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Things Have Changed

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Yes, I am quoting a Bob Dylan song title on a business blog.

But things have changed with the passage of the 2010 Tax Relief Act two weeks ago, and I thought it would be a good idea to highlight some of the provisions that might hold the greatest interest for small and medium-sized businesses.

So, here we go:

Small Business Investment: Section 760 of the Tax Relief Act amends section 1202 of the Internal Revenue Code (the Code), with the intent of increasing incentives to invest in small businesses. The Code now states that if an investment is made in 2011 in stock of a qualified small business and the stock is held for a minimum of five (5) years the gain is tax free. Prior to passage two weeks ago, the Code section 1202 incentive was a 50% gain. Some details: The investment must be in qualified small business stock. That means the investment must be in new shares of a “C” corporation. The investment must be made as an original issue of stock and can be granted for money, property or services performed, except for service of underwriting. To qualify, a company must be a domestic corporation with a cap of aggregate gross assets of $50,000,000 USD before AND after the issuance of the new shares. And, a minimum of 80% of the total assets must be used in an active trade or business. An active trade or business is defined by the IRS as a trade or business other than a personal service business like law, medicine, engineering, consulting, athletics, financial services, and includes other trades or businesses where the business is dependent on the reputation or skill of 1 or more of its employees.

Small Business Expensing: Businesses will be able to write off 100 percent of their equipment and machinery purchases, up to $500,000, that were placed in service after Sept. 8, 2010 but before Jan. 1, 2012. The cost of the equipment (up to $500,000) reduces the total taxable income of the business.

Estate Tax: The revised estate tax level was set at a $5 million exemption and 35 percent top rate through 2012.

Payroll Tax: Employees will receive a 2 percent reduction in their Social Security (FICA) payroll tax in 2011. The rate for employees will drop from 6.2 percent to 4.2 percent. It is important to note here that employers (no matter what size) will continue to pay the 6.2 percent rate. Self-employed individuals will pay 10.4 percent instead of 12.4 percent. The FICA tax rates for everyone will return to 2010 levels in 2012.

Research Tax Credit: The research tax credit had originally expired as of December 31, 2009. The Tax Relief Act has now extended this for 2010 and 2011.

That wraps it up on this end, and I hope this provides a quick overview of some of the changes in the recent tax legislation. We are not tax accountants (not even close), so if you have questions, it is in your best interests to contact a certified tax accountant, not us.

Brendan Moore is a Principal Consultant with Cedar Point Consulting, a management consulting practice based in the Washington, DC area, where he advises businesses in marketing, sales, front-end operations, and strategy. Cedar Point Consulting can be found at http://cedarpointconsulting.com.

Will Your Business Need A Turnaround Soon?

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Four times in my business career I have answered a telephone and someone else on the other end asked if I could help them turn their business around.

I accepted the challenge each time, and have a success rate of 75%. Three of those businesses were turned around successfully; one was not. Each business was at death’s door by the time the call was made to me. Each person in charge of those businesses waited until the last minute of the last hour before deciding that it was time to “do or die”, that it was finally the right time to accept the wrenching changes that would be necessary to give their respective business a fighting chance at survival.

I don’t wish to belabor the obvious here, but it sure would have been easier to bring back the commercial concerns in question if there had been earlier recognition of problems at those businesses, as well as an earlier willingness to act to fix the problems. Believe me, I would have been happy to come on the scene earlier, be given a set of more manageable problems concerning the health of the business, and, spared the client the experience of living inside the pressure cooker of uncertainty regarding the survival of the company, even if it meant far less billable hours.

But, that’s not how it usually works. Business owners are human beings, and human beings tend to develop inertia and be resistant to change. Business tails off, but it’s not off by a lot, and then it gets a little worse, but, you know, things are still okay, and then things are just okay for quite awhile, until they’re not.

I’m reminded of the passage in Hemingway’s The Sun Also Rises, in which one character asks another, “How did you go bankrupt”?

“Two ways”, the other man says. “Gradually, and then suddenly”.

Yes, that’s how it usually happens. Businesses almost never explode and fail, a la the CFO running off to Bolivia with the company’s working capital, or an ugly public relations fiasco, or the CEO and founder perishing in a plane crash. Nope, most companies that die simply wither away slowly.

Will this happen to your business?

It’s possible; many businesses fold, and disappear under the waves of commerce every year. But, if you’re paying attention to the basics, your chances of sticking around get much, much better.

The basics include, but are not limited to:

•Paying attention to what your competitors are doing – not only does this give you a way to match/exceed their offerings, there might be something they have that you want to emulate.

•Paying attention to market trends – even if you’re not first with the product your customers desire most, a fast second will usually save the day (and sometimes rule the day).

•Being cognizant of overall economic trends – if all you sell is trucks that get 10 mpg and gasoline climbs up to $5 a gallon, there is trouble on the horizon.

•Making it as easy as possible for customers to buy what you’re selling – Example 1: Client had the national distribution rights to a product (machinery) that the target market definitely wants and needs, but the acquisition cost was high and many customers could not afford the one-time expense. The solution was to find a small-ticket lessor that would offer lease financing to prospective buyers on a private-label basis (leasing branded with the client’s name). The client not only moved more product at higher margins, they also made fee income from the leases generated through the arrangement. Example 2: Client that does custom web development wanted to sell website templates of their own design to customers that want a different look than most sites, but do not have the budget for custom work. Unfortunately, many of these prospective customers have little or no technological expertise. The solution was to offer different packages with different degrees of required customer involvement at different price points. There was no “take it or leave it” attitude in terms of the product being offered; in fact, our client offered enough different levels of “do it yourself” packages so that it the average prospect found it highly likely that they would find a package that suited their skill/desire level.

•Conducting regular business strategy sessions – If you’re a very small company, this may seem almost laughable to you, but replacing those conversations you have after hours with your three employees over take-out food with a scheduled strategy session led by someone with experience in business strategy can usually produce better results. And, if you’re a large company, and you’re doing okay in the market, and nothing (product, competitors, size of market, etc.) has changed in five years, there probably doesn’t seem to be a pressing need for business strategy at corporate headquarters, but again, it can prove to be quite valuable to put a day aside and sit in a room with your peers and talk about just where you want the business to go in the next couple of years.

•Always thinking about a strategic alliance – it’s a cold, brutal business environment out there, and having another ally when facing off against your competitors always helps.

•Reviewing your marketing assets on a regular basis – there may be value in data or relationships you already have. I had a client that acquired a much larger, poorly-run competitor in order to get their retail locations and their commercial contracts, and ignored the list of 45,000+ consumer customers that came with the acquisition for over two years, despite the fact that it was a higher margin business that that the client was then trying to build up in a separate business unit. I was told, “They’re not our customers. There are some very unhappy campers in that portfolio”. Meanwhile, good money was being spent to send out direct mail pieces to new prospects.

•Constantly improving your business processes – reducing costs, reducing cycle times, increasing profits and increasing customer satisfaction are all very good things that should be done on an ongoing basis, not just when a crisis is looming.

•Having business financing always available – don’t wait until the moment it starts raining to get an umbrella, have one ready. Establish lines of credit before an emergency situation, not as a result of – the terms will be better, and access to the funding is immediate.

Now, all of this may seem pretty basic to all of you. It is. And, as I noted above, this isn’t even a complete list, there are more basic things businesses should do in order to not need a turnaround specialist in the future. But I think you would be surprised at how many businesses, large and small, ignore the basic blocking and tackling that they should be doing on a daily basis. Lethargy creeps in; the living organism that is the business is fat and happy, and habit takes over in terms of day-to-day activities.

Let this serve as your alarm clock if your business is one of the sleepy ones, and your senior managers are conducting their duties in a soporific trance. I’m happy to come over to your place and help you with a turnaround, but really, I think you would be happier if you didn’t need a turnaround in the first place.

Brendan Moore is a Principal Consultant with Cedar Point Consulting, a management consulting practice based in the Washington, DC area, where he advises businesses in marketing, sales, front-end operations, and strategy. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com/.

Stodgy Old-Fashioned Dull Obsolete Antique Outdated Sales and Marketing

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What I need is a really cool website.

Online marketing is the only kind of marketing I want to do for my company.

Who needs salespeople when you have the web?

Who needs a call center when you have the web?

I hate actually interacting with someone face-to-face and I’m sure all of my customers hate it, too.

Isn’t everyone on the Internet now?

Digital marketing is always cheaper on a cost-per-account basis.

Everyone just throws out direct mail solicitations.

Outdoor media? You mean, like billboards and stuff? Wow, that’s really old-school, isn’t it?

Why would I bother offering sales training to my customer service employees and my other employees? That’s not their job.

Industry conventions seem like a massive waste of time and, plus, they’re a huge pain.

IF you talk to companies about sales and marketing, you’ll frequently hear comments and questions like this, because everyone’s dream these days is to have a virtual organization that does all its sales and marketing over the web, or on mobile phones, or whatever. You know; the kind of organization where you just click on keys, your advertisements go out, customers respond to your website through an online checkout, and you make millions of dollars with less than 10 employees, and very little overhead.

That’s the kind of marketing plan I want, companies will say.

Well, sure.

I want to date Halle Berry, have my own island, and have Warren Buffet asking me for advice about investing, too. The chance of even one of the items in that scenario occurring for me is about the same as all of the pieces falling into place for the kind of company to happen. Yes, occasionally the planets line up and your idea that turns into your product that your company sells is both irresistible and is able to be sold over the internet in such large numbers that you then have articles in The Wall Street Journal and The New York Times business section written about your firm.

But most of the time, the results are less lofty. The internet is merely one small part of all the moving parts that make up a typical successful company, and that’s not how most business comes in the door. Some small companies have less than a dozen employees, but large companies have hundreds, or thousands, of employees. Everyone in the company works hard, because they’re competing with other people at other companies that are working just as hard in the same segment, and that hard work eventually makes for a good living and a good return for the company’s shareholders. It’s not exciting and notable enough so that it’s newsworthy, but it’s a good result. That’s what usually happens.

The reason I’m noting this is because many companies, in their rush to embrace Web 2.0 technology, are now giving short shrift to perfectly good customer acquisition platforms that they’ve successfully used for years, things like a field sales force or radio advertising. Seduced by a younger, more attractive face, these businesses are abandoning their long-time partners for a tempestuous fling with digital marketing. They’re doing this even if that doesn’t make sense in terms of their revenue, profit and strategic goals.

Now, just to be clear, I would not advise any client to eschew a meaningful presence on the web. If you’re in business, your customers need to be able to find you on the web. Much of the work we do for clients is in the area of bolstering their presence on the web, whether that’s through SEO marketing, developing a better website for them, developing a blog component for their corporate site, etc. So we are strong cheerleaders for a healthy web presence.

No, what I’m saying here is that traditional marketing and sales may still be where your company’s bread will be buttered, and there is absolutely no reason to cut back or discard those customer acquisition platforms simply because they’re “not new”.

For many companies, those “old-fashioned” methods are still the most cost-effective, despite all the infrastructure needed, and the blocking and tackling needed to execute, and frankly, with a little tuning up and focused process-improvement work, those old-school platforms can be made even more attractive from a cost-acquisition ratio.

Furthermore, there is absolutely no reason you cannot keep doing what is bringing you good business results currently, and, beef up your profile and capabilities on the internet at the same time. In other words, there isn’t any way to do too much marketing in too many places.

There is an optimum mix of traditional marketing and digital marketing, specific to your company’s needs and goals. Find that mix and your company will prosper. Because, despite what you read in the media about the latest company to set up a website, and 18 months later, launch a $6 billion IPO, most companies still need the combination of traditional marketing and digital marketing to thrive.

Brendan Moore is a Principal Consultant with Cedar Point Consulting, a management consulting practice based in the Washington, DC area, where he advises businesses in marketing, sales, front-end operations, and strategy. Cedar Point Consulting can be found at http://cedarpointconsulting.com

The Four-Funnel Approach — Strategic Planning for Small Businesses

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According to Confucius, “An unpointed arrow never reaches its target.” Yet, how many small business owners don’t do any strategic planning, hoping that floating in the wind will bring them a bulls-eye and success?

Arguably, strategic planning is even more important to many small businesses, including start-ups, technology companies and those in highly-competitive markets, so it’s critical that small business owners create and follow strategic plans. Plus, it’s New Years Day. What better time to start strategic planning for your small business?

Sure, finding a simple way to quickly build a strategic plan is much of the problem. While the Balanced Scorecard is, in many ways, a better strategic planning system, it takes quite a while to develop a strategic plan using Balanced Scorecard and requires training in the methodology to carry out effectively. As a result, the Balanced Scorecard is rarely available to small businesses, who can not afford to hire an expert facilitator for a multi-week endeavor.

Should small business owners simply give up, assuming good strategic planning is out of reach? Of course not. There is an effective way for small businesses to create and executed strategic plans – the Four-Funnel model. While not as good as the Balanced Scorecard, in my opinion, the Four-Funnel approach is simpler, faster and can be done by a business as small as one or two individuals.

In this article, I outline the Four-Funnel model, describe how it can help small businesses to create solid strategic plans.

A Little Four-Funnel Background

I originally encountered the makings of the four-funnel strategic planning approach in business school at RH Smith at the University of Maryland, where Dr. Brad Wheeler (now at Indiana) described a four-funnel approach to problem-solving. In his approach, he drew four funnels on a white board and labeled them, “Identify Problems”, “Prioritize Problems”, “Identify Solutions” and “Select Solutions”. The diagram looked something like this:

Four-Funnel Problem Solving

As you can see, the four funnels represent the increase and decrease of information as you complete each step in the problem-solving process. First, identifying problems gives you a list possible problems; prioritizing those problems reduces the list to only those problems that are most important; identifying solutions gives you a range of solutions for each problem; while selecting solutions again reduces your list to only the best solutions for the most critical problems. In short, there’s really nothing radical about four-funnel problem-solving, but it’s simple and it works.

Fast-forward to our strategic management course (also at RH Smith), where we were expected to use business cases to develop strategic plans in a matter of hours. Certainly, we learned the strategic planning process in depth during the class, but our challenge was to deliver a good plan in a very short period of time, particularly for case competitions. In response, my team and I applied the four-funnel approach, this time to strategic planning:

Four-Funnel Strategic Planning

Since then, I’ve used four-funnel with my own small business more than a half-dozen times, while coaching other small businesses through the process. It only takes a half-day or so to do, so it’s not too much time and effort, considering the big payoff.

Four-Funnel Strategic Planning Steps

Ready to start? Here’s each step:

  1. Identify strategic needs. Using SWOT analysis or a similar technique, write down the strengths, weaknesses, opportunities and threats relevant to your company and your industry. Many of these are easy to identify — a competitor just moved in down the street (Threat), only one staff member knows how to operate a particular machine (Weakness), you just received recognition as the best in your region at what you do (Strength); or, one of your vendors just created a new product and offered you exclusive distribution rights in your area (Opportunity).
  2. Prioritize Strategic Needs. Along with your co-workers you’re bound to come up with some very solid strategic needs, especially if you do a little homework about industry trends before you meet. But, if you stop there and try to achieve all of them, you’ll almost certainly fail. Before you move forward, you need to prioritize your strategic needs, eliminating the ones that are least likely to be successful and produce the least value. I suggest narrowing down your list to four or five strategic needs for your entire business if you have fewer than ten people, and no more than three needs per department (e.g, marketing) if you’re larger.
  3. Identify Strategic Actions. For each high-priority strategic need, brainstorm ways to meet that need or take advantage of that opportunity. Your possible actions don’t need to be long or detailed — a one sentence explanation is enough. And, be sure to give everyone an opportunity to suggest actions — you’ll be surprised when you find that the most innovative marketing ideas don’t necessarily come from your marketing manager or the best technology initiatives don’t come from IT.
  4. Select Strategic Actions. Just as you prioritized strategic needs, you need to do the same for your actions. For each high-priority strategic need, pick one or two of the best actions for you and your business to take during the coming year. Make sure their achievable and affordable – no point in risking your current business on a long shot.
  5. Assign and Act. As a team, assign someone in your business to complete each strategic action. As you do, make certain the person assigned has the authority, knowledge and resources — including funding — to complete the action. If they don’t, you’re merely setting them — and you — up for failure. In addition, be sure to stagger out the deadlines for each strategic action throughout the course of the year. Otherwise, you and your team will spend December rushing around to complete them, learning to hate the strategic planning process rather than appreciate its value.

Does it Work?

It’s not a miracle cure-all, but the four-funnel approach does work. In my experience, businesses who adopted four-funnel strategic planning grew around 20-30% per year, while those same businesses grew at 0-10% before hand.  (My own business grew triple-digits every year but one, so of course I’m a big believer in four-funnel).  As a lawyer would say, that’s not a guarantee of future success, but past results have been good.

When you try the process yourself, you’ll find it takes between four and eight hours for a group of three or four to complete the four-funnel approach, depending upon the size of your business. That’s not much of a time commitment, considering it’s going to benefit your organization for the next year, and beyond.

Give it a try. And, if you like some assistance, contact Cedar Point Consulting and we can help.

Donald Patti is a Principal Consultant with Cedar Point Consulting, a management consulting practice based in the Washington, DC area, where he advises businesses in project management, process improvement, and small business strategy.  Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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