Dear Congressman....Help Small Businesses First!

I am a firm believer that you must participate in everything that affects your life if you want to control your life. Otherwise, you are a bystander in your own life and have no right to complain. With that said I believe the American people are spending too much time complaining about what congress is doing with the bailout and not putting forward good ideas. We have a responsibility to help our government, which is a way of helping ourselves.

With that said, here is the letter that I have sent to Rep. Edward Markey of the 7th District of Massachusetts discussing a few ways that congress could help small businesses quickly:

The Honorable Edward J. Markey
2108 Rayburn House Office Building
Washington, DC 20515

Dear Representative Markey,

The American people are currently witnessing good people at all levels of government doing their absolute best to turn things around. I do not agree with everything being done by Congress, but I respect our leadership for doing what I am sure to be their best in a difficult situation.

I think all Americans should look beyond the politics of whether or not bailing out large corporations and banks is a good thing. For now, it is a certainty and it is a waste of calories to get upset about it. With that said, I would like to mention something that seems to be missing (at least in media reports if not in reality). What is the federal government doing for small businesses?

Small businesses in this country account for 60% of the labor force and 78% of all new job creation. A fraction of the money being spent on GM, Citigroup or AIG would create more jobs in a more diverse set of industries than all the money being spent on keeping these behemoths afloat will save. I believe that congress should develop a “grass roots” spending program that would result in a more competitive and stable economy for our children and grandchildren. This means spending at the bottom to build the economy, not trying to save poorly run businesses at the top of the economy and hope it trickles down.

Here are a few ideas that I would like to put forward for your consideration:

Create an interest free factoring program for small businesses – Small businesses are being hurt right now by a cash flow crunch created by the protective policies of much larger businesses. These larger businesses are often our clients and vendors. The result is that little family-owned businesses that are responsible for so much of the jobs across the U.S. are laying people off to save money or to pay their suppliers, which is understandable and sound business practice. If the government could step in as a factor and provide interest free loans to small businesses so that they may maintain cash flow and keep people working while they wait for larger firms to pay their bills, that would save millions of jobs today. When payments on invoices are finally received from a client, the business owners can make an immediate repayment back to the government via EFTPS, which is the same mechanism that we all use to pay our payroll and other taxes to the federal government.

The benefit of this approach is the ability for the government to directly support business activity without having to build the deficit further. Small businesses will happily pay the loan back if it allows them to keep growing their business. The U.S. government can utilize existing technologies for collecting revenues from small businesses through EFTPS and therefore would only have to make a minor investment in technology to adjust the current system to account for and track payments related to these interest free cash flow loans. More importantly, this approach would not change the workflow of any American business.

Create a micro loan program for existing businesses working to create new products – Micro loans are widely used in the developing world as a way to help individuals and families in impoverished nations build revenue streams to improve their lifestyles. These loans typically range from only a few dollars up to a few thousand dollars, at most.

New products that are currently being developed by our nation’s small businesses will create the majority of the high paying jobs of the future. The government can provide low interest short term loans (at LIBOR +0%) for qualified businesses that need just a little bit of help to push a new idea forward. These loans could be managed by asking local banks to spend a percentage of their bailout dollars on the program. This way the government will not have to increase its own spending to manage the loan program. Small businesses can use these dollars to improve existing products by hiring outside help (creating jobs) or to develop new products without the need to shed jobs in order to save money or sacrifice current revenues from an existing client base. This approach represents a direct investment by the government into the economy of the future as an alternative to focusing on bailing out the economy of the past.

Give a tax credit for each job created – Small businesses will need an incentive to begin hiring as the economy begins to stabilize and recover. Most companies that survive this period will be running very lean and will be reluctant to build overhead again through increased payroll. The government needs to incentivize small companies to hire again.

For businesses that make under $10 million per year, the government should give a tax credit of up to 100% of the wages of the person hired. This seems really aggressive on the surface, but there are a number of real benefits. The amount of taxes lost by the government will be more than made up for by adding another working individual to the economy. That newly hired person will soon be spending money locally and will stay out of debt. This will help strengthen the banking system and support a local housing recovery as well as bring increased dollars to the states through increased property and sales tax receipts. This will help reduce the federal government’s need to directly support states that cannot find a way to reduce their own budgets. In the long term, the increased national payroll will increase the government’s revenues in years to come by significantly more than it will give up in the short term. Small businesses can use the additional bandwidth to grow their businesses and create more jobs, creating a positive economic snowball effect.

I appreciate how busy you must be and that these are challenging times. I hope the mention of these ideas provides you with something to think about when the next piece of legislation comes across your desk. I believe it is our responsibility to support our legislators and I hope you receive this letter in the constructive manner in which it is intended.

Respectfully,

Jeffrey Roy
CEO
Implementation Factory, Inc.
Framingham, MA 01701

Tap Your Personal Network to Move Your Business Forward

We can’t do it alone. We never could. Although it is interesting to think that the average American has this inherent independence. It is part of our culture. However, it is a rare thing for someone to be able to move their business forward without the assistance of others. Maybe it’s the support of a spouse. Maybe it’s some friends providing you with advice. Maybe it is something else entirely. It doesn’t matter. The fact is that one of the most valuable tools we have in our toolbox for building our business is our own personal network.

The problem is that many people view their network as a means to find other clients and generate revenue directly. If you put your ego on the shelf from time to time you might realize that there are people around you that can provide good, solid advice that will help move your business forward. The time to do this doesn’t really matter. If you’re just starting out it is a good time because you may get the benefit of the experience of others. If you’ve been in business for a few years it is a good time because you may get some fresh ideas. There are a number of ways to seek assistance from your network. Here are just a few:

Launch an advisory board – An advisory board is what it is; a loose association of people who can and will provide advice for the purpose of moving a business forward. It is important to stack your board with people that bring specific skills to the table and not just friends. It is also important that you bring specific challenges to the board for them to help resolve and that you take some of that advice. Not following through on the advice of your board will make them feel that they are wasting their time working with you, and that is a bad thing. Make sure the advisory board’s role is well defined and that they work with you to solve specific business challenges.

Bring specific issues to outside experts and ask for advice – There is nothing more powerful than the ego. Feeding someone’s ego by asking them for specific advice and counsel will make them want to go above and beyond to help you because their ability to help once they’ve been challenged is the best way to validate the image of them that you have presented – that of an expert. You can do this by inviting someone to a casual coffee or lunch to request feedback or guidance on a specific subject (pick up the check). It is important to be specific with your questions or request. You don’t want to waste anyone’s time and you may have only an hour or so to get the advice you seek. You’ll be surprised who will meet with you. When I was first starting out I was able to get established CEO’s to buy me coffee and provide advice simply by sending emails and asking for it. Many of these contacts have come in handy later simply by staying in touch. As my business has grown, these people have formed the basis of a peer network which I can tap from time to time.

Identify people that you know who can serve as delivery partners and share the growth – No matter how complete you believe your offering is, there are people who offer something so complementary that your combined efforts will help grow both businesses. At the very least, working with an outside company can increase both of your deal flows. Create a list of the people that you trust (not just people that you know) and take a long and hard look at their business. How can your business compliment theirs and vice versa. Be creative. This kind of loose partnership can serve to increase deal flow and potentially open up a previously untapped market for both of you. In many cases, just the act of brainstorming with someone can bring fresh ideas to bear and invigorate an otherwise flat business cycle.

In the end we all have to do what we can to keep things moving. Sometimes we get caught up in the details of running our business and we need a jolt to get things moving again. Tapping your network in an intelligent manner can provide the boost your business needs. Be open and check your ego at the door. This doesn’t work if you challenge your network by always explaining why you can’t do what they suggest. These people are trying to provide meaningful advice, take it for what it is worth, but appreciate the help that you do receive. Many times the conversation itself is enough to help you work through a business challenge.

Idle Assets Are Still Assets, Regardless of the Economy – Use Them Well

Consulting and professional services companies spend most of their time trying to ensure that their human capital is fully engaged and working at all times. As long as your staff is serving a client, you are making money after all. Sometimes, these assets are idled by circumstance. This can be related to normal business cycles, or a down economy. Either way the effect is the same; talented and valuable people are sitting idle at their desks and they are not generating revenue.

If your company is on the edge and the down time becomes extended for any reason, then there is not much you can do but consider layoffs to sustain cash flow and protect the business as a whole. But what if your business is not on the edge? How do you leverage these assets now so that your future can be just a little bit brighter? If your business can sustain a long period with reduced cash flow, then you might want to take a longer term view of your client relationships.

Many service companies enjoy healthy margins. This allows the ownership to hire more people and move into new markets. If you are willing to give up the margins for a while then you might be able to “invest” in your clients by allowing them to do more despite the down economy. This might entail billing your clients less or not at all in some cases. Another option might be accepting deferred payments or straight-lining your billing so they can plan their expenditures better. This allows your clients to move forward with their initiatives while ensuring some future revenues for your business.

The benefits of this could be quite tangible. For one thing, your client will appreciate the budgetary relief. Instead of being forced to put an initiative that might help them competitively on the shelf, they can keep things moving forward. This is the kind of goodwill you can usually take to the bank later. Deferred payments might come in handy later if an economic downturn becomes extensive. This will protect your cash flow, even if at a reduced level, so that your business can ride out the storm.

Another option would be using these assets to invest in your own business. Think hard about how you can utilize your talent pool to grow your own business or position the company better for when the turnaround comes along. Can you develop a new service? Can you spend resources productizing your services so that you have a more diverse offering later on?

In the end, an asset is an asset until you decide it is not. Management’s responsibility is to manage human capital just as effectively as you would manage any other asset, including cash. You wouldn’t tuck your excess cash flow under a mattress when you could earn short term interest, so why would you leave a consultant sitting at his or her desk doing nothing? Find a way to engage your people and yourself in the business and work with your people to find creative ways to help your clients ride out the storm so that both they and your own firm are better positioned in the future.

Setting Intelligent Prices that Create Future Growth

There are lots of ways to grow a business, but really only two categories. “Organic” growth typically involves growing the business from the “inside out.” This generally means achieving growth through increased sales. Larger companies sometimes strive for additional market share though “inorganic” growth. Inorganic growth typically involves growing from the “outside in.” Often that means growth through acquisitions and/or other corporate transactions. If you own a smaller business, organic growth is often the only option available for you. One of the best ways to allow your present day sales to support your future growth is through a good intelligent pricing model.

A good pricing strategy can mean the difference between selling a product or service or not, obviously. Without getting too preachy, if you over-price your services you may have a few high margin projects, but over time even the most free-wheeling company will eventually want to cut costs. Under-pricing carries additional risk, not the least of which being that if you are overly inexpensive then your clients will find ways to abuse the relationship and you might find it difficult to make a living and grow your business as all of your time will be spent servicing a smaller number of clients. With the understanding that under special circumstances you may need to under-price or overprice (more on these in later postings), striking a balanced pricing model with the future in mind can make all the difference.

So what is a balanced pricing model? A balanced pricing model is one that provides your product or service to your customers today at a price that delivers enough value to justify the price paid. This is very subjective, but in the end what it means is that nobody feels that they are being ripped off. With that said, there are two ways to achieve organic growth through pricing. The first is through new sales to new clients and the second is through additional revenues earned from your existing client base. This is where intelligent pricing comes in.

Assuming that you have made a sale and nobody is upset, then you can assume that your client is generally happy or at least satisfied with the value being provided. As a matter of principal, I try to set prices that ensure that the purchasing party is receiving a greater value than what they are paying for. As a general rule, this makes for a pretty healthy client relationship while simultaneously making it difficult to be unseated by competitors. This is a slight under-pricing of services to be sure, but not so much as to make me feel that I am getting used. This allows me to offer additional services or features in a sort of a la carte manner to achieve additional growth.

There are a number of pricing models for subscription-based products or ongoing services that typify the varying pricing strategies employed by many firms. They are:

Zero Dollars for the First Seat with Limited Functionality – In the end, there is no free lunch. This is a very common way to build a customer base. Essentially, you are giving your product away with the hope that the people using the product or service will love it and will either pay for it once you start charging for the service or will buy additional services later. Sometimes, this involves offering “basic” services that in reality only satisfies a very small percentage of the market but give a taste of the full blown product or service. In all cases, clients eventually feel they are being “baited.” The reality is that they are correct. This is never a good way to build a long lasting client relationship. Although for many firms seeking outside funding this is a good (if not temporary) way of building a subscriber-base for investors.

Full Service with Relatively High Prices – Commonly referred to as “all-you-can-eat,” this is the common approach of companies seeking to serve the high end of the market. In the end, they intentionally leave money on the table from smaller firms in order to avoid the cost of servicing them, thereby freeing up staff to focus exclusively on larger clients providing better margins to the company. This strategy seems to work best in growing economies as the larger firms tend to spend more to get ahead. The problem is that in a slower economy or a down economy these firms also tend to cut costs more drastically and it usually takes a while for them to bounce back. This leaves the provider scrambling to replace lost revenues in order to survive.

Low Introductory Prices with Per Feature or Low Per Seat Pricing – If done correctly, this is by far the fairest pricing model. Basically, you allow clients to pay a reasonable fee to realize all the benefits of your product or service. It is important to make sure that they receive all of the benefits that they are promised, even the implied benefits. If they are happy with the offering, you can add additional modules or services that are complimentary at a later date to increase revenues organically. By limiting features or services, you are essentially baiting them. This is to be avoided at all cost. Otherwise your future growth will have to come from adding clients, and some percentage of that will actually be replacing revenue leakage through lost clients. In the end, you might seem like you have higher margins but in reality your cost of sales is much higher. You’ve just hidden your costs and added pressure to your sales team unnecessarily.

In the latter model, the client benefits from the relationship. You benefit as well, but you leave the door open for future growth by maintaining a good relationship and having a thorough understanding of your market. Basically, you are giving up some current revenues in order to ensure future growth.

If, for example, you price a product a $100.00 per seat, your clients will expect superior functionality and service. More importantly, they will be resistant to additional fees for added features or any price increases at all. Chances are, you will sell more one and two seat accounts than anything else. A price of say, $25.00 per seat and $2.50 per additional seat, will allow you to sell more product to more companies. If you can get a percentage of these clients to accept new features or add even one seat, you will exponentially increase revenues with the same client base. These firms will more likely add more seats earlier due to the favorable pricing and will continue to add seats in the future. Once your product becomes ingrained in their operating culture, your revenue will stabilize and you can focus on adding clients.

This is simple math. I would rather have 100 clients paying $25 each than one client paying $2,500. The cost of servicing the 100 clients can be controlled with technology and smart operating procedures. When the 100 clients all add just one seat, you have organically grown your business by 10% with near zero cost of sales. As an added bonus, your business risk is lower because you have developing a larger more diversified client base. In order to achieve the same growth from a $2,500 account, at the very least you will have to wait a year to raise prices. Because that company will likely buy fewer seats, there is more business risk associated with that revenue stream as well and the loss of just one client will be felt more acutely.

In the end, your pricing model should be created while considering both risks and rewards. By offering a solid product at a great price (as opposed to a “fair price”) your clients will be more satisfied and more likely to spend more with you in the future. Yes, you might have to manage support costs more closely initially. But if your product is solid, chances are your long term growth will far outstrip the costs associated with achieving it. That is pricing nirvana.