CHAPTER IV
Strategic Thinking and Acting

 

Diversification vs. Strategic Focus

Diversification is a good thing, right? Well, not always. Here’s why.

WE ALL HAVE HEARD about how diversification—having more than one line of offerings—can spread a business’s risks and raise the odds of success. Giant global businesses do this effectively—think of India’s Tata Group, which manufactures steel but also makes cars, health care products, and many other diverse goods; or General Electric, which is into practically everything.

But there’s a catch. Yours is not a giant global business (yet). So if you are tempted to diversify your offering, be sure you aren’t stretching your business too far. It is too easy to get excited about a new thing to deliver, and to end up losing focus on your core business. Don’t assume that lots of different things going on in your business means they are all good things. Not exactly—unfocused activity can sink your business.

As an entrepreneur you probably have lots of ideas and not enough time or resources to tackle them all. You find it tempting to branch out, try something new, add a service. But when businesses put their hands in too many cookie jars at one time, they get into trouble. Lots of great ideas get thrown around with equal excitement. But either nothing actually gets to market, or the new offering is marketed inadequately (due to limited budgets and lack of deep experience). And it flops. That in turn drags down overall profits, and the mainline offering can suffer by being neglected in the process. Small businesses can only take action on so much.

It’s great to be involved in multiple initiatives at the same time. But before you divert time and resources to something new, ask yourself: Does this fit with our core offerings? Can we realistically hope we’ll successfully execute on all fronts without harming our cash cows? As a leader in your business, you have to corral your team and ensure everyone is laser focused on the things that will build and protect success.

There are tons of small businesses that sell too many different things. They clearly don’t remember why people patronize their core business. I don’t go to the car dealership to buy a shirt, nor do I go to the mall when I’m shopping for a new house. I can’t imagine that a car dealership will never see a huge-bottom line impact by selling nostalgic car t-shirts one by one, compared to the hefty hourly fees it can charge for repairs, the 35% markup it can make on replacement parts, and routine preventative service charges that regularly flow in.

Businesses that succeed via diversification usually take on new offerings that are in some way related to their core offering (e.g., the cable company offers not only cable, but telephone and Internet service). Vertical diversification offers essentially the same product in different channels of distribution or sale. Horizontal diversification offers essentially the same product to different types of users. In that car dealership, they have three primary revenue-producers: vehicle sales (new and used), vehicle service, and parts. How can t-shirts possibly fit in? Shirts simply sap the energy and attention of the dealership, contribute little to profit, and the main business will suffer.

How to know when diversification is good

It’s amazing how many businesses attempt to compete in industries that are unrelated. If you just can’t resist a tempting new opportunity, at least try to focus on something that has some connection with your core products and services. Go back to your business plan and look at what you said about your company’s mission and goals. Then ask:

• Does this idea support your core business and mission, or lead away from it?

• Does the new initiative fit with your core offerings in a logical way?

• Will your current customer base find it a good match, a natural enhancement?

• Does your team have the expertise to support the new idea? Learning curves are expensive and risky.

• Can your systems and resources support it? Consider your accounting, storage, sales force, website, marketing efforts, and other important resources.

• Can you objectively say this new thing leverages what you’re good at now?

Don’t ignore the power of consolidated marketing efforts either. Imagine, the more unrelated verticals a business has, the more marketing lists it will have to buy or create, the more tradeshows and conventions it will need to attend, the more trade journals and magazines it will need to advertise in. It may not be worth all the effort and additional expense for the eventual bump in the bottom line—if there even is one.

Don’t spread yourself too thin and don’t forget where you came from, what you’re good at, and why your customers buy from you. Remember these fundamental things and you and your business should do just fine.

 

Two Heads Are Better than One: A Practical Analysis

In business, 10 percent of something is always better than 100 percent of nothing.

OFTEN, MORE THAN ONE individual is responsible for building a wildly successful business or conceptualizing a brilliant business idea. Will one rower in a large rowboat win in a race of large boats filled with teams?

Too many entrepreneurs attempt to do everything themselves. They do this for many reasons. They believe they understand the business’s goal best, they don’t trust those who don’t have a vested interest, they want 100 percent control, or they don’t want to share any of the fruits of their labor with others. Although all of these reasons seem to be valid concerns, in fact this thinking is not always realistic.

The reality in most companies is that the even if the owner keeps 100 percent of the profits in a small, one-person operation, those profits could be less than what that person would have made in a properly staffed and well-organized business, even if she only receives a portion of its profits as a partner. By involving others in your business, especially individuals who specialize in different facets of business, you can maximize not only the efficiency of your business but its effectiveness in the marketplace.

Don’t be afraid to partner with people who can bring exceptional skill sets and relationships to your business. Below are examples of professionals who can enhance your business’s success and keep costs way down.

• Lawyers (business contracts; copyright, patent or trademark filing; intellectual property protection)

• Accountants (tax advantages, bookkeeping, financial planning, getting funding)

• Web designers (websites, social media networking, internet marketing and search engine optimization)

• Engineers (product development, software, manufacturing facility management, workflow systems management)

• Sales professionals (building a sales force, maximizing sales results, streamlining the sales model and moving product for commissions rather than fully-loaded hourly or salary expenses)

Unless you have the perfect business (i.e., it’s something everyone needs, there isn’t any competition, and your products cost next to nothing to produce and store), you should consider partners, co-founders and investors with active participation and member interest to grow your business to the next level and beyond.

M.O.

How to Evaluate Your Competition

“Know thy self, know thy enemy. A thousand battles, a thousand victories.”

–Sun Tsu

A PROFESSIONAL SPORTS team spends all week preparing for their upcoming game by practicing and training, but also by evaluating their competition’s strengths and weaknesses inside and out. Similarly, an entrepreneur shouldn’t go into a business without knowing everything about the competition. You’ve got to know what you’re going up against.

The first thing you need to understand is the difference between direct and indirect competition. Direct competition is a company that offers the same products or services to the same niche market as you do. Indirect competition is a company that offers the same product or services as you do, but to a different market than yours. For example, Burger King and McDonalds are direct competitors. In contrast, Pizza Hut, Subway, Taco Bell and KFC are examples of indirect competitors. While they all are fast food chains, they all market different types of fast food: pizza, cold-cut sandwiches, tacos, or fried chicken. If you want fried chicken, there isn’t much competition, but if you’re hungry and could go for anything, then all of a sudden, competition emerges.

Once you’ve established who your direct competition is, research those companies as much as possible. If your competitors are publicly traded companies, buy a small number of shares in those companies. That way you can receive and study their annual reports, which disclose information on current performance, future plans for expansion into different regions and the release of future products or services. Also, you can see if their sales are increasing or decreasing. You can also get on their email list for newsletters and the like.

If your industry has very little competition, that can be a good and bad thing. The good is obvious—you have very little to compete against. But that could mean that you’ve unfortunately chosen an industry that is in decline. Maybe the competition bailed out two years ago.

If appropriate, you should also conduct various in-person market research exercises on your competition. For instance, visit your local competitors’ stores as a mystery shopper. Look at layout, signage, pricing, promotions, opening hours and so forth. Are there any things here you can do better? Browse around on their website. Is it easy to navigate and place orders? Also, take a look at their ad campaigns and marketing materials. What are their strong and weak points?

Take notes on price-points, atmosphere, quality of product, customer service, and knowledge of their products and services. Also, how busy are the locations? Talk to the employees. Ask them which days are the busiest. Use this information to then outshine your competition. If their customer service is horrible, use that against them and let you future customers know that you’ll offer outstanding customer service. If their weak point is a failure to market adequately, a strong marketing campaign can differentiate you from them.

So far, we’ve only talked about direct competition, but indirect competition is just as important. An indirect competitor, while not in the same industry, is still competing for that dollar. Let’s say you’re trying to open a miniature golf course; your competition isn’t just other miniature golf courses. You also have to consider bowling alleys, ice cream shops, movie theaters, and fast-food chains as your indirect competitors. They’re all searching for those families’ discretionary entertainment dollars. A lot of families have to make the choice on where and how they would like to be entertained. Your ultimate goal is to have them spend that money with your establishment, rather than the competition down the street.

Often, if you’ve been in an area a while, you may not have to conduct much research to know what direct and indirect competition is out there. However, if for example you are trying to open a second business location out-of-state or in another country—a place you haven’t spent much time—the Internet can be a great place to start. If you want to open a copy center in Melbourne, Australia and your only other copy center is in Tokyo, start by searching the Internet for “copy centers Melbourne Australia”. Travel to see them with the same detective agenda as we mentioned above.

Obviously, you’ll be way ahead if you do this work before launching your start-up. But even after your business is launched, evaluating your competition regularly is a crucial part in keeping your doors open in today’s ever-changing economic climate. Build it into your planning, and sharpen up so you keep your competitive edge.

The Power of Effective Time Management

American employers lose $760 billion per year in wages paid for wasted workdays. You can’t afford this loss!

EFFICIENCY AND PRODUCTIVITY aren’t just nice concepts: They are vital to your company’s survival, ability to compete, and success. If every person in your company knows how to work efficiently and productively, you have a huge strategic advantage over your competition. The old notion of keeping busy doesn’t begin to cut it.

Businesses today don’t have time for employees who exhaust themselves by standing waist-deep in busy-work, or who rely on antiquated productivity tools and methods to accomplish their goals. It is crucial to step it up and streamline the way each person works, with the emphasis on strategy. Below are a few tips on how to be more efficient and productive. Start by making them your own habits and then model and share them with your team.

Create daily task lists and check the list off as you go. It typically works better if you front-load your workday with all of the items that are the most time-sensitive and have real impact—or are most challenging. Don’t get caught in the loop of minutiae, avoiding the critical tasks that need to be done. Quit reloading the printer paper, checking emails, refilling a coffee cup, and most of all, avoid lengthy phone calls and conversations. For example, if you have a question, call the necessary individual and ask it. Then thank the person and move on.

Keep focused. People spend too many minutes every day chit-chatting. That adds up to hours every week, days every month, and weeks every year spent on talk that has little or no impact on advancing your business. As an entrepreneur you can’t afford to let your team think like the classic bureaucrat. Why do government service offices run so slowly? Because it doesn’t matter how many people the employees assist: All that counts is the number of hours they sit there assisting. There’s no incentive to hustle. But there sure is for you.

Use goal sheets. It’s smart to organize yourself around short-term and long-term goals. This way, you can work step-by-step toward the completion of long-term tasks over the following weeks, months and years. Think how easy it is to overlook or push back items on a task list. Suddenly you realize you’ve missed an opportunity or slowed down the evolution of a project. My application of this tool is to hold regular meetings (which could be conference calls) where our team reviews goals and plans next steps. Regular is whatever is appropriate: daily, weekly, monthly, quarterly—depending on the term of the tasks or projects involved. If you work from a virtual office and don’t get to see your employees or co-workers face-to-face frequently, consider sending regular email reminders or build in a system of regular update reports. You don’t need to become a nagging boss; it’s just a smart work habit. Your goal is to keep people on task and informed about progress and approaching deadlines.

Don’t be afraid to use a planner. The format isn’t important—use your computer, smart phone, tablet, or even an old-fashioned lined-paper notebook. The key is to use the planner. As an entrepreneur you juggle so many things that without some kind of support tool you’ll never be able to keep on top of just the top priorities. So don’t handicap yourself by trusting to memory or external prompts. Enhance your abilities, productivity and efficiency. Set an example for the people around you and hold them to high standards of accountability as well.

If any of this seems unnecessarily disciplined, think twice. These days, there is no place for idle walks down memory lane. Everything is different, everything is dynamic, and you need to make the most of efficiency and productivity supports to compete.

Making Tough Decisions

Your decision-making ability is a cornerstone to your reputation as a leader. Here are eight proven tips for making momentous choices.

REGRETTABLY, most companies aren’t in business to make friends—they exist to make profits. As an entrepreneur, you must be able to take tough and fair decisions to make sure your company works well. The decisions you make every day on behalf of your business may not always please everyone, and they may be extremely hard to make, but you have to make them—first, because you are the leader, and because they are necessary to grow the business, reach your goals, or just survive.

As you know very well, many start-ups operate on scarce resources, facing stiff competition in an arduous economic environment. Economic crises; catastrophic weather; changes in government policy, new tax rules or regulations; increases in the cost of production; critical product failures; sudden market shifts; bad debt, late payments or the bankruptcy of key customers; or the need to fund business expansion or seize unexpected opportunities are just a few of the external forces that can force tough decisions on you. Internal forces can be just as significant: the loss of talent, data, or the breakdown of key equipment; union activity; interpersonal conflicts; family or health crises; high-impact human errors.

Ideally, the tough and fair decisions you make in business will be reasonable, rational and the best possible ones for the circumstances, given the knowledge you have at hand today. You’ll almost never have 100 percent certainty, nor 100 percent of the data you need to back up your choices. You may need to consult with inside personnel and stakeholders as well as external advisors before making these decisions, as they have valuable perspectives on the issues that directly affect your business. Don’t play the hero and try to go it alone if others can improve your basis for deciding.

Here are eight best practices that can guide you when you’re staring a tough business decision in the face:

1. Listen to learn. Listen with an open mind to others’ opinions on the potential options and impacts. Seek advice from trusted colleagues, particularly those who have encountered a similar situation, and learn how they maneuvered out. Do not try to reconcile conflicting input now. Take it all in and weigh the value of each view objectively and strategically until you think there are no more options to consider.

2. Let goals govern. Ensure that the rationale as well as the results of your tough decision will be seen and appreciated in the future. Your decision should be seen in terms of increased productivity, increased profit, financial strength, greater customer satisfaction, increased sales and leads, better working conditions, etc.

3. Consider morale; factor it in if possible. Critically analyze the impacts of the decision on relationships inside and outside the business. If time permits, conduct a survey, informal or formal, to gauge how the decision is could affect existing and future business relationships and trust. Take morale into account when you weigh options. But also take care not to become a “pleaser”, a leader whose goal is acceptance rather than solid business results based on his decisions.

4. Include not acting among your options. Sometimes it’s wiser to not act. Explore whether there are other alternatives for achieving your business goals without taking action: That’s a decision too. Tough decisions sometimes cause leaders to be viewed as cold-hearted or unresponsive, and that is not good for morale, especially when not acting proves later to have been a better option. Also, if you truly lack data that could become available within a useful time frame, holding the course might be smart.

5. Prepare for responses. Lay out all the potential implications of implementing your decision before taking it finally. Take note of possible challenges like industrial actions, civil suits, demonstrations and strikes, low morale, loss of reputation or customers, and so forth. Prepare counter-actions in advance, including back-up and contingency plans. If it is a decision which is likely to be challenged in court, put all the necessary legal mechanisms in place, e.g., hiring, briefing and consulting your legal advisors. If your action is likely to be resisted by trade unions, consult appropriate experts.

6. Steady and inspire. You may struggle with fear, depression, frustration, anger and other negative feelings during this period. In dealing with others, don’t put on a phony act, but on the other hand, take your role as leader to heart and try to steady and inspire others. This is no time to be sentimental, vindictive, furious or harsh. Your team is looking to you to help them be their best.

7. Limit what-ifs to the time before you decide. While the what-if drill is important as you test your options, it can be destructive once you’ve picked out your course. As a leader you need to project confidence in your decision to earn the support of those involved. So long as it is fair and reasonable, do not keep asking yourself “what if”, as this will only undermine that support. If you have critically analyzed and identified what you are going to reap from the tough decision in the future, go on and implement it. Good business leaders are known for their words and actions, not their doubts.

8. Tell it like it is. Make the goal of your decision clearly known to those involved and if possible, to those it may affect. The way you state your outcome can influence your actions significantly. Inform people why the decision has to be made, what it is meant to achieve, and if necessary, why other solutions are less effective. If you have to resist a salary increase request from an employee whose performance is not commensurate with their demand, for example, you might say this: “I appreciate that your cost of living is rising, as is our cost of running the business. As you know, our revenue is down. To keep our doors open we have determined that we have very little room for raises this year. Our goal is to reward our very top performers first and then see about cost-of-living increases if there’s money left over. Unfortunately, you are not yet one of our top performers. I will let you know if we can give you a cost of living increase in one month, but I would not count on it coming through, based on what I see today.”

Let your values and goals as well as your critical thinking skills and business sense guide your strategic thinking when making a tough business decision. Some say that it’s in these terribly challenging moments that your very best qualities emerge. If you can view tough decisions as the gateways to new days to play, and work at maintaining optimism and balance, you should do fine. Set the example, steer the course and roll on.

 

Fire Up the Right Passion for Your Business

Passion can be the beauty that entices you to launch the perfect business, or the beast that talks you into a terrible decision.

HOW MANY TIMES have you read or heard the word passion in business talk lately? There’s “finding your passion” or being “passionate about your work”, and a raft of other passionate talk. Although these discussions are clearly sincere and, ummm… passionate, there’s one small problem with them. The common way passion is used in business talk is somewhat backward. Let me explain.

Think about it for a moment. People typically never get passionate about a sport until a series of events take place. First, they see the new sport. Then, through contagious emotion or excitement generated by others (a wild crowd, the announcers, etc.), they join in, cheering with the others. Have you ever been to a bar when a game on television suddenly captivates everyone there? Before you know it, you’re all cheering for the Zimbabwean women’s curling team, the Jamaican bobsled team, or Eddie “The Eagle” Edwards—in this case, because they are the underdogs!

I remember finding my way into a popular pub in London a couple of years ago. The people in the joint were glued to several TVs around the place. There was a football game on, but it wasn’t the kind of football I was accustomed to watching in the States. Where I come from, it’s known as soccer. But there I was, watching the game among passionate fans who were losing their minds as the home team tried to score the go-ahead goal. Hell, I wasn’t sure about the rules, but it didn’t matter. I was overcome with excitement and passion—and you should have seen me cheering and shouting in that pub. In this instance, passion wasn’t the cause of the excitement—it was the effect. You could say passion infects people in these situations, like a common cold.

Ask any writer how he or she gets inspired. If they were to wait for passion to come their way before starting to write, the book might never be finished (or even started). For them, once they commit to writing, inspiration follows on its own. The result: passion develops.

So how does this relate to business? As an entrepreneur, I would never embark on a new initiative based solely on contagious passion. It might help me identify something I could develop a long-term, committed passion for, enough to study and evaluate carefully before plunging in. After my due diligence, and after engaging with countless people who are involved in and passionate about the business or industry, I can then make an educated decision to move forward with the project. In short, using contagious passion to identify an opportunity and to fuel your creative juices is good; but then stepping back to check it out dispassionately is best before committing.

Think about multi-level marketing (MLM), also known as network marketing, or when viewed negatively, pyramid marketing. Most of these organizations build their industries with contagious passion as the cornerstone—enticing others with huge income potential, free cars and trips, and the vision of a “work-when-you-want” lifestyle. I know this because I have been involved with them myself.

Through their perfectly calculated system of conventions and pep rallies, a spectator or potential enrollee can usually listen to a roster of above-average public speakers who take the stage to tell their stories of success, making the most of booming sound systems and high-tech video production to get the audience fired up about the business and eventually to sign up as distributors.

This concept works! For the franchiser, at least. Some starry-eyed dreamers just fall for the glittery show. However, after returning home to reality, with their contagious passion wearing away (until the next big meeting), the truly successful participants will always tell you that “the multi-level marketing product must ultimately work and also be affordable” if they are going to stick with it and make money. The success stories are about the entrepreneurs who do their due diligence first, then turn the contagious passion (their own or others’) into committed passion to drive home sales and sign-ups.

Committed passion carries you forward long-term

When you consider a start-up or a new direction for your company, distinguish between contagious and committed passion. If passion develops and survives, it must be for a reason. Make sure you dig deep first to find out why it’s there in the first place. Then, if you like what your investigation has uncovered, it may be time to go for it. Afterward, if you have made that vital commitment and are working toward success, your committed passion will develop and strengthen over time.

M.P.

Three Economic Concepts You Must Master

The first step toward success is getting a firm grasp on the basics.

IF YOU’VE EVER taken a basic economics class, you probably remember a few key terms that dictate the success of businesses in the marketplace. Three concepts are especially important for entrepreneurs to understand: comparative advantage, opportunity cost, and true cost of production. Learn these and you’ll be on your way to speaking fluent Economist.

• Comparative advantage. Make sure that you are spending time or money on the things that are your specialty and are an efficient use of your time. For example, don’t make your own wiring for an electromechanical product if you can find a source elsewhere, such as a factory in Wuxi, China, to manufacture that same component for a lot less money. When a vendor can provide a product or service more efficiently and/or for less cost than the others in the industry, they have a comparative advantage over others. This explains why the world buys coffee from South America, toys from China, lumber from Canada, and customer service from India.

• Opportunity cost. Remember, in an earlier section, when we mentioned efficient use of your time? This ties directly into the idea of opportunity cost. Opportunity cost is the item, task or alternative that you are forfeiting by choosing to spend your time or money elsewhere. An example would be if you spend three hours in a machine shop making a widget, then the opportunity cost is what you could have gotten done during those three hours if you hadn’t made the widget. Got it? Good. The tip here is to make sure that you are making the best use of your time by understanding what things you are efficient in doing and what you should outsource to another professional or business.

• True cost of production. This is probably the most shocking concept. True cost refers to all cost elements related to the product or service development process, from start to finish. The fully-loaded expenses associated with product production or service-providing include research and development, beta testing, sampling, market testing, creating sales material, promoting the product, selling expenses, carrying costs, returns and loss, administrative expenses and other miscellaneous costs associated with that particular product. All of these expenses are real and need to be accounted for and recovered throughout the product or service life-cycle.

Concepts in practice

The above concepts may seem like common sense, but you would be surprised how many small business owners lose sight of the fact that if a business produces a few products or provides a few services, then all of the expenses of the company have to be built into their cost to create a true cost. The person answering phones, the janitorial services, the trash service and the utilities, to list a few, all need to be covered. It may seem tedious, but in a successful business with organized financials, all of these line-items are accounted for and built into the costing of the company’s deliverables.

Keep this critical survival accounting fact in mind: If you are looking at an expense of the company, then account for it and decide where the money will come from to pay for it. I’ve seen businesses royally screw up this practice. One unfortunate example is a lawn care business in my area. Their experience shows how ignoring seemingly tiny cost items can ruin a very simple, successful small business.

Before they went out of business, this lawn care company cut my grass once a week for $100 a month. Those 52 cuts yielded them $1,200 a year. If you do the simple math, you’ll see that I was paying $23.07 per cut.

Now understand that it took three guys approximately thirty minutes to do my yard professionally. Assuming that the guys were each making $10 per hour, the labor cost for my yard was $15 dollars. Now add up the other costs: for the lawn care equipment, the truck, the trailer, the depreciation associated with all of that equipment, the gasoline and oil to fuel the mowers, the fuel to drive the whole outfit to and from my yard, and the hourly rate being paid to the crew members as they drove over, worked, and drove back.

I’m not going to line item all of this here, but I am positive that it cost the business owner more than the $23.07 I was paying to provide his service, each week. Therefore, it didn’t take long for the business to fail. Still to this day, the owner believes that the failure was due to external forces (e.g., rising gas prices, increasing labor rates, competition, etc.).

These economic facts are all real issues that businesses face, regardless of the industry. If you take the concepts of comparative advantage, opportunity cost, and true cost of product into account, you should have a firm foundation for planning and can minimize nasty financial surprises.

 

Outsourcing Your Projects: A Moderate View

If someone wants to do something for you, better than you can do it yourself, for the same cost, why not let them? And what if it costs less?

IT HAS BEEN impossible to ignore the ongoing controversy about the outsourcing of jobs, often but not always from developed countries to developing countries. Worries about unemployment rates, sweatshops, child labor, the rich getting richer, the poor getting poorer, the vanishing middle-class, the blue collar worker, and an array of other serious issues have swept around the world. Nevertheless, outsourcing is flourishing. It is discouraging that the topic has become so emotionally charged.

Outsourcing has a rainbow of emotion-charged colors associated with it. On the positive side, all the temporary or interim worker services like Adecco, Randstadt, and Robert Half save companies enormous sums. Rent-Execs step into businesses just like a temp receptionist and work there until permanent executives and managers can be found, or until the business is turned around or sold. When you think of it, any time a company farms out work to freelancers, hires an independent sales force, retains an attorney—even when it ships goods—it’s all outsourcing, because none of those tasks are being done inside the company by employees.

We just can’t do everything ourselves, and we never have. True, exporting jobs across continents and oceans costs local workers jobs every day. But it’s silly to view things in extreme black and white terms, on this issue as on most. While we are all entitled to our own opinions, I humbly ask: if outsourcing is economically evil, why is it working? The nice thing about a free market is that it’s self-corrective—if an idea is truly bad, it will fail, and vice versa.

A: What do you call it when you take your car to a mechanic and ask him to change the oil for you?

B: Taking the car to the garage.

A: Yes, but it’s also outsourcing.

B: No it’s not! Outsourcing is bad! I have the mechanic change my oil because he’s equipped to do it, he’s better at it than I am, and it frees me up to do stuff I’m better at.

A: Precisely. Thank you for that textbook definition of outsourcing, and for the demonstration that outsourcing occurs in all kinds of situations.

One of the proven ways of effectively managing a business is by outsourcing appropriate steps or projects. Perhaps especially in the early days of a one-person start-up, and particularly if you currently work full time at another job, you’ll be likely to outsource some tasks. Outsourcing can improve productivity whether you are on your own or you run a business.

By not outsourcing appropriate work, you can miss out on time- and cost-saving opportunities. You may also be incurring opportunity costs, spending more time doing something that you could have someone else do while you concentrate on doing something that perhaps only you can do. For example, if you are currently working full time, you may decide to start a website that will earn you money on the side. If you do not outsource the hosting of this website, you will end up with poorer results, since your website work will eat into your evenings and you will not be able to make any sales while busy with it.

New outsource tools

Traditionally, if you wanted to farm out some work, you would ask around, identify some candidates, check them out, discuss the project, and if all went well, sign them up. That still works. But there are more comprehensive ways to do this, online.

The first step is to find some websites online (like craigslist.org) that can help you recruit people. After selecting a website that is best suited to your needs, you may have to open an account. This account will enable you to post the details of your business or your project on the website. Clearly describe the tasks you expect the outsourcing people to perform for you and also go into details about the project or the business itself. Being explicit at this stage is important for finding a perfect match for your needs.

While you are creating a portfolio on the project or the business that you want to outsource, be clear on the dates that you expect the work to be done. State both the start and end dates, so that you don’t experience any delays when you finally outsource the work. Also, ensure that you are realistic when you are setting the dates, as you cannot expect work that will take three months to be completed in two weeks’ time. You should then expect to get hits on your account. These hits are made by bidders for the outsourcing jobs.

All bidders have the potential of winning the work, but you will have to be vigilant when selecting a final bidder. This is to ensure that you outsource the work to someone who will actually deliver and not cause you headaches or worse. To do this, ensure that you critically evaluate every bidder’s portfolio and also fact-check all the details that they provide. Keep in mind that selecting the cheapest bidder may not render the best results.

S.G.

 

Eight Ways to Cut Business Travel Costs

Ensure your employees care as much about this as you do. They probably don’t know that their jobs depend on it.

TOO OFTEN, employees think that the company they work for is a bottomless pit of money. They care little about their spending while traveling for business and consider it their “right” to live well while travelling on the corporate dime. While you can try to explain to them that your corporate money pit has a bottom, you might have more success by also explaining that their pay checks come out of the same pit as their travel budget.

Help them understand by setting corporate travel guidelines. It’s pretty obvious that, given the choice between cutting travel costs and corporate downsizing, your employees will be enthusiastic about making choices on the road to help control and cut travel costs. Below are a few examples of ways to cut costs for your road warriors.

1. Car rental

• See if your business can sign up for a frequent-rental program to take advantage of free rental days or rental discounts.

• Instead of renting cars from the well-known companies, seek out the smaller companies that operate outside the airport or travel center (many of these companies may even provide a courtesy shuttle to the airport). Online services can scour listings for really deep discounts.

• Consider renting used cars. These may not be suitable for making calls on customers who might think you’re about to go belly up, but for getting from A to B they can be real budget stretchers. Watch out for smokers’ cars if that matters to the driver.

• Stay away from the “extras”, such as rental insurance, EZ Pass transmitters, GPS systems, and an advance fill-up of gas.

• Pay attention to the fine print for restrictions, such as mileage caps.

2. Food

• If you will be staying in a particular area for more than two nights, look into hotels that offer extended-stay rooms. These rooms come equipped with a full kitchenette. You could head for the local grocery store and put together your own meal at a fraction of the cost of restaurants and hotel breakfasts.

• Take advantage of the free continental breakfasts offered at many hotels.

• Stay away from using the hotel’s room service in order to avoid paying unnecessary room service fees as well as exorbitant food and beverage prices. Many companies require their travelers to pay for these charges personally.

• Where possible, bring along your own snacks to help quell hunger cravings.

3. Air travel

• Save money on airline tickets by booking trips a month in advance. Where possible, schedule flights for Tuesday through Thursday and try to fly into alternative airports. For domestic flights, look into discount airlines.

• The Internet is a powerful tool in helping small businesses locate low-cost airfares. To make your searches more efficient, use Expedia.com, Hotwire.com, Travelocity.com and Kayak.com. These sites sift through airfares, hotel rates, and other travel products from over 140 different sources. Choose the offer you want and they will direct you to a site where you can buy the ticket.

• If you will be bringing a lot of luggage with you, then be sure to check the luggage policies and fees beforehand and shop around. When possible, consider shipping materials and samples by a ground service, well ahead of your meeting, or emailing files that your contact can print onsite prior to your appointment (if that’s acceptable). In general, try to avoid checking luggage.

• If you will be driving your car to the airport, be sure to park it in a long-term, off-site parking lot to avoid an outrageous expense when you return.

4. Centralize travel planning

Even if your company is small, try not to let employees make their own travel arrangements whenever they feel like it. First of all, that’s not their job, and the opportunity cost of their surfing time is directly reducing time for their key role. Also, it is easier to keep track of your travel spending when all the arrangements are made in one place. To save time and money, choose an agency that specializes in business travel and then let them do the research for you. It is simply more efficient to let a travel agent find the best flight or hotel room for your trip, and chances are, they will be more aware of ways you can save. Keep in mind that while travel agencies don’t always book the discount airlines, they sure can get you a good price when it’s tricky. Also, while frequent flier miles are great (and taxable), staying loyal can prevent you from saving on the discount flights.

5. Create a travel policy

A travel policy is an important document that will help you clarify expectations of employees. When employees have a policy in hand, it eliminates questions about what is and isn’t allowed before they leave town. Make sure to be explicit about what is reimbursable and what isn’t. Once you have your policy, consistently apply it, including charging back unacceptable items or too-high totals on a meal. And to help cash flow, let employees know that their expense reports are due no later than the end of the month in which the charges were made. Or else!

6. Establish spending limits

When people eat out on their own tab, they are usually able to control their appetites. Make sure your employees exercise that same kind of restraint when they are traveling on the company tab. You can establish daily spending limits for food, cars, and hotel rooms. Or, you may want to be more specific and state an upper limit for each sort of item, including tax and tip. Make sure that these spending limits are clearly listed in your travel policy and on a uniform expense report form.

7. Join your airline’s frequent flyer program

If your business travel routinely includes flying, make sure that your company receives the mileage credit and ensuing benefits. Some airline programs even allow the company and the employee to simultaneously earn mileage points. In addition to earning free trips, some airlines also offer business travelers access to their airport clubs, hotel discounts, and other perks, which can help your company save even more. But there’s a flip side to this: Be prepared to be flexible and fly discount fare airlines when they present a really better price.

8. Use a corporate credit card

Keeping all travel expenses on one credit card account simplifies bookkeeping and eliminates the headaches associated with employee reimbursement checks. For an added bonus, find a card that rewards you with frequent flyer miles, hotel discounts, or other travel perks.

Setting Goals for Long-Term Success

In business, as they say, when you fail to plan, you are planning to fail.

ALL BUSINESSES, whether small or large, need to define long-term goals so that both leaders and employees have a clear vision of what they are working toward. If you have a business now, or you’re thinking about starting one, recognize that financial goals are essential for your success. If you know your goals, read on and see how they measure up. If you are pre-goal, or operating without any clearly stated ones, adapt what follows to your current position. Here are important factors to consider.

The first thing to do is to establish your business’s current financial status. In a small or young operation, you may not have top-notch financial reports, or your historical data could be scattered all over the office (or missing, or maybe it never actually existed). It will pay off hugely if you take the time and trouble now to get your basic financial facts organized and accessible. How can you look forward when you don’t have a clue where “right here, right now” really is? Get things pulled together, perhaps with the help of outside bookkeeping or accounting help, so you have an accurate balance sheet and profit and loss (P&L) sheet to base further thinking on.

Once that’s done, you will already see a bunch of short-term goals emerging. Maybe your clean-up phase revealed that you actually owe more money than you thought. Or made more profit than you thought. Or that very good or very bad cash flow times are just around the corner. So start by listing monthly goals. They will naturally spill over to quarterly goals, followed by annual ones. Before you know it, you will have identified some of your business’s long-term goals. Building the goals up by looking further and further ahead in stages enables you to clearly align your operational goals with your financial goals so that you can have fully synchronized goals for your business. Also, by keeping your finances front and center, you won’t overextend yourself financially.

Try to create financial goals in relation to the financial performance of the company in its last business year. For example, if it cost you $10,000 to run the business last year, set a goal that in the current financial year, it will cost you perhaps $7,000. Then, if the business made $20,000 in profit in the last financial year, set a goal for, let’s say, $25,000 for the current year. The main aim is to set goals that will decrease your expenditure while increasing your income and thus, your business will be profitable. Streamline your staff and increase your work hours if it will mean attaining the long-term goals for your business. Failure to do this may interfere with the progress of reaching your goals.

So far, you probably will have identified goals dictated by today’s picture. Now turn on your intuitive, creative, associative powers. Where do you want to be next year, and five years from now? If you don’t include goals for moving in those directions now, you may end up stable but not lively and expanding. Identify these goals and map out what needs to happen monthly, quarterly, etc. financially and otherwise to move you where you want to go. Then step back and see whether together, your financial-based and your dream-based goals are viable. Make adjustments until you are confident they are, at least for today.

To keep on track and flag problems as you go forward, establish milestones and measures now that you can use to gauge progress and success. Some logical options are on-time delivery of new products, sales figures, budget and profit measures, and so forth. Some companies prefer to use their monthly or even yearly net income as one measure, while others concentrate on the costs of running the business. Your choice of tools depends on what you want to achieve, so think smart about what you pick. Then figure out how you want to see measurements reported, shared, and acted upon.

Final thoughts: When you are setting long-term goals for your business, don’t overreach. If you are not pragmatic, even perhaps conservative, then chances are good that you will not achieve them, or you might die trying. Who loves failure? Not to mention losing face and money if your pie-in-the-sky planning takes your business under, opposite the direction you intended. As they say, growing a business is like running a marathon, not a sprint.

SWOT Analysis: It’s Not What You Think

It’s about examining your business honestly and planning for the future. Discover your own possibilities.

WITH ALL THE CHALLENGES that businesses face, it’s nice when a process is invented to analyze the business’s many facets, both internal and external, positive and negative, past and future. The SWOT Analysis examines a business’s Strengths, Weaknesses, Opportunities and Threats in order to allow leaders to make good decisions and wise adjustments, moving forward. (Note that strengths and weaknesses are analyses of internal factors, and that opportunities and threats are analyses of external factors.)

Too often, entrepreneurs suffer from a kind of internally oriented, forward-focused tunnel vision. They fail to analyze what they’ve already completed or see what is going on in their industry or in the world around them. Given how rapidly the world is advancing technologically and politically, to ignore the outside world can be financial suicide. It’s like the guy who tried to start an oil lamp company the day after Edison invented the light bulb. He failed to read about Edison’s breakthrough in the newspaper.

So to broaden and enrich your company’s current state and future prospects, try making your own SWOT Analysis.

Strengths: What are you doing well? What resources or intangible assets do you have access to? This analysis is for your benefit, so neither overinflate nor or sell yourself short.

Weaknesses: What does your company struggle with or can it improve upon? If possible, what should you steer clear of? The most common struggles include price points, employee management, continual improvement, and gaps in your methodology or processes. Do any of these apply to you? Again, you’re looking at yourself for improvement, so honesty and accuracy are important.

Opportunities: What opportunities can you name that might help your business in some way? Think political changes, favorable tax adjustments or breaks, new grants, a major competitor going under or temporarily cutting back, good press, a new potential investor, etc. Keeping a watchful and creative eye out for opportunities lets you act on opportunities before the competition.

Threats: Threats can come from any direction. The most common is from your competitors. Even if you are on a friendly basis with them, their success can still be a major threat to your business. There are only so many customers looking to buy your product or service, and if the competition is getting most of them, you’re not.

Another common threat can come from regulation and taxation. Many entrepreneurs feel these factors stand in the path of a free-flowing free market. While governments admittedly offer benefits, especially in the big picture, even a loosened tax is still a tax, and that’s money that can’t be reinvested, paid out to employees, or used to expand.

Don’t focus only on the governments affecting your local business when you consider threats. Actions by a government halfway around the world can raise the price of your key components, apply sanctions against your products coming into their territory, or cost you a fortune in duties and customs clearance or testing fees. And the fate of distant economies can send ripples that rock your boat completely unexpectedly.

Once you identify threats, try to assess each one by asking exactly how threatening they are, and what you can do to alleviate the threat(s). Adapt and overcome!

The truly wonderful thing about the SWOT Analysis is that the size of your business doesn’t matter. It can be used by a giant international conglomerate, an independently owned and operated hot dog stand, and everyone in between. For instance:

Strengths: My hot dogs taste good. People love them!
Weaknesses: I don’t have a very tasty bratwurst recipe.
Opportunities: The bank just started advertising business loans for hot dog stands.
Threats: Fred from two blocks over has very delicious hot dogs, too, and also sells bratwursts.

When you try it, remember that SWOT Analysis isn’t a problem-solving tool. It is a problem identifying tool. We can all agree that identifying a problem is the first step to solving it. The same works with opportunities--the first to discover and respond correctly wins the prize!

On the Look-Out for Opportunities and Threats

Monitoring your environment should be a constant state of mind for an entrepreneur.

AS AN ENTREPRENEUR, YOU MUST constantly be on the look-out for opportunities and threats affecting your business in order to handle them effectively. As we’ve just seen, it pays to think systematically and to run a continual scan of your business environment. That way you lessen the chance of sudden, full-blown bad surprises, and you can jump on opportunities at the earliest possible moment.

You can identify the opportunities and threats affecting your business by monitoring and analyzing the internal and external drivers that shape your business’s environment. If you set up a grid like the one on page 120, you can begin to fill in the boxes as news comes your way, so you don’t lose track of developing situations.

If your company is bigger than a solo enterprise, do this with your team. If you have lots of people, appoint a Look-Out Team and charge them with making a brief quarterly report on developing stories. This can be done live or via email, but the point is to do it continuously and to consider what actions are called for as a result.

In this sample grid, we’ve sketched in the kinds of comments you or your look-out team could make (obviously, some are contradictory here; they are just illustrations to start you thinking).

This need not be an elaborate document: Think of it as a rolling scoreboard keeping track of the game you’re in right now. If it grows to be fairly large, you may want to add a priority column so hot topics get appropriate attention and action. By their nature, topics can appear and fall off the grid as situations or your knowledge about them evolve. Therefore it may be smart to archive each report so you can review old ones conveniently and pick up on discarded items if they become timely again.

Note that the look-out team does have to indicate some possible actions for each opportunity or threat on the grid. This will get team members accustomed to owning a part of the processes of internal change or of response to external events that may become necessary, given what they discover. They in effect can become advocates of sometimes painful adjustments. But on the plus side, they can also be champions for jumping on new opportunities and share in the glory of successes.

This exercise has a way of really engaging people in a company’s current and future life. It vividly demonstrates that your company is practically a living organism, and it can become a unifying and motivating focus for your team’s engagement in their work as they take ownership of a part of their collective future.

 

Succession and Disaster Recovery Planning

Not a barrel of laughs, but good for peace of mind and protecting your business.

YOU MAY BE TEMPTED to turn the page and not read this section. After all, who gets a kick out of Doomsday thinking? But read on and think about what could happen if you do nothing to address these issues.

It’s surprising how many start-ups and small businesses lack plans for succession in their leadership or for recovering from disasters. It’s understandable, on some level, that entrepreneurs are more inclined to focus on the immediate challenges that confront them every day, or on the future. But particularly for a fairly new or small business, the consequences of not thinking through and planning for what you can foresee happening can be enormous—and deadly.

Succession planning

Planning for succession—the smooth transition of responsibilities in the event the person currently holding them cannot fulfill them, for whatever reason—need not be a depressing exercise. Take a look at your company’s set-up today and ask yourself how you could cover the various functions that make it run, in the event today’s incumbents can’t perform.

We’ve all heard stories of the spouse whose mate dies in a plane crash and suddenly has to figure out how the family business works. But even less dire situations can put you out of commission for a while (the slip of a steak knife can take a graphic designer out for a month!). So whether yours is a one-person or many-person business, give some thought to documenting processes, recording where key data is located (physically or virtually), and listing securely your key business contacts and financial essentials (bank, investor, and similar information). Then pick a trusted person to share this information with and store it safely. In the event you can’t work for a while, this person can step in or guide another person toward either keeping things running or winding things down.

Suppose now that you have employees who play various roles in your business. If one of them falls sick or abruptly leaves for greener pastures, what happens? Give some thought and open discussion to the idea of cross-training. Try to link up people who naturally interact and ask them to show the other party how their area works, in some depth. Get the warehouse and production people, the admin and finance, and other natural pairings buddied up. They will perform better day to day because they understand the other area’s issues and set-up, and in the event that someone needs to step in to fill a gap due to illness or resignation, they can help ensure continuity while you figure out what to do next.

Shining up your stars

A different aspect of succession planning is a lot sunnier. In addition to cross-training, it’s good to step back from time to time and ask yourself where the career paths of your people are heading. Do you have candidates who can succeed you in the future, either in your business or outside it? Have you spotted especially talented people who could be groomed to take on higher or broader responsibilities over time? Do people have a feeling they can advance by sticking with you, or are they in the dark?

You can share your thoughts about this, or not; you can share only part or all of your thinking. It’s a great incentive for an employee to hear she has a chance to earn a promotion or to step into a more challenging and rewarding role if she prepares for it and demonstrates her ability to deliver. And a longer-term perspective of the possibilities for advancement often wins greater employee engagement and job loyalty today. Make it a regular part of your performance reviews to ask employees where they want to go and what they need to get there. You’ll often uncover surprising aspects of their ambitions, interests and dreams, which may help you harness their passion and link their success to yours.

Don’t skimp on providing your future stars with the tools and learning they’ll need along the way. Sure, these things can cost quite a bit, but they are every bit as important as your investments in the latest software or fork lift you just bought. Don’t make the classic mistake of making your top salesperson the sales manager without making sure that person has a grasp of sales management, perhaps a coach or mentor, and plenty of supportive feedback as he assumes the role. If you neglect this, you risk losing your best seller from the front line and sabotaging all the other sellers by giving them a terrible boss!

A final thought: consider buying life insurance for yourself as leader, and for key players, naming the company as its beneficiary. Then, in the event of a death, you have some revenue to cover a transition period. Also, ask yourself whether your top team should drive or fly together as a normal practice. You probably will find that your insurer will have guidelines or requirements in these areas, but simple common sense will also tell you when not to take unnecessary risks.

Disaster recovery planning

They say in disaster recovery planning circles that you should protect yourself up to the level that you don’t mind losing what is unprotected. In other words, if you can afford to lose a week’s work, then weekly computer server back-ups are okay. But in these times, that’s a ton of work. A daily back-up with a copy stored off-site is much more reasonable for relatively simple businesses. A duplicate system in another location could be necessary for more complex or highly technical operations.

If you own copyrights or engage in giving advice (even in the form of a user’s manual for some gadget) you may need to buy liability insurance or other policies to defend your intellectual property rights. A trusted corporate insurance broker can educate you on these issues.

Data is one thing, but your other assets need protection too. Smoke and motion detectors, sprinkler systems, alarms, and a raft of other things may stretch your budget, but consider the alternative if you don’t have them installed and something goes wrong. The same is true for worker safety and insurance against injuries or “acts of God.”

We had a very small fire on the upper floor of our building which was quickly extinguished by the sprinkler system – which was the good news. The bad news was that the water then flowed down the side walls of the building, collected on the false ceiling of the floor below, and that ceiling collapsed, spilling water and ceiling tiles all over the call center’s computers and phones. A fire no bigger than a cozy campfire halted the business for a couple weeks and cost half a million US dollars to recover from. Thankfully, we had “interruption of business” insurance and we lost no more than personal items in people’s work space, for which they were reimbursed as best we could.

Don’t neglect low-tech protections as well. It’s simple to set up phone chains, in which each person knows whom to call (and has the right phone number) to pass along urgent information (like snow days, or other high-impact events or info). Designate gathering places outside your business and make sure everybody can exit and gather there to be counted safe and sound. Post fire exit maps and signs, and conduct fire drills (including closing fireproof doors) periodically. The fact that your business is small doesn’t prevent it from encountering nasty situations, unfortunately.

All these things probably seem like real sidetracks when you’re busy with your core business. But think of it as good stewardship that will enhance your odds of living to play another day. You’ll never know how many things you avoided or prevented from happening, but you may gain a little peace of mind from pro-actively addressing them as you build your company’s future.

 

Exit Strategies and Why They Matter

Why think about the end when you’re just beginning?

IT’S HUMAN NATURE to relish the novelty and the clean-slate effect that permeates a brand new start-up. With no past, and a clear playing field stretching into the future, it’s really a pleasant period. It’s a bit like playing house: You’ll never be so free to make things up.

That’s fine, and the high you may feel in these early days helps inspire and propel you forward, even partly rewarding you for the really long days and nights of work, the worry, and the flat-out ignorance of things you should have known as your business takes root. But even now, you should give thought to the negative what-ifs, in case your business just doesn’t work out. How will you wind it up and protect yourself as much as possible if things go south? What level of performance will tell you it’s time to stop? It’s said that the absence of exit strategies is a major problem for new businesses. It can’t hurt to think through some scenarios and have them in the back of your mind in case they ever become necessary.

Perhaps your business is looking pretty healthy these days. It’s still smart to kook as far into the future as you can. Where do you want this thriving company to end up eventually? And what role will you be playing as you bow out? If your company continues to survive and thrive, you may be really happy running it until you’re ready to retire. But even then, you need some kind of plan to let yourself out. Here are some options.

You can just wind up your company. Hold a going-out-of-business sale or otherwise dispose of the intellectual property or service supports you own, and on a certain date, stop. As long as you have paid off your creditors (and depending on where you’re based, perhaps some winding-up taxes), you’re done. If that appeals to you, it’s a simple exit strategy. In reality, however, you may have more complicated issues, like dumping loyal employees on the street, finding buyers for the things you need to dispose of, and perhaps a sense of guilt at killing off the goose that laid you all those golden eggs over the years.

Perhaps your dream for the business includes bringing in family and friends and handing it over to them. It doesn’t take much imagination to recognize that this can be great, if everybody loves their roles and work as much as you hope they will. But friction, differing views of the future, possibly poorly prepared or untalented people struggling to do things they are not good at, as well as a raft of other things, can pop the balloon in a hurry. One piece of advice if you think of taking this course is to plan the transition carefully, giving people time, training and opportunities to try things on before Show Time arrives and they become the new leaders and do-ers.

You can always sell out, take on partners, or be merged, too. It can be a real eye opener when you start thinking in terms of what value your company has for another company. Maybe a firm wants access to a market, or to buyers, that you have cultivated over time. Or your products or services strategically complement theirs. Be aware, however, that many if not most of these methods of exiting may actually tie you into the company for a few more years after the sale, especially if your personal contribution—e.g., your network, some special skill or talent, or standing in the industry—is integral in your company’s continued growth. And be prepared for some frustrating times within that period, because you will no longer be the big boss. You’ll no doubt see approaches, visions and strategies being taken that you just don’t agree with.

All this is a very high-level view of what exit strategies are all about. When-ever—or better, before—the time comes to put them into action, you’ll need to learn about all your options and their implications. But the point today is that even though you are barely starting out, or you are still feeling new at the business of starting a business, an awareness of your exit options should be part of your thinking.

Hiring a Business Broker

If you want to sell your business, a well-qualified broker can make a huge difference.

SUPPOSE THE TIME HAS COME and you want to sell your business. If you’re a long-term planner, you’ve thought about your exit strategy all along, from Day 1, and you may have cultivated one or more prospective buyers you would feel good selling to and who would value your company as you do, both emotionally and financially. In that case you may be able to sell your company yourself, with the help of your attorney and some other specialists like tax and accounting people.

But suppose that’s not the case, for whatever reason. A broker is probably your best alternative. As you ponder hiring a business broker and listing your business for sale, there are a few factors that you should consider.

You obviously should hire a reputable brokerage company, but in particular, one based in your business sector. Imagine trying to sell your motel using a broker based in the gift boutique field! And aim as high as you can, in terms of the solid credibility and visibility of your broker. As with most scenarios, Big Bob’s Business Brokerage Shoppe will probably deliver exactly what you think.

Ensure that you evaluate at least three brokerage firms before hiring one. Prepare a sales kit and send it to them. Then interview them, and research them via references and the press to make sure that they are reputable and have adequate experience in the field. Which companies have they sold in the last year? What process do they follow? How long does their typical sale cycle take? What are some typical sales package terms they have negotiated? Compare the three firms based on their profiles, array of services, experience, terms, and compensation. It’s fair to consider whatever personal affinities you may feel with the various brokers, but be prepared to be as neutral as possible here. Your task is to sell your business, and if the broker who most matches your values and expectations for your business turns out to be a shabby huckster, you’ll very much regret it later.

A serious business broker will charge you a percentage of the selling price of the business, and that percentage can vary. Some charge up front for the preparation of marketing materials. So get all of this clear in your hiring agreement, once you’ve made your pick—it’s quite a bit like working with a real estate broker.

Before you sell, you need to find out the correct market value of your business. This will ensure that you don’t undervalue your business and sell it at a loss or undervalued gain (a gain that is less than you want). You can hire an independent appraiser, or have your broker calculate the value of your business, including your business assets. The broker will probably hire an appraiser too, then ensure that all the processes are complete and see that you get all the necessary documentation for the valuation.

With your valuation complete, it’s show time. Having been in the industry, experienced brokers know the best marketing techniques to use to attract and motivate buyers. It’s one big reason why they can be valuable if you don’t have ready-made prospects of your own. You may not end up finding any buyers if you use the wrong marketing techniques.

Apart from the valuation process and finding qualified buyers, a broker will work to get you a good deal. Successful brokers are creative, flexible, and have good marketing and negotiating skills. They also will work on your behalf to negotiate the most favorable payment and work-out agreements possible. Once an agreement is reached, they will prepare all the necessary documentation and ensure that the client makes payments as agreed.

If, after hiring a business broker, either nothing happens or you feel like you made the wrong choice, you can terminate and go with another brokerage company. However, this is subject to the contract that you have with the first broker.

So the business of selling your business is a lot like everything else you do as an entrepreneur: Survey your options, evaluate the alternatives as comprehensively as you can, and try to be objective as the process goes forward. If you succeed in this phase of your business’s life, you’ll have completed a full entrepreneurial cycle and—who knows?—emerge ready for the next one!