Be an Ethical Entrepreneur, Marketer, and Business Builder

I have a great idea for a business. Now what?

A friend recently contacted me with the idea of starting a topless hair salon wondering what my thoughts were on the project. Granted that’s not the style of business I would ever own or start, however I realized my thoughts on, and more importantly my process for evaluating his business idea are the same that I would apply to any business. If you came to me asking if your idea is a good one and if you should start a business I’d answer in almost the exact same way. Since you may have to evaluate dozens of businesses before you find a great one, it’s important that you train yourself to think the same way. So here are my thoughts…

  1. I don’t recall ever seeing one in the 40+ states I’ve visited but I could have driven right by one and just not realized it.
  2. Sounds like it has business potential and I’m a big fan of owning businesses vs. working for them.
  3. It’s almost always better to buy vs. start a business since they already have a location, customers, equipment, cashflow etc. etc. In this instance I’m not sure that’s the case since the customer base may change drastically and the current employees may not be interested in your changes. Maybe take over a lease from one that’s going out of business so that all the equipment is there but the employees and customers are not… Have you been able to find one of these businesses yet? It’s always easier to steal ideas from other established businesses than come up with all of them on your own.
  4. If you’re really interested in buying/starting a business there’s a LOT more to it than coming up with an idea so you’ll really need to work on educating yourself. Check out my blog and particularly the Recommended Reading section. It gives a lot of good resources for you to learn what it takes to start/buy a business. Particularly since it chronicles a lot of what was involved with me doing the same.
  5. Las Vegas is in Carson County which currently has the highest unemployment rate by county in the US at about 12.5%. In the last year over 10,000 have left that county (for the first time in like 20 years the population has stopped increasing). Major hotel and building projects have been cancelled and thousands have been laid off. On the plus side, you can probably find cheap space to lease for a business. On the negative side, it may not be as easy to get an extra $20 out of someone for a haircut… This was in essence my target market evaluation. He mentioned starting the business in Sin City for obvious reasons so don’t you think information on the current economy in Las Vegas might be pertinent? Notice how I didn’t discount the idea altogether. A year or 2 ago when things were booming the upfront costs themselves may have made this idea completely cost prohibitive. The down turn in the economy in Vegas may just provide the perfect opportunity for a lease takeover and recruitment of team members at reasonable wages. That’s the beauty of buying and selling businesses. No matter what the economy is doing some businesses will always be available.
  6. Once you educate yourself a bit about the questions you need to ask about buying/starting a business,  call one that’s already established and ask them about marketing, growth, pricing, how the community reacted, how they recruit talent, etc. If they don’t see you as competition a lot of times business owners/managers are willing to lend a hand by answering questions. This is very true. We entrepreneurs are a tough lot who work hard to get where we are. However we tend to appreciate and respect those trying to accomplish the same thing and so don’t mind helping out a little bit when we can. Obviously you can’t abuse the privilege of talking with someone who’s been there and done that. The best thing to do is to build up a long list of business contacts so that when you have questions you can always find an answer without bugging the same person every time.

Can you answer those questions about your business idea in the affirmative? If you can, the next step is determining your break-even point, your potential market, and your marketing plan. Starting with the break-even, if you can risk the money it’s going to take to get you to the break-even point go for it. What do you have to lose? Just be aware that over 90% of businesses fail within the first 5 years so if you don’t want that to be you, over prepare.

To your business starting success, Bryan

What it takes to be an entrepreneur

Are you an expert at business like these guys were at building houses in the sides of cliffs???

Are you an expert at business like these guys were at building houses in the sides of cliffs???

An entrepreneur is someone who is an expert at business. More specifically, buying, building, and selling businesses. An entrepreneur is not the same as a capitalist. A capitalist creates wealth out of nothing. A capitalist creates capital with just an idea or knowledge. That idea could be a book, a talent, a business, real estate, a security or almost anything that can be converted into capital.  An entrepreneur, however, by definition (at least by my definition) deals entirely with businesses. He or she is a master at them…

At this point I’m not a capitalist, however I’m an entrepreneur (successful hasn’t been proven yet, though).

It amazes me at how many business opportunities have come my way since I decided to become an entrepreneur. At least every week someone approaches me to help them with a business, to buy a business they are selling, or to a buy a business they know is for sale. Some are not good ideas… Others are… Keep in mind, out of 50 businesses you evaluate, 1 will be good – so you better always be evaluating.

So what does it take to convince people you are the entrepreneuring genius that they should be talking to before ever considering a great (or not so great) business idea? Actually it’s pretty simple. You just have to convince everyone around you that you know more about business than they do. Here’s the quick process for doing that:

  1. Tell everyone your expertise is business. Not the product or service of a business – just the business – any business.
  2. Be an expert at business.
  3. Let people know you’re always looking for new business opportunities.
  4. Learn how to evaluate business’ quickly and ask the right questions as soon as you’re presented with an idea.

The first 3 are pretty direct and/or have been addressed before so we’ll skip past those.

Number 4 is so important because it immediately affirms what you’ve told people – that you’re an expert. Experts know the right questions to ask because they know what answers they need to hear. In other words, a great entrepreneur knows what that “perfect” business opportunity looks like. Make sense? Ok, so what are a few questions I ask as soon as I learn of a business? My questions focus on a few basic categories and vary by business type. For instance some of these things will vary depending on whether it’s a service business or a product based business.  Generally I would prefer a product based business because it’s a lot simpler. Service based businesses genrally require people with specialized skills. Now if finding people with those specialized skills is easy then a service business could be a great investment.

  1. Growth Potential
  2. Profit Potential
  3. Worst-case scenario
  4. Complexity
  5. Up-front Cost

Growth Potential – In essence we’re determining current market and wallet share compared with total

  1. How many customers do you have?
  2. Are they all in a database?
  3. What are you doing to cross-sell, up-sell, and add-on to existing sales? (remember it’s always cheaper to have a current customer buy from you again than to have a stranger buy from you the first time)
  4. What’s the population in this area?
  5. Why do people do business with you?
  6. What kind of marketing are you currently doing?
  7. How are your salespeople trained?
  8. What products do you sell?
  9. Have you tried to sell X (similar or complementary) product to your customers?

Profit Potential – trying to figure out where to cut the fat while growing the business. More sales does not guarantee more money in your pocket.

  1. What are your profit margins? (Gross and Net)
  2. What is your total take home? (i.e. company cars, travel, meals, etc.)
  3. How have you negotiated prices with your suppliers?
  4. How do you manage the office, inventory, payables, receivables, service, etc.? (in essence i’m looking for inefficiencies that can be replaced with technology and automation to save time and money)

Worst Case Scenario – Ideally the business is currently existing in a worst-case scenario and still surviving which presents you with the maximum upside potential. Also, I need to know if I could possibly make it any worse.

  1. Do you have any competitors? Who? (monopolies are always nice)
  2. Why do people choose to do business with you instead of them?
  3. What are your daily goals for each employee?
  4. Do your employees know at the end of the day if they had a good day?
  5. Is anyone paid an incentive such as commissions, bonuses, etc.?
  6. How often do you perform employee evaluations? (the employee questions help me determine overall business efficiency by guaging employee effectiveness)
  7. What do the owners do for the business?
  8. Are the employees happy and effective? Do they plan to stay?

Complexity – Since I don’t want to be personally involved in the product or delivery of service for a business, how hard would it be to teach someone new? Additionally, is the business too complex to manage remotely? Most of this is common sense. You can look at most businesses and determine if they’re simple or complex.

  1. How long has each person been working here?
  2. How long does it take to train a person for x positon?
  3. How do you find new people for x position?
  4. Do you do any work or sales online?
  5. Do you have any business management computer systems in place? (not just accounting software, but software that will allow me to get a snapshot of the whole business across the globe)

Up-Front Cost – This is basically supposed to tell me 2 things: How much money do I need out of pocket and how much can I pay for the business versus what I can sell it for?

  1. Are you willing to vendor finance?
  2. Are you willing to sell or lease the property that houses the business? (if selling I can always get a bank loan for real estate to provide instant cash to the seller making a vendor finance more attractive on the balance)
  3. Why are you selling?
  4. What’s your time-frame?
  5. How long have you been selling? (This tells me if I’ll be able to quickly resell)
  6. Have you ever had your business professionally valued? (tells me if they understand business valuation or I can “educate” them on the true value of their business)
  7. How did you determine your asking price? (give me more insight into their business valuation knowledge)

Obviously there are more questions you ask when evaluating a business. When I’m actually sitting down with a business owner who’s selling their business I might spend 2-3 hours asking questions. At this point in my entrepreneurial career I do that partially to learn of the business opportunity and partially to see if that owner knows something I don’t.

As a warning, you never talk about the asking price or negotiate down from that price without ensuring that the business owner likes you, trusts you, and knows you can make their baby succeed. We’ll get more into negotiating the best price for your business in another blog.

Notice that I highlighted the top 2 questions in each category. If you want a super-quick way to evaluate a business in just a few minutes, ask those questions and make sure you know the “perfect” answer ahead of time. When you start asking those questions off the top of your head when someone mentions a business idea, I guarantee they will respect your knowledge and start viewing you as the business expert you claim to be. Once everyone knows you’re a business expert the opportunities just start flowing your way.

To your success, Bryan

What to do the first 2 weeks onsite at a business you've just bought…

Had I written this article 2 weeks ago before I actually lived through 2 weeks onsite in my business then it would have probably been something like observe, gather data, and try not to make too many changes…

Well I would have been partly right. Observe, gather data, prioritize the changes, and start making them immediately would have been more accurate. You really have to act and think quickly.

Here’s what I did when I got to New Mexico…

  1. Make sure all of the details of the business purchase are sealed up. Since my business is 1900 miles away from my home, there had to be a bit of verification, legal work, loan paper signing, etc. that had to be handled. No point in proceeding further without that.
  2. Gather data. When you go into a business that has a great database application that you already know how to manipulate, the job is 10x easier. Since I worked for 5 years for the software company that provided the database for the business I purchased I know it inside and out and can “instantly” figure out what areas we can cross-market to, which technicians were most productive, how many service calls we were doing for free, how many leads have been coming into the business, and what questions those prospects were most interested in. Maybe even more importantly, I could quickly determine what they weren’t tracking that we needed to start tracking immediately. This data also told me what changes we needed to make immediately and which ones we needed to make next week and next month. Without data you can’t possibly make any educated business decisions. Ask Michael Gerber.
  3. Get your team to buy into your philosophy. My business has 10 team members including me. They didn’t know what to expect from a new 26 year old boss. Now instead of just “observing”, almost immediately I started meeting with each of them individually and my first change was a mandatory weekly team meeting. It was important to address outstanding team issues immediately. For instance, one team member had recently had some issues with his driving record and his job required that he be able to drive. He was extremely stressed because he didn’t know what I was going to do about it. I got the story from my partner, who has owned the business for 10 years, and, with my partner’s permission, asked the team member to tell me what was going on. We brainstormed for a while on how he could still help the team, I told him exactly what I thought of the situation including that, in his limited capacity, he couldn’t command the same wage from the business. He immediately agreed and understood that he put me in that position not the other way around. Two days later I cut his pay by 25% which he was completely OK with and he almost instantly was happier and more productive. His physical demeanor literally improved because now he knew what was expected of him and what was going to happen even though he was being paid considerably less. Had I not seen it with my own eyes, I wouldn’t have thought it could have possibly been so “easy”.
  4. Have a solid team-based philosophy and share it with the team. If you have a philosophy on business that includes being the boss so you can intimidate your employees into working hard or you’ll fire them, then you’re probably not going to get a lot of buy-in from the team. Now I tried to evaluate the team as quickly as possible, to determine if everyone is worth keeping and at this point it seems that way. They all just need a bit more direction and motivation. Brad Sugar’s claims that at most businesses he’s bought (53 at last count) he had to fire 50% or more of the people right away. It doesn’t look like I’ll have to do that but I can’t rule it out yet. My team philosophy is best summarized in a few points:
    1. We’re a team working together not me dictating what everyone needs to do. If I can help you be more effective at your job I can be more effective at mine so that’s my goal as the Team Leader.
    2. Honesty is paramount. I’ll always be upfront and honest with you and I expect the same.
    3. Teams must communicate effectively. That means your ideas will be respected even if they’re not followed.
    4. We can all learn something from every single person we encounter.
    5. Everyone (especially me) is accountable for doing quality work that generates the company revenue. I will give my team members the benefit of the doubt, however everything is being tracked and the numbers tell the story in black-and-white.

A couple of things to keep in mind.

First, I did not have an exact plan written out on paper as to what I would do my first week. It just kind of came to me as I went through. Granted, in my head I know exactly what the finished product (meaning the business) looks like and the pieces that would need to come together for that finished product to become a reality. Next time, I’ll take a more structured approach, however.

Second, most of my “team” philosophy sounds real “touchy-feely”. Make no mistake about it, if someone is losing me money, they will not be around long and I made that very clear right from the start. Everyone expects that so me actually saying it really isn’t a negative. However, if I don’t tell them what they need to do to generate profit for the business every single day, then it’s my fault if they don’t produce. As a 26 year old, it was important for me to let the team know that no one bank-rolled me. That it is up to me and only me to make this business work and if I don’t, there is no one to bail me out. I am completely accountable for the success of the business and the team needs to know that.

Third, I don’t know the technical side or the sales side of this business and I don’t care to become an expert at it. Honestly, I don’t know how to sell, service, or install our products. That’s not my job. In reality, those things aren’t my strengths. My goal is to make sure I have the right people in the right positions to excel at those things so I don’t have to. Then it’s my responsibility to keep them motivated and adequately compensate them for their quality work. The idea that you need to be able to do everything in your business so that no one can hold you hostage is not the philosophy of someone whose goal is to massively grow businesses. Let me explain that a bit more clearly. If you own an electrician business, some business owners think they need to be expert electricians so that their electrician employees can’t hoodwink them by doing sub-par work. Those owners also believe that that employee may hold them “hostage” because they can’t possibly fire the employee with all of the specialized knowledge. If your business is THAT specialized and its THAT hard to find a replacement, then it’s probably not the proper business to fit into the buy, build, and sell philosophy. Off the top of my head I really can’t think of any businesses that are that specialized. No one (including me) is irreplaceable.

In 2 years I’ll be working on another business (or 2 or 3) so how can I possibly become an expert at every aspect of each one? As intelligent as I may be, I can’t. However I can become an expert at buying, building, and selling businesses of every sort because they all have the same basic fundamentals.

There are a lot more thoughts and details to cover about my first weeks on the job and since I’m working 7 days a week it may take a while to put them all in the blog… However I will outline all that I can as fast as I can. 🙂

To your success, Bryan

P.S. Had I not spent thousands of hours reading books, attending seminars, and asking questions of business owners (most particularly my father), my first few weeks would have been nearly overwhelming with very little progress. Ignorance truly is the most expensive thing in life.