Ten Steps to Thrive in 2011
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Economists say the Great Recession--the longest and deepest since World War II--ended 18 months ago and that the U.S. economy is, in fact, growing again. But growth is relative. Even the rosiest economic forecasts for 2011 come in well under 3 percent growth. Unemployment is still high, and consumer spending is still sluggish.
"However optimistic you may be about your business, you need to let the overall economy temper your expectations," says Scott Shane, an economics professor at Case Western Reserve University and author of The Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors and Policy Makers Live By. "You need to assume that the recovery is going to be tepid and plan accordingly."
That doesn't mean sit and wait for things to improve. Rather, retool for the economy that exists today, and will be lingering for many tomorrows. Here are 10 places to start.
1. Overhaul your business plan. In a climate as unforgiving as this, stasis is death. So dust off your business plan and scrub it of any assumptions you may have made three years ago. Roll up your sleeves, do the math and zero in on the best strategy to grab market share and win new business. Then start treating your business plan as if it's a work in progress. Create hard benchmarks and measure results often. That's how you improve performance, says Tim Berry, president and founder of Palo Alto Software Inc., developer of Business Plan Pro, a small-business software tool that creates plans and financial projections.
"Planning means tracking how assumptions change and reviewing progress and plan versus actual results," he says. Rethinking your business plan also can help you spot new opportunities and point your company in the right direction. For step-by-step advice, check out the U.S. Small Business Administration's guide.
2. Double down on what works. Whatever paid off in 2010 is worth investing more time, money and resources next year. Ask yourself: What was your top-selling product or service, and how can you get your customers to buy more? What money-saving strategies went straight to the bottom line? What incentives or promotions got your customers' attention?
Elyissia Wassung, CEO of 2 Chicks With Chocolate, a South River, N.J., chocolate maker, is doubling down on in-store demos, which have boosted sales. When she learned a chain retailer was planning to order exclusively from 2 Chicks for Christmas, she says, "We decided to double our demos with them this holiday season and blitz all of their stores on the same day. We are also giving away prizes to the top performing stores."
3. Experiment. The best time to try something new? When the old isn't working. It may feel safer to stay in your comfort zone, but sticking with the same old product, service or marketing strategy might actually be riskier.
The best new ideas often come from conversations with your customers, suppliers and, most of all, employees. "The unexpected can often be the obvious," says New York business and personal coach Carol Vinelli. Talk less, listen more and really tune in to ideas that could lead to breakthrough products and services.
Need some inspiration? Check out Seth Godin's bestselling book Purple Cow about how to make your company remarkable.
4. Fire your D-grade customers. "High-maintenance, low-margin customers are an impediment to deploying time and resources more profitably," says Joseph Fulvio, a consultant in Doylestown, Penn., who specializes in growing small businesses. "Get rid of them."
Make a list of your customers and give each of them a grade. Then dump everyone below a C--or a B, if you can afford it. Once you've separated the winners from the losers, put a plan in place to turn those laggards into A-listers. Going forward, use those criteria to size up new business.
Though most businesses worry whether they'll meet clients' expectations, "it's actually a two-way street," Fulvio says. A better vendor-customer fit should produce a healthier bottom line.
5. Become an 'A' customer. When prices are low, as they are now, it's generally a good time to lock in long-term contracts with your regular vendors, contractors and suppliers. Indeed, you might be able to negotiate a lower price in return for the promise of your business. Small-business management expert Tim Sciarrillo of The New England Group in Milford, Conn., suggests asking your supplier for a volume discount and to hold the goods until you need them.
Instead of ordering 10,000 custom labels five times a year, for example, order 50,000 at once but have them delivered in batches. This lowers the supplier's manufacturing costs, reduces your unit price and speeds delivery on future orders because the labels are already printed.
Exclusivity is the key to a sweetheart deal like this. "At one client company, we reduced corrugated suppliers from five to one," Sciarrillo says. "The client received better service, reduced pricing and every time there was a price increase, the salesman usually kept our increase a percent or two below the standard."
Make sure your contract covers all the details, such as delivery cost, timing and quality guarantees.
6. Expand your network. Facebook and LinkedIn have their uses, but they'll never replace face-to-face meetings, especially to win new business and get referrals.
"Some folks aren't ready to go out there and mingle, but in today's economy, it is imperative," says Bryan R. Adams, owner of FAB Communications in Teaneck, N.J.
Think about it: A single coffee, meeting or lunch with a lawyer, financial planner or supplier could bring in dozens of new customers next year. If you're afraid to jump in right away, Adams suggests starting by searching Meetup.com for a group that matches your interests and attending local chamber of commerce events.
Once you find your groove (and refine your elevator pitch), consider joining a dedicated networking group such as BNI International, LeTip International or National Association of Women Business Owners. "Getting out there keeps you sane and you get to hear what's working and not working for other businesses," Adams says.
7. Leverage your brand. In this economy, it's more important than ever to avoid becoming a "me, too" brand. Low prices and quality service are no longer enough. Whether it's a YouTube video, an iPad app or a free tasting event, offer something to make customers take notice.
"What do you bring to the table that no one else is serving up to clients and potential clients?" asks Debra Condren, a New York business psychologist. "You must first understand what sets you apart and then become completely fluent in communicating to your target audience what separates you from the herd."
For more tips and tools on leveraging your brand, check out Entrepreneur's free online marketing guides at entrepreneur.com/marketing.
8. Get some credit. The mortgage market is starting to thaw, and that's good news for small-business owners who can tap their home equity for working capital. If you have good credit and some equity in your house, now may be the time to refinance before interest rates rise.
Be sure your credit score is solid and that your business shows positive cash flow before you start shopping for deals. You won't get the loan unless your bank is convinced you can cover the monthly payments.
"Banks are willing to provide credit but are still very selective," says Case Western's Shane. "Financials help a lot right now."
9. Fire up your employees. Think about creating a bonus plan to motivate employees to hit your 2011 goals. Bonuses, while not always successful, says Rich Armstrong, president of The Great Game of Business Inc., can help focus your staff's attention on key metrics such as sales, profits, productivity and customer satisfaction.
Armstrong's Springfield, Mo., firm provides training in the open-book management philosophy, which advocates sharing financial and operational information with employees so that they can make better decisions, and it gives them a stake in the company's success.
"Your people must clearly understand the goal, the improvements that are needed, how they can make a difference and what they stand to gain," he says. "Bonus-plan success will have everything to do with how well you communicate, educate and encourage your people to stay in the game and reach for the goal."
A bonus plan can work in all types of businesses, including manufacturing, sales, even restaurants. Goals can be tied to easy-to-measure numbers such as revenues, new business volume or gross margin. There's more about open-book management practices on The Great Game of Business website, greatgame.com.
10. Team up. Working with "channel partners"--companies that target the same market but with products or services different from yours--can be an ultra-efficient marketing strategy. They've already spent the time and money to attract the customers you want, and you can piggyback on those efforts. Naturally, your partners are going to want reciprocal benefits. Vinelli, the business coach, says, "Set aside time each week to brainstorm new ways to create added value to your relationships, fostering more referrals and new partnerships."
Anne Maxfield, chief visionary officer and founder of Accidental Locavore, a new-media venture in New York that demystifies farmers markets for shoppers, is partnering with companies that appeal to food- and health-conscious consumers. She's pitching a show to the Food Network and forging alliances with NYCH2O, a New York bottled-water company, and EcoPlum, a website selling green products.
"Our success in 2011 will come from partnerships [with companies] that consumers believe in and trust," she says.
What's In It For Me?
What's In It For Me?
Getting the most out of the Small Business Jobs Act of 2010
By Julie Bennett
"The most significant step on behalf of our small businesses in more than a decade."
That's how President Obama characterized the Small Business Jobs Act when he signed it into law in September. Its broad package of tax cuts and loan opportunities to entrepreneurs--all aimed at growing the economy--gives muscle to his rhetoric. But because of the deadlines in the bill, you'll have to act quickly to take advantage of many of the options outlined here.
The jobs act permanently raises the limit on Small Business Administration loan guarantees to $5 million from $2 million, and it increases limits on its Express Loans for working capital to $1 million from $350,000 through September. But an increase in SBA loan guarantees to 90 percent from 75 percent and a waiver of SBA application fees expire this year. The higher guarantee and fee waiver were offered earlier, as part of the Economic Stimulus Plan, but had expired in May.
Jennifer Hrncir, a San Antonio, Texas, franchisee of Richmond, Va-based Rainbow Station, a day-care and after-school care provider, hopes to secure an SBA loan to build a second franchise before they expire. She opened her operation in 2003, borrowed money to buy 2.3 acres for a second school in early 2008 and had a loan commitment letter for construction funding when the credit markets collapsed.
Unless you, too, have an application pending, it's unlikely you can take advantage of the loan guarantee. However, a second program makes available $30 billion in federal money to community banks (with assets less than $10 billion) that make loans to small businesses. The interest the banks pay for these loans starts at 5 percent but drops to zero as they increase their small-business lending. To snag financing: Find out which community banks in your area are participating. Franchisees should ask their franchisor to do this research, says Darrell Johnson, president of FRANdata, a franchise research firm in Arlington, Va. Independent business owners can check the SBA's database for their state, at sba.gov, to see what banks are lending to small business.
Once you've targeted a bank or two, introduce yourself to a loan officer, tell her about your business and invite her for a tour. Before filing a loan application, "get your financial statements in order, to show you are trending up," says Marilyn Landis, CEO of Basic Business Concepts Inc., in Pittsburgh, Pa.
The Small Business Jobs Act contains several tax deductions designed to reduce your taxes if you expand your business and, the federal government hopes, hire more workers. Again, some of these tax breaks expire quickly and all are fairly complicated. To take advantage of them, meet with your accountant or a tax consultant before year's end.
For 2010 only, self-employed individuals can deduct the cost of health insurance for themselves and their families from their self-employment taxes, cutting their tax bills by 15 percent.
Before the end of the year, you can amend your 401(k) plan and roll the funds into a Roth IRA. You'll have to declare the value of the plan as taxable income, but the act lets you pay the taxes over two years instead of one. After that, gains in the plan are tax free.
For their 2010 tax filings, eligible small businesses can carry back their business losses for five years. This means that if your business lost money in 2010 but made money in 2005 through 2009, you could pay less taxes next April, or even get a refund.
Individuals who invest in a small business before Jan. 1 and hold their stock for five years won't have to pay capital gains taxes.
If you started a business in 2010, you can deduct $10,000 of the money spent prior to your first sale, for expenses.
Small businesses that purchase capital equipment during the 2010 and 2011 tax years can deduct as much as $500,000 of it from their taxes. The temporary deductions also include leasehold improvements made to restaurant and retail property, as much as $250,000.
Lisa Whiting, founder of Imagination Trends, a company in Deforest, Wis., that designs and manufactures interactive wall graphics, is also in line for a 90 percent guaranteed SBA loan this year, for $1.3 million. Because she started her business in April and spent $75,000 on leasehold improvements and $425,000 on equipment, she'll also take advantage of at least three of the act's tax breaks. Whiting has already expanded from three to 11 employees and plans, by using more tax credits, to reach 30.