Seven Sure Ways To Kill a Business
Like a lot of people, entrepreneurs are very busy. And, says Rick Pinto, of the College Road East law firm Stevens & Lee, they do not take advice very well. So boiling things down and making information simple is the key to getting the message across.
Don’t miss the market. Also presentable as “Don’t invent a market,” Pinto says a major error new entrepreneurs make is believing, “If you build it, they will come.”
Many new entrepreneurs do not understand how venture capitalists and angel investors view new ideas, he says. They want to see evidence of significant customer interest, and, typically, they want to see modest improvements on products people are already flocking to. Wild ideas rarely get investors to cut checks, he says. Always do your homework because “unless you do market research, you’re just guessing.”
Avoid capital inefficiency. There are any number of ways to develop a company and an image, Pinto says, but not all of them are good. “You don’t really need offices on Madison Avenue and limousines and planes,” he says. New companies looking to give themselves instant cache often get lodged in the trappings of big, established companies, but do not have the capital reserves of an IBM. Most new ventures must choose between looking good and actually being able to provide the product or service they are setting out to provide.
Don’t get crushed by the 600-pound gorilla. Most businesses have a favorite, lucrative account. And that’s fine. Trouble begins, however, when a company becomes reliant on that one major account. “It’s an easy trap,” Pinto says. “You find that one big customer and think one customer is better than no customer.”
The key to success in any field is to diversify, he says. Building a stable of good, quality customers is infinitely less risky than maintaining one major client.
Don’t ignore financial needs. Perhaps the deadliest of deadly business sins, Pinto says this is, nonetheless, one of the most common mistakes he sees in new and emerging businesses. “Not knowing the margins and not leveraging the money is the mistake that kills most companies,” he says. Too many companies spend without really looking at the bank accounts, the cash flow, the projections, and costs. But his basic advice is simple: “Don’t run out of cash.”
Don’t hire the wrong talent. Perhaps the second most common mistake Pinto sees is an eager company putting the wrong people in the wrong jobs. In order to build a successful company, you need to find qualified people with experience doing the kinds of things you are doing.
The very fact that small companies with few employees are the least likely to replace or reposition staff is especially deadly when considering that newer, smaller companies are the most in need of strong early performance and the least able to afford a long learning curve.
Don’t inflate investor expectations. People have a tendency to think highly of themselves. Entrepreneurs with hot ideas and a trunk full of dreams especially overestimate their worth out of the gate, Pinto says. But this is a dangerous trap akin to misinterpreting the market.
The trouble is rooted in the fact that many new entrepreneurs simply do not understand what venture capitalists and angel investors want to see. They are not looking for great ideas that could sell, they are looking for profitable ideas that will sell.
Don’t miss growth opportunities. Even a mild taste of success is enough to make most people sit back for a few minutes and relax. As companies settle into their routine, complacency becomes a greater threat. Like companies that rely on one major client, those that rely on the product as it is can soon find themselves in trouble. Again, Pinto says, the trick is to diversify. Sell to multiple clients, update the staff, bring in fresh ideas, and, above all, stay tuned into the marketplace.
— Scott Morgan
Excerpted from the May 14, 2008, issue of U.S. 1.
Running a Lean Operation
‘Lean” is a way of organizing work and production designed to remove any activity or process that does not produce value for the customer. Its premise is that when activities produce waste it is costly for any business.
The first step in implementing lean is to distinguish between valuable activities and the ones that create waste, says Ryan Thornton, an internal consultant and teacher of lean manufacturing at Kepner-Tregoe, a management consulting firm based on Research Way.
Waste of overprocessing. This type of waste involves making more product than is required by the next step in a process or making something faster or earlier than is actually required. One example is making extra copies, like forms in duplicate or triplicate, when one is sufficient. This also creates a twin waste of extra inventory.
Push and pull. What lean proposes for getting rid of the waste of overprocessing is to implement a pull system, one that produces to customer demand. Rather than having a contract specifying that the customer will submit a firm order for a month’s worth of inventory, the supplier should be producing only to the firm’s order, says Thornton.
Thornton adds that if the client suddenly needs an increase of 10 percent immediately, then a lean organization, with reduced change-over time, should be able to adapt and run the extra product without causing mass chaos in the production process.
There is a good reason why more people are not implementing true pull systems — they work best with relatively high volumes and in relatively stable environments. Although it is more difficult to implement a pull system when demand fluctuates and volume is not constant, Thornton maintains that there are steps within any type of process where it is possible to implement a pull system.
Reducing time. To reduce time a manufacturer must look first at activities that can only be done when the equipment has come to a stop or is idling. Thornton offers an example from a previous job on which a huge coil needed to be changed while a machine idled. Instead of starting preparations for the coil change only when the need arises, as tends to happen, someone from shipping could go get the coil and get it prepped ahead of time. When it is time to change over, the required people and tools should be ready to go. Where it is possible, change processes can also be automated.
Another way to reduce change-over time is to carefully examine a process. A company might set up video cameras to see how different operators perform a particular process.
Wasting time. Waste happens any time that resources — either machines or people — are sitting idle. A truly lean organization, therefore, requires that employees are sufficiently cross trained to be able to do whatever work needs to be done at a particular time.
An example of waiting time in an office environment is when someone has to wait for a signature before proceeding with a project or activity because of staggered work times or summer hours.
Waste of transportation or movement. This involves unnecessary movement of a product or process through a system. One of Thornton’s clients, for example, had an employee who walked 14 kilometers a day chasing paper. Reducing this type of waste often requires taking a look at the layout of a manufacturing or office environment.
Waste of overservicing. This occurs when a process involves an activity that the customer does not perceive as valuable, for example, quality control at the end of a process. An alternative would be to put processes in place to prevent errors at every step.
Another type of overservicing happens when government bodies, like the Food and Drug Administration, require unnecessary documentation that does not add value in the eyes of the customer but is required as a cost of business.
Waste of motion. This differs from the waste of movement because it focuses on how people move around their actual workspaces. In an office where the occupant’s need to file is fairly constant, placing the filing cabinet two cubicles away results in much wasted motion.
Excerpted from the September 10, 2008, issue of U.S. 1.
Laws of Survival For Solo Practices
Taking care of the business end of business is something every sole owner must be aware of, no matter what the profession.
Lawyers are as often guilty of forgetting this rule as people who work in any other profession, says Michael Detzky, a partner in the firm of Detzky and Hunter, with offices in Freehold and Somerville, who has had his own practice for about 20 years. It can be tough to go it alone and the failure rate is high for solo or small practice attorneys.
Detzky advises anyone interested in developing a solo practice to specialize. His areas of concentration are consumer and business bankruptcy as well as immigration and nationality law. He also represents armed services members in administration separation proceedings and courts martial defense.
Be prepared. Getting everything in order before you head out on your own is vital to success, says Detzky. Make sure you have everything in place. What are you going to do about health insurance? Do you have a spouse with a job whose benefits cover you and your family? If not, health insurance will be a big expense you must plan for. You also need to look into malpractice and basic business coverage.
“Make sure that you know the actual cost of doing business,” he says. Along with the cost of insurance don’t forget to factor in rent, utilities, an answering service, and any other services you think you might need.
Consider a loan — but don’t bet on one. Banks are often unwilling to write a business loan for a law practice, so attorneys may be forced to consider a home equity loan. “It’s tougher now than ever before,” he says.
Plan on long hours. After more than 20 years in a small practice, Detzky recently took a three-week vacation, but it’s been a long time coming, he says. “When I first opened up I could never have taken that kind of time off. If you aren’t prepared to work long hours don’t go into solo practice. Don’t think you are going to take off at 2 o’clock every afternoon and go to the gym.”
Still, you do need to stay fit. “Make sure that your health is good. If you’re not fit enough to work the hours, you aren’t going to make it.”
Invest in your image. That means everything — your personal appearance, your advertising, your office space.
“I know some attorneys who start their practice out of their homes, but I don’t think it ever portrays the right image,” Detzky says. “I can assure you that people don’t want to confide their legal problems to you while sitting in your living room and listening to the dog bark and smelling the onions frying. Unless your business is strictly transactional and you never meet clients face-to-face, get yourself an office.”
Once you have the office, make sure it projects a professional appearance. “You wouldn’t feel comfortable going to a doctor whose office was messy and unkempt, why should you think someone wants to go to a lawyer whose office looks that way?” he asks. Detzky suggests start-up practices consider space in a business incubator or other shared office facility.
Another part of your image is your answering service. “It is just more professional to have a person answering the phone, not a machine,” he says. Some incubators or shared offices include secretarial service, and remote answering services are also available and cost much less than a personal assistant or receptionist.
Detzky is also “old school” about personal appearance. “It is rarer and rarer to see a colleague in a business suit these days,” he says. But coming to work injeans and a sport shirt, “just makes it look like you are not on your game.”
Find a specialty. Every small practice will have its share of “bread and butter business” such as real estate closings and simple wills, says Detzky. “These are the things that keep the lights on.” But the way to become successful is to become known as a specialist in a couple of areas.
“When I first opened my practice very few people were practicing immigration law in New Jersey,” he says. Today there is much more competition in this specialty. However, Detzky has back up specialties. He also works in military law and bankruptcy.
There is a lot of competition out there. “The number of lawyers in New Jersey is growing but the number of clients is finite,” he says. That doesn’t mean that a solo law practice can’t make it in today’s business climate. To do so, however, you must be prepared to put in the time and effort to build your business. Contact Detzky and Hunter at 732-780-3090.
— Karen Hodges Miller
Excerpted from the August 13, 2008, issue of U.S. 1.