokia n800 internet appliance to create one calendar that follows you around. It is the perfect solution to the mobile Solopreneur that is trying to look and perform big without the overhead.

Lets review the bidding. Instead of spending $300-$500 for bloated programs where a typical user applies 20% of its capability, you can create all of the software infrastructure of a large organization for FREE.

Check it out by Googling Open Office, Firefox, Thunderbird, and Lighting. Download the programs and within one afternoon you can achieve more for less.

Now I will have you ready for the next leap. Have an old computer that struggles with 98 or XP, and will not run Vista? How about a free linux operating system like Ubuntu that will make your 3 year old computer run like a new $1500 box?

Stay tuned....

This blog was written @30,000 feet on a nokia n800, my handheld VIA (virtual internet assistant)

sticking to the knitting

Something to consider when the business is young and short of mothers milk - cash, there is a tendency to say yes to anything that will generate revenue. Think twice before grabbing for the cash. We took on a project that demanded operating outside established procedures and that caused several uncommon errors. We have now threatened the revenue, but more importantly we risk our reputation and 11 months of courting the account.

Would we do it again? You bet but only after making sure we have made the process changes.