Business advice

More About Profit
May 30, 2007, 10:41 pm
Filed under: Uncategorized

We learned by my little insight into Earthlink’s history that some companies manage to limp along in the red. This isn’t a path that entrepreneurs can safely travel. They will end up in the ditch without some primary information. You can’t be profitable if you haven’t got a clue as to what it is.

Let’s back up for a minute. Back in another decade, when I was beginning my business education, I attended a few SCORE meetings. The leader of one meeting asked a question of the group. What is the reason you start a business? I was the only one with the answer: profit. The leader of the group went on for quite awhile how no one should start a business for any other reason.

The problem is a big misconception of what profit is. Without this knowledge, you will be working your business in vain. You have to plan on working for economic profit. There is a big difference between it and what accountants mislabel as profit.

Economic profit is not what is left after paying all your bills. No one goes to work without planning on receiving a paycheck. You run a profitable business with the same plan. You plan on profit as a cost of doing business. You put aside a given amount as to what you want for profit. This percentage is then calculated into how much you are going to charge for your product. This amount, when received in your revenue stream, is put away as your profits to be used and divided up later.

Your plan is to have your marginal costs eventually be equal to your marginal revenues. But that can never happen if you don’t factor a percentage for profits into your costs. You will be living in a business fantasy, that has snagged many, bring in enough revenues and then somewhere down the road we will profitable. It is not going to happen.

Laura Bell


The Law Eventually gets you
May 29, 2007, 9:09 pm
Filed under: Business Advice

The laws of economics are just sure of the laws of gravity and inertia. The only difference is the amount of time it takes to catch up with you. Price controls (OPEC, i.e.) and fancy accounting practices can make a company float along much longer than if everything was, let’s say, kosher.

Companies these days have found ways to keep going when they just should stop. The explosion allowed these practices to be well known. Execs took their venture capital and blew it on parties. The media ran with the glitz and glamour. Folks thought they found a way to open a business and turn the venture into a party. There must have been a lot of venture capitalists hungry for a tax write-off.

The best example of companies floating above the ground when they should have crashed is Earthlink. No, this is not my opinion. Just go to their homepage and ask for the start page. You will be able to view their latest losses. The current book value is around $3. All of what should be their current earnings have a minus sign in from of the numbers.

It’s still mind-blowing this has been going on this long and that there haven’t been major layoffs. The company’s history is that when it runs short on capital, it finds another company to merge with. It then ads its capital to their own books. There will be a day when it all comes crashing down.

These ventures are breaking the economic law of profit. If you don’t use your assets efficiently, sooner or later, you will lose them. With the current business ‘goings on’, it’s just going to take longer. There is only one major reason to go into business: profit. If you haven’t got a clue on how you manage this, give the rest of the bone-weary business world a break, and don’t even get started.

More on how to get profitable next time.

Laura Bell

More on Growing Your Business
May 28, 2007, 2:58 am
Filed under: Uncategorized

There is a new prime time commercial about a furniture business that has great numbers. The owners talk for a minute or two about what they are going to need to keep up with the demand. The conclusion was that Citi Group would help.

Ok, yeah, it sounds good. But there is a lot that was left out. Why, of course, confuse the buying public with too many facts. Everyone staring a business needs to plan for the day his production line has to grow by leaps; otherwise, he will be facing what it is known as diseconomies of scale. This will mean that to put the next piece out the door, it is going to cost much more than the selling price.

Seeing this time come in a business can, without preparation, see a business close its doors. It happens frequently with small publishing companies. They may be stuck with a small press that is stuck together with gum and tape, sort to speak. An increase in circulation will stop the presses permanently.

I once heard of a bakery who only used drivers who would deliver in a limited area; otherwise, the owner would have to pay union wages. Rather than saving, what the owner did was to ensure his business’s failure.

Launch a business, plan for when the ‘production line’ has to grow or stop before you go out the starting gate. It’s not that hard to comprehend how to make this happen. Either put aside a percent of earnings, or earmark a portion of capital raised for that growth.

Another thought, if you haven’t planned for a portion of this needed expense, it just may be that a potential lender will turn you down. This all boils down to one main point, plan ahead, or plan to stay employed.

Laura Bell

How are you going to grow your business?
May 17, 2007, 12:32 am
Filed under: businness advice

Ok, I read a news story that deserves commenting. This week’s issue of AdWeek, western edition, has a story regarding Microsoft’s continued effort to try and improve their market share of digital advertising. Last month’s quarter result showed they are failing at this big time. Google made $1B, while Microsoft’s MSN’s unit lost $250 million.

Instead of staying at war with Google, Gates is attempting to expand his digital advertising with mobile and Internet-enabled TV. He is also planning on using the X-box as a way to break into TV.

Since no one has a crystal ball, time will only tell how this endeavor will do. But, those numbers certainly show there is a rough road ahead. What’s important about this is that it is a lesson on what road to choose to grow your business.

Microsoft is basically saying that they want in this market despite the picture the numbers paint. They are going so far out the limb, that they are reaching out and grabbing another branch. Let it be clear, Microsoft is about the only company on the planet that can afford such a gamble.

You don’t go after the market your competitor is virtually controlling. Even inventing a new slice of the market is ripe with risk. He is still telling the world that he is willing to fight for a good portion of digital advertising. Take it one step further, what he is doing is fighting for business in a market that doesn’t exist yet. This is familiar territory sort to speak. After all, he used to write programs for machines that hadn’t yet been built. It might work. But this is not a path recommended for small business.

We will deal more on how to deal in a competitive market for the entrepreneur.

Laura Bell

Ok, let’s get back on track/test marketing
May 16, 2007, 1:55 am
Filed under: Business Advice

Writing a proper business plan requires that you have done some market research on the baby you want to launch. This also requires you knowing some info about your closest competitors. Don’t know your competition, go back to the starting gate.

Let’s say you have been told repeatedly that you bake the best cupcakes, bar none. The idea rolls around in your head about how  maybe you could turn your hobby into a profitable business. The first thing is not to go shopping for a store front to rent. You should go to the yellow pages and discern how many bakeries and catering services are within the area you wish to service. You might even visit a few. You want to find out about their cupcakes. I know your friends said yours were great. But, unless you have a circle of friends the size of a small city, sooner or later you will be forced to expand your market.

The next step is to offer cupcakes to a few friendly parties for free on the condition you get to hand out your business card to everyone who attends. If you don’t get orders after that, you might try offering to cater the next mixer at the local Chamber, if this doesn’t do it, this is a sure sign that cupcakes in your circle has its market satisfied.

Suppose you wish to start a local business newsletter. Your aim will eventually be for both ad revenue and subscriptions. You keep the first couple runs small and the pages about a quarter of what the goal is. You distribute in the neighborhood with an enclosed questionnaire asking for feedback and how much they will be willing to pay. A second letter will ask similar questions about purchasing ads.

Some of the big names we recognize had to go through similar circumstances. They also had to give away their product for free as an introduction to the market. That’s how Debbie Fields got her name out.

Test marketing will be a part of your business in the beginning and it will stick with you when you start to plan for expansion. It takes planning and it doesn’t mean you will get it right the first time around.

We’ll talk next time about additional planning stages necessary before seeking venture capital.


This is not the way to test market/shoe-string budget
May 14, 2007, 7:40 am
Filed under: Business Advice

This topic is a little out of sync for what I have started, but this is on my mind.. I signed up for one of those million sites that encourage writers to post for the promise of monies down the road. Well, this one was slightly different since it was promising shared ad revenues. Since the ad revenues were going to come from one of the biggie search engines, I thought maybe this just might work. Of course, this was based on how many hits your content received.

I spent years posting about my content on more boards than most of you have heard of. I took what I thought to be an easier route and posted on about eight newsgroups where writers hang out. Low and behold within a few days  my content had a couple of hundred hits. (I’m sure have done better, but that is beside the point.) One reader even came back to the group and posted a rave review. Ok, I am thinking now where is the reward.

The answer to my question was it depends on when the biggie pays out again, somewhere in the next four to eight weeks. I let time go by and I got to thinking. This is no way to run a business. I have been a content provider before; albeit, on contract. I knew when I was getting paid.

My response from the company was that they were not able to do anything about the problem until their ad revenue increased and explaining they could not help by taking it out of their pockets, because they were on a SHOE-STRING BUDGET.

Ok, here is the deal, don’t try to start a business and in the process make it someone else’s problem because you do not have proper financing. Go back to the drawing board and go find OPM (other people’s money) and come back and try again. You will not be successful on a shoe-string budget because of one fatal-flaw, you cannot move your business forward without more capital. In a sense, you created your own failure before you even started. And, you cannot plan on expected revenues to replace start-up capital that you should have to begin with.

I have run two tiny ventures. Many a day I needed another pair of hands. I bought outside content for my newsletter. I let all pending contributers know up front they would only receive $25 and they would get their check immediately. I had them lining up at the gate. When I ran my own PR agency, I needed help. I either brought in other writers for the day or I paid my teenagers. No one involved was asked to sacrifice or contribute work for no pay because I was on a shoe-string budget; and boy, was I ever.

If you can’t finance the idea; or perhaps a test market trial, go back to the drawing board and save the rest of the world the pain.

Laura Bell

Let Start with the Idea
May 13, 2007, 3:39 am
Filed under: Business Advice

This potential business owner had an idea. We’ve all had ideas. The question whether or not it is viable. Is it going to work? Is there a way to test drive this idea?

Before we go there — let’ think this out a little further. Remember a few years back when one of the ex-mayors of Los Angeles thought he was going to start a new newspaper. It didn’t take long before it became obvious this idea was going no where. Ok, let’s say the AOL user was inspired with the thought of launching a new publication. Is there a market for it. More important, who is the market? If you haven’t decided that, you might as well stay at the starting gate. Ok, next, how are you going to convince your audience that they need your product or service?

You need to make a plan. You need to define your idea, then you need to sketch out how you are going to test it. If you can’t, you better keep on working out until you can. For those who remember Money Magazine, did you know Time, Inc. spent $10M test marketing it before it earned a nickel of profit.

No small enterprise will have that budget, but they better get ready to define why your product is needed and then figure out to test drive it before you bet the farm.

I launched a newsletter in 1989. It went on to get rave reviews, but it rid me of most of my inheritance and further injured my lifestyle down the road. I test drove it and didn’t listen to results; which were, that people loved to read it when it was free. Few people were ever convinced to cough up a subscription payment.

Next time, we will start talking about market research. With the help of the Web, it only takes time and a little ingenuity.

Laura Bell