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Small-Business Guide: Tips on Talking to and Tapping Potential Investors

October 16, 2013 by Leave a Comment

Along the way, Ms. Reisenthel said, she has learned some important lessons about pitching to investors. “We used to start meetings with a story about our founder, the problem we were addressing, its cost to society and the scientific research that led to our business idea,” she said, “but investors wanted to know right away, ‘What exactly are you selling and who is going to buy it?’ ”

As a result, Ms. Reisenthel learned to get to the point, immediately. Whether they are pitching to venture capitalists, angel investors or friends and family, entrepreneurs who have been through the process stress the importance of making a crisp presentation, sizing up competitors and knowing what kind of information the potential investors require.

KNOW YOUR AUDIENCE Angel investors and venture capitalists come to the process at different times with different needs and goals. “The angel investors we met with during our idea stage were interested in the zeitgeist of the project,” Ms. Reisenthel said. “They were excited to be part of what we were trying to achieve, and they were O.K. with unanswered questions. They didn’t need a detailed five-year plan, and understood their investment would be diluted in value when we took on additional funding.”

She said the venture capitalists, by contrast, are generally willing to invest more money but they want to know when the company expects to be profitable. “V.C.’s are more about the details — market size, business model, cash flow plans, sales break-even point and how the company will find customers,” Ms. Reisenthel said. They were more likely to want to be involved in strategic decisions, expected regular updates and often wanted a seat on the board of directors. “They were also less willing to accept risk than angel investors.”

KEEP IT CONCISE Pete Higgins, a founding partner at the venture capital group Second Avenue Partners in Seattle, has heard hundreds of pitches over the last five years and has financed about 7 percent of them. He said a concise presentation was telling because entrepreneurs who can explain a complicated set of technologies or a new product show they are smart, that they have done their research and that they can communicate — all factors critical to a company’s future.

Ms. Reisenthel uses a slide deck of about 10 and no more than 15 slides and prepares additional slides in case deeper questions arise on topics like manufacturing costs or competitive analysis. “You need to know the business, the technology, the science better than anyone in the room,” she said. “Practice in front of smart professional friends in the industry who can critique you before you go in for the real meetings.” Selling the quality of your leadership and your team is as important as the idea, Mr. Higgins said.

Sometimes just a few compelling sentences can get an idea financed. Last year, Mr. Higgins said, “A start-up veteran pitched us, saying, ‘I want to sell $4.99 live concert recordings that are ready to be downloaded to the concertgoers by the time they get to their car in the parking lot. It’s technically straightforward, makes money for the band on tour and is an inexpensive memento for concertgoers, who are often trying to record on their phone anyway.” Mr. Higgins said he knew in five minutes he would invest, and the Lively app made its debut this year.

KNOW THE COMPETITION Beyond just listing other companies in the same arena, understanding and describing the competitive landscape can be critical, according to Mr. Higgins. “If other companies have tried something similar and failed, tell us why they failed,” he said. “If the market is crowded with competitors, how will you do it better? Just having a feature they don’t is an incremental benefit and not enough to overcome the inertia that will keep customers from switching to your product.”

Mr. Higgins advises entrepreneurs to ask for financing only when they can demonstrate a transformational new technology, a new distribution method, or a better cost structure that cannot easily be copied. And recognize that there are competitors to every business idea, he said, even if it is the pencil and paper people are currently using to do the task you plan to automate.

EXPECT MISHAPS Julie Gilbert Newrai of Minneapolis raised $1.5 million in her first round of fund-raising in June 2012 and is preparing to begin a second round. Her service, PreciouStatus, relays personalized daily updates from professional care providers to family members of people in eldercare and child care centers.

Article source: http://www.nytimes.com/2013/10/17/business/smallbusiness/fine-points-of-making-pitches-to-investors.html?partner=rss&emc=rss

Filed Under: Small Business

Without Services, Small Businesses Feel the Pinch

October 9, 2013 by Leave a Comment

Because the new business requires a significant expansion of his production capabilities, Mr. Leh, 46, began hunting for additional employees and lining up financing to buy new equipment for his precision machine components company, TL Technologies. Last week, he was poised to close on a $1.5 million loan backed by the Small Business Administration.

Then the government shut down. Mr. Leh’s lender, Susquehanna Bank in Lititz, Pa., says it is prepared to cut a check — but cannot do it until the S.B.A. and other government agencies reopen and process some final paperwork.

“We just missed the window, and now we’ve come to a complete standstill,” Mr. Leh said. “I have to go back to my customer and tell him I’m dead in the water and can’t fulfill his needs, and I can’t give him an answer when I can. It’s put me in the most horrible position as a business owner that you can be in.”

The Small Business Administration says it backs an average of $96 million in small-business lending each day. Having that financing stream frozen sets off a chain reaction of economic pain, said Anthony R. Wilkinson, who heads the National Association of Government Guaranteed Lenders, a trade group. “There are restaurants that aren’t being opened and contracts that aren’t being fulfilled,” he said. “As this drags on into Week 2, people are getting pretty worried.”

The toll may not be conspicuous yet in the broader economy, but at the local level, the ripples are spreading. At many banks, direct small business lending is stalled too, because much of the Internal Revenue Service is closed, preventing lenders from checking tax information provided by applicants. Business owners are also grappling with the absence of other crucial government services, like E-Verify, the online system companies use to confirm the eligibility of prospective employees to work in the United States.

The uncertainty all of this causes is the most maddening part, said Chris Mittelstaedt, 44, owner of the FruitGuys, a produce-delivery company in South San Francisco, Calif. Mr. Mittelstaedt spent part of last week fielding phone calls from customers of his company’s school distribution program, which is financed by federal grants.

Temporary funds came through at the end of the week, but he is frustrated by the confusion he and his customers face. “If businesses are uncertain, they don’t spend,” he said. “That’s really bothersome for us and any growing company.”

Mr. Leh, the manufacturer in Pennsylvania, is quick to trace out the ripple effects of his delayed financing. His prospective new client, of course, is kept waiting. So far, Mr. Leh said, the client is being patient and waiting along with him for the shutdown to be resolved. In addition, Mr. Leh has extended offers to two prospective employees, but he will not be able to bring them on until the loan actually closes.

Also waiting, he said, are “the guys that I’m buying the machines from, the guys who move the machines, the electricians that come in and wire things up, the insurance company I’m dealing with — all of those people aren’t getting paid right now.”

Last week, he intended to turn over a check for $57,000 to JBM Technologies, a machine-tool distributor based in nearby Ivyland that works with manufacturing companies throughout the mid-Atlantic region. The check, a down payment on the first machine Mr. Leh needs, would have gone to John Watkins, the owner of the 20-person company. Instead, the machine — a $300,000 Kitamura machining center about the size of a small room — is sitting idle on Mr. Watkins’s shop floor.

Mr. Watkins planned to have his staff begin work several days ago customizing Mr. Leh’s Kitamura. When the loan was delayed, Mr. Watkins scrambled to redeploy his employees. “We got busy at the right time with another project,” he said. “Without that, it would have been really bad.”

What irritates Mr. Watkins most about the standoff in Washington is that he sees it as a self-inflicted wound on an economy that was finally beginning to rebound. One of his clients is in negotiations with a Swedish financier about backing the transfer of a major manufacturing line from China to the United States. “We’re on the brink of getting people to invest, and then this,” Mr. Watkins said. “What does this look like? Who wants to invest in a country that goes through this?”

The impact of the shutdown on some small businesses is obvious and direct. For example, Dee Ann Smith, 56, the owner of Discover Yosemite, a company that runs day tours through Yosemite National Park, estimates that she is losing $3,500 in ticket sales every day the park remains closed. The hourly employees who lead tours are not being paid, while the salaries for Ms. Smith’s office staff are eating into the cash reserve she had set aside to offset the slow winter season.

The tour company has also stopped buying fuel for its buses from a local gas station, and packed lunches for its hikers from a nearby deli. “That’s 20 to 40 sales a day they’re missing out on,” she said.

For other businesses, the impact of the shutdown is more nuanced. In Lansdowne, Pa., Ari Miller, 37, is trying to build a food company, 1732 Meats. His creations — including jalapeño, black peppercorn and “garlic insanity” bacon — have done well at local farmers’ markets, and he wants to begin wholesale production for retailers.

But Mr. Miller needs certifications from the United States Agriculture Department for every step of his expansion. While the agency’s meat inspectors are deemed essential and remain on the job, its packaging inspectors are not. Mr. Miller had a FedEx envelope stuffed with proposed bacon labels ready to send off for approval Oct. 1 — the day the government shut down. Until those labels are approved, he cannot begin commercial operations.

Article source: http://www.nytimes.com/2013/10/10/business/smallbusiness/shutdowns-effects-begin-to-ripple-through-small-businesses.html?partner=rss&emc=rss

Filed Under: Small Business

Conversations: The Landscape of Small-Business Health Insurance

October 2, 2013 by Leave a Comment

Liazon was among the first companies to establish a private health insurance exchange, where the benefit provided by the employer is a defined contribution rather than a defined benefit (competing private exchange operators include Aon Hewitt and Towers Watson). “A company can make a budget, and decide exactly how much money they want to allocate to benefits,” said Alan Cohen, who founded Liazon along with Ashok Subramanian and Tim Godzich. “It has nothing to do with what some insurance company happens to say in a given year.”

It also gets employers mostly out of the business of choosing health plans for their work force. And, he said, the company’s experience with 2,500 business customers, which have enrolled 45,000 employees, shows that workers “make much more prudent decisions” about where to spend their money. “Eighty percent of employees choose a plan that’s different than what the company chose for them,” Mr. Cohen said, “and 90 percent of those people choose something less expensive.”

This week, of course, the landscape of small-business-sponsored health insurance is changing, as the insurance exchanges established by the Affordable Care Act begin operations. Mr. Cohen says he expects the new law to be a net plus for Liazon, primarily because more people will become acclimated to the idea of employees making their own decisions.

We spoke to Mr. Cohen about the impact of the Affordable Care Act, or Obamacare, on small businesses in a series of conversations that began in June and have been edited and condensed.

Q. Where did the idea behind Liazon come from?

A. I started a company in 1996 called Online Benefits, which was one of the first Web-based software companies that helped firms manage their benefits programs. We had 5,500 companies and two million people using our software. We had a tremendous amount of data. And I came to realize that the decisions the companies were making were not the decisions that the people would make if they were the ones who had control of the money. Ashok, my co-founder, was at McKinsey consulting for health insurance companies. McKinsey had determined — and Ashok was a big part of this — that the fact that people were not really in the purchasing process was part of the runaway inflation in health insurance and health care.

Q. What’s the experience for a business that signs with Liazon?

A. First of all, you have to decide how much money you want to allocate to your employees, and we’ve built technology tools to help companies do that. It’s like scenario analysis — working with your insurance broker, you decide what’s in your budget for benefits. As for the store where employees shop for insurance, we’ve negotiated deals with major carriers to come up with a menu of plans, and the company decides which of those menus to choose from. The premium rates are still determined on a client-by-client basis, because they’re still written to the company. So as a company you still get some level of control, but we try to limit the number of choices and really give people pretty good guidance.

Q. Liazon has experienced rapid growth this year. Why?

A. Clearly the health care reform has brought this into the consciousness of people in a way that we could never have, with our minuscule marketing budget. The No. 1 objection we’ve gotten over the years has been, “I don’t think my employees can do it. I think they’ll be confused.” As we come into 2014, that statement is just going to seem more absurd.

Q. How well do you think employers understand the law?

A. Generally, most companies know the headlines. Once you get into the details, the lack of knowledge is kind of shocking. We actually did some market research on this. We came up with a list of 15 statements that asked, “How familiar are you with the following provision of the law?” And among those 15 items, we had five that were untrue. One of them, I remember, was, “How familiar are you with the provision in the law that health insurance plans on the exchange will be more expensive than health insurance plans off the exchange?” The law actually says the opposite. People rated the things that were untrue as well as they rated the things that were true.

Q. The law’s critics say companies will have to offer more expensive health care than they do now. Do you think that’s true?

A. I don’t think that’s true.

Q. Why not?

Article source: http://www.nytimes.com/2013/10/03/business/smallbusiness/the-landscape-of-small-business-health-insurance.html?partner=rss&emc=rss

Filed Under: Small Business

Getting Online Products to Their New Owners

September 25, 2013 by

For the husband-and-wife owners of Lollacup, a maker of specially designed sippy cups, the moment of truth came about 36 hours after a segment about their company was shown in April 2012 on “Shark Tank,” the ABC reality show. At the time, the Lims, parents of young daughters, were handling their own fulfillment — the packing and shipping of products ordered online — from their Pasadena, Calif., living room.

After the show was broadcast and their daily orders doubled to 800, the Lims decided something had to change. “We had boxes piled everywhere,” Ms. Lim said. “We were begging friends and family to come over and help, bribing them with wine, and we still couldn’t keep up.”

It was then that they made a choice common among early-stage e-commerce vendors: they decided to outsource their orders to a third-party logistics provider, known in the business as a 3PL, in exchange for a percentage of revenue. In this case, that was about 3.5 percent of each retail sale and 7 percent of each wholesale order, not including delivery costs.

The challenge of fulfilling orders is one of those problems that all e-commerce companies want to have, until they do, at which point it can swallow margins, alienate customers and even sink a business if not managed carefully. “In a world where customers have more choices online, most businesses realize you need to be able to get your product to them quickly and cheaply to stay competitive,” said Bob Halpin, a consumer solutions consultant with United Parcel Service, who helps U.P.S. customers improve their fulfillment operations.

The pressure on small businesses to manage fulfillment costs stems from expectations in the marketplace generated by large retailers, especially Amazon. The online giant has 40 large fulfillment centers around the United States that it uses to offer free two-day shipping to its Prime subscribers, and it is now building five new facilities that are expected to enable it to deliver many items the day they are ordered.

Some smaller e-commerce sites have responded with something of an if-you-can’t-beat-them-join-them attitude, turning to Fulfillment by Amazon, a program that lets them use the retailer’s state-of-the-art distribution system to ship items not even sold by Amazon. But it typically charges more than a standard 3PL provider, about $6 per sale for a product with the approximate size and weight of a sippy cup.

Other businesses treat fulfillment as something of an existential exercise, one subject to constant reappraisal and revision. Several months after the Lims signed on with their 3PL provider, for example, they took another look at the arrangement. Not only were they spending about $8,000 in monthly 3PL fees, they were enduring far more shipping mistakes. They priced other options, and they realized they could improve quality control and save money by shifting final assembly to their manufacturer and bringing inventory and shipping back in-house, this time to a 2,500-square-foot warehouse staffed by one new employee.

“We’re probably going to save about $50,000 this year doing it this way,” Ms. Lim said. “Once we went the 3PL route, it could have been easy to say, O.K., that’s done. But instead we kept questioning and evaluating. We still are.”

While no two in-house fulfillment operations are the same, certain principles apply. In most successful operations, warehouse space is divided into a section for bulk inventory and an area where product can be found quickly to fill orders, a process known as pick-and-pack. One trend Mr. Halpin said he had noticed in recent years was the heightened sophistication of the off-the-shelf software products that are used to manage aspects of the process. At Lollacup, for example, the company’s online store is powered by an e-commerce package from Shopify, which exports inventory data to the Lims’ QuickBooks program, and interfaces with ShipStation to print shipping labels and generate the right amount of postage.

Driven by Amazon and other major e-commerce sites, shipping has become a costly loss leader for many smaller sites. Jimmy Beans Wool, an $8 million-a-year seller of knitting yarn based in Reno, Nev., for instance, charges a flat rate of $4 on all orders and offers free shipping on purchases of more than $75, which ends up costing the company about $370,000 a year. “We consider it just part of our marketing costs,” said Laura Zander, who founded the business with her husband, Doug. But those costs could be twice that amount, she said, if not for a secret weapon she deploys: the United States Postal Service.

The Postal Service may have a reputation as an antiquated drag on the federal budget, but it is surprisingly competitive in order fulfillment, especially with standard-size packages that weigh less than a pound. (The post office’s competitive advantage falls off sharply on packages weighing over three pounds.)

Using first-class mail, Jimmy Beans can ship a package of yarn anywhere in the continental United States for $2 to $4 and expect it to arrive within two days (compared with $5 to $7 with FedEx or U.P.S. ground). Because the Postal Service also provides shipping materials free, the company saves $1 more per box and 30 cents on every envelope. For high-volume customers like Jimmy Beans, the post office will even print the packaging with the customer’s own logo, again for free. “I mean, how cool is that?” Ms. Zander said. “I love America!”

What is more, because post office distribution centers are open six days a week until 10 p.m., Jimmy Beans can accept orders on Saturday — the most popular ordering day of the week for its knitters — package them and drop them off at the distribution center by Saturday evening, confident they will be in East Coast homes by Monday. “A lot of our customers tell us they can’t get over that we’re able to do that,” Ms. Zander said. “To them, it’s almost like magic.”

Some businesses have lowered shipping costs by borrowing a page from Amazon and opening multiple fulfillment centers. The reason has to do with the zoned shipping policies employed by carriers that divide the country into seven zones and charge higher rates for packages that cross zones. Even a company like Adagio Teas, with just shy of $10 million in annual sales, has found that it pays to operate two fulfillment warehouses, one at its headquarters in Garfield, N.J., and another in Fresno, Calif. Michael Cramer, chief executive of Adagio, explains that before his company opened the second facility, shipping a $60 order of iced tea to the West Coast cost $30. Now it is just $10.

Nuts.com, a $20-million-a-year e-tailer of nuts and other snacks, has gone even further — with advanced software systems, scores of white-suited warehouse employees, and a whirring labyrinth of conveyors snaking among shelving towers 20 feet high in a 55,000-square-foot-warehouse. And now Jeffrey Braverman, the chief executive, is considering leaping to the next level.

He is in talks with the German manufacturer of a system that eliminates the need for workers to move between locations to gather products. Instead, the shelves bring the products to them. “It’s like a giant vending machine with a brain,” he said. “Whenever an order comes in, these enormous lifts automatically go up and down and back and forth and grab the right shelf and bring it to the packing area.”

After it is installed, the system, Mr. Braverman said, could save the company more than $500,000 a year. “If the bid comes in at less than $2 million,” he said, “I think I’m going to do it.”

Article source: http://www.nytimes.com/2013/09/26/business/smallbusiness/selling-on-the-web-and-seeking-reliable-shipping.html?partner=rss&emc=rss

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Wealth Matters: Financing Start-Up Dreams With Retirement Savings

September 13, 2013 by

They had three very different dreams, but these women had one thing in common: they all lost jobs and decided to use sizable retirement accounts to start their own businesses in very different fields. They did so by converting traditional 401(k) accounts into new retirement plans — known as “rollovers as business start-ups,” or ROBS — that they could invest in their companies.

“It’s fueled by the fact that stock market has returned to all-time highs, real estate is up, consumer confidence is up — but we’re also suffering from a credit crisis, and unemployment remains high,” said David Nilssen, chief executive of Guidant Financial, which specializes in helping people use 401(k) assets to invest in businesses or other nontraditional assets, like property. “People look at this because they can capitalize a business without taking on any debt.”

While this may sound like an easy solution to finance a company, it is incredibly complicated, and the risks of running afoul of the Internal Revenue Service or the Department of Labor, which has jurisdiction over 401(k) plans, are significant. The worst possible outcome is a triple-whammy loss of a person’s retirement savings, the business and a source of income if the idea fails.

Adding to the complications, ROBS exist in a parallel financial universe, where those who promote the plans see them as solutions for retirement-rich but cash-poor entrepreneurs, while many other financial advisers see the plans as treading the line of legality.

“The I.R.S. has said that they don’t view them as tax-avoidance schemes per se,” said Carol J. Ventura, retirement specialist at H.D. Vest, a broker-dealer with $33 billion under management. “They’re not illegal, but the I.R.S. is saying that they have to be perfectly put in place. They’re very complicated.”

Failure to do everything right could lead to anything from penalties to having the entire retirement plan disallowed, which would mean a big tax bill.

Still, Mr. Nilssen said the idea had been gaining in popularity. He said his company had its best year in 2012 with 1,300 new ROBS and expects to do 1,700 this year. I wanted to know what the attraction was to something that seemed so complicated and magnified the sizable risk of starting any business.

Here’s how ROBS work: People take their 401(k) account (or other qualified retirement plan) and roll it over into a new plan that buys shares in an operating company that will own their business. Unlike most small businesses, which are set up as limited liability corporations or S-corporations, a business financed through ROBS has to be a C-corporation, which can issue shares and does not prohibit ownership by trusts.

In many cases, people turn to ROBS because they don’t have other sources of financing and have not been able to secure a small-business loan.The companies of the people I spoke to were owned by anywhere from 90 percent of one person’s 401(k) to 100 percent of two entire plans.

That might sound simple, but what effectively happens is that the plan, not the person, owns the business. That means the person cannot act in his best interest but must act in the best interest of the plan. For example, if he wants to give himself a raise, he needs to find out what similar business owners make.

“I have counseled people on how to do them correctly and then I typically say, ‘I find it to be a bad idea and you’re probably going to get yourself in trouble,’ ” said Bill Smith, a tax lawyer and managing director in the CBIZ National Tax Office. “The I.R.S. is not consistent on what it considers correct. It’s very easy to mess these things up.”

Mr. Nilssen said Guidant helped people set up the initial plan and managed the reporting requirements. He said that of his firm’s 8,500 clients, about 50 had been audited, but none had had action taken against them.

Ms. Jones said that in the course of putting $260,000 of the $340,000 she had in her retirement account into buying a Decorating Den franchise in Nashville, she had several lean years during the recession, but that she is now doing well. She says she is also happier than when she was working in health care technology.

But she said the paperwork to comply with the I.R.S. rules could be complicated — and managing paperwork was part of her previous career. One requirement of these plans is that she and any employees pay into the 401(k) set up to buy the company. “That check has to be out the door seven days after payroll,” she said. “If I’m late at writing a check to deposit my 401(k) money, there are penalties, and I’ve paid penalties.”

Article source: http://www.nytimes.com/2013/09/14/your-money/financing-start-up-dreams-with-retirement-savings.html?partner=rss&emc=rss

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Case Study: A Fast-Growing Tree Service Considers Selling Franchises

September 11, 2013 by

THE CHALLENGE Having established himself in a profitable niche, Mr. Skolnick wants to add more locations, but he is not sure whether he wants to own the locations or franchise them.

THE BACKGROUND Like many boys growing up in the suburbs, Mr. Skolnick mowed lawns in the neighborhood. At first he did it to earn spending money, but by the time he graduated from high school, he had three employees and 110 clients. He bought his first house (for $167,000) when he was 18. His friends had headed off to college, and Mr. Skolnick realized, “I didn’t want to be cutting grass for the rest of my life.” He took landscaping courses at a vocational school and started offering additional services, like putting in patios, walkways and ponds with waterfalls. He acquired other landscaping businesses, paying much of the purchase price out of future earnings, and folded them into Josh Skolnick Landscaping.

Sensing an opportunity, Mr. Skolnick began to focus on one aspect of his business, mulching. He bought trucks and mulch-blowing equipment to spread wood chips for shopping centers, office parks, universities and municipalities. In 2007, he sold the landscaping business for $70,000 to concentrate on mulch. That company soon grew to two dozen employees who operated seven trailer- and truck-mounted units, the larger ones costing $275,000. His clients stretched from Long Island to Northern Virginia. Best of all, the mulching business increased in spring and ended in early summer, leaving him free to head to the shore and spend time on his boat — while still producing more than $1 million a year in revenue.

Ultimately, though, Mr. Skolnick put that business in his rearview mirror, too. “When I see an opportunity that’s bigger and better or more profitable,” he said, “I’m all over it.” The new opportunity was tree removal and trimming, which Mr. Skolnick stumbled upon when he arranged the removal of a dead tree for a friend. On site with the crew he had hired, neighbors up and down the block came by to ask: “Can you help me, too?”

He said he discovered an industry where major players, like Bartlett Tree Experts and SavATree, tended to concentrate more on fertilizing and maintenance and to leave the removal jobs — which can cost more than $1,000 — largely to mom-and-pop companies, many of them ill equipped for the kinds of towering mature trees that can be found in established suburbs.

“Big or small, we do them all,” Mr. Skolnick said, naming his new business after the behemoths on which he planned to build his reputation. “Our slogan,” he said, “is estimates in hours, not days.” Monster Tree took in $1.6 million in sales in 2010, its first full year in business, and grew by more than half a million dollars the following year.

Unlike lawn care and mulching, the tree business is year-round. “But the trade-off,” Mr. Skolnick said, “is my income has tripled, if not quadrupled; I’m 29 now. I have a wife and two kids.”

THE OPTIONS Mindful of the future — and that 35 percent annual increases in sales would be far less likely without opening new locations — Mr. Skolnick pondered two courses. He could open and operate a second company-owned location. To do so, he would have to assume additional debt to cover the $250,000 to $500,000 costs of opening and staffing a new office and outfitting it with the necessary equipment and bucket trucks. He would need to train a manager to run the office. He could expect to repay his debt out of operating profits.

Mr. Skolnick weighed that against his second option, franchising — “where you’re really trusting other people with your brand.” The two franchising consultants he brought in to advise him both felt strongly that he had a replicable model and good systems in place. There would, of course, be added costs in setting up as a franchiser — $100,000 or more. Thereafter, he would have to pay the salary of a full-time director of franchising. In return, the franchisees would pay him a percentage of their revenue — and there was a chance the chain could grow extremely quickly. Still, he had been told it could take 15 to 20 operating franchises, or perhaps two years or so, before he would earn back his investment.

Article source: http://www.nytimes.com/2013/09/12/business/smallbusiness/a-fast-growing-tree-service-considers-selling-franchises.html?partner=rss&emc=rss

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Conversations: A Pioneering Auction Company Shows the Way to China

September 4, 2013 by

When Ms. Weidenhamer first picked up a gavel in 1995, there were few female auctioneers. Since then, she has helped invigorate the ancient profession and built her company, Auction Systems Auctioneers and Appraisers, to more than $100 million in annual revenue. She has added new formats, like simulcasting her live auctions, and she has helped establish that auctions are not just for liquidations and closeouts. She has even taken her gavel to China, where she has mastered enough Mandarin to handle auction chants and where she is creating a new channel for Western companies to introduce products into the vast Chinese market.

She discussed all of that, from a dozen time zones away in Shanghai, in a conversation that has been condensed and edited.

Q. How did you get started in the business?

A. I was working in San Francisco doing merger and acquisition arbitrage work. My husband worked for American Express in Phoenix. So I commuted back and forth to Phoenix every week. On a flight one night I sat by a man in his 80s who was an auctioneer, and he started telling me about the kind of work he did and how big the auction industry was. A month later I resigned my position and signed up to go to auction school.

Q. How many years ago was that and how old were you at the time?

A. I’ll tell you how many years ago it was. It was 18 years ago. I was basically told: go find product and if you find product, we’ll let you sell it when you bring it to the auction. I think they thought I wouldn’t find anything.

Q. Was this test a way to keep you out of the industry?

A. Right. There were very few women in the business. For some good reasons, women in the auction industry have always struggled. It’s really because a high-pitched voice is extremely hard to listen to for hours. Plus, it was an old boys’ network. The first things I found and sold were surplus computers.

Q. Since then, what kinds of things have you auctioned off?

A. Everything from multimillion-dollar haunted mansions to gold teeth recovered from safe deposit boxes.

Q. Have you said no to anything?

A. We do have standards, things we won’t sell — like pornographic material.

Q. Why did you call your company Auction Systems?

A. Back in 1995, it was a very ma-and-pa industry that seemed to lack consistency and systems. I wanted to offer a consistent experience to both the seller of goods and the buyer of goods.

Q. What did your business look like at the start?

A. I started by myself with a little, 6,000-square-foot warehouse in downtown Phoenix. I conducted the auctions right there. A lot of auction houses have stages, so without one, I bought a step ladder and stood on the ladder and would sell.

Q. What did your husband think when you told him you weren’t going to commute to San Francisco any more — but you were starting an auction company?

A. Honestly, he thought I’d lost my mind.

Q. How long until he realized otherwise?

A. I’m not 100 percent sure he’s convinced yet. I started in October of the first year and did about $150,000 in commissions by year’s end. Typically our commission is about one-third of the sale price. In 1996 we did about $1.5 million. I had three employees unpacking and tagging goods and helping with accounting and sales support.

Q. Where’s the business today?

A. Annual revenues are about $135 million and we’ve got 200-plus employees. We’re now in a huge warehouse with about 150,000 square feet on four acres, but we also do auctions all over.

Q. Is $135 million the total amount of goods you’ve sold — or is that your commission?

A. The commission.

Q. How do you explain that kind of growth?

A. Growth is a combination of good processes, great people and operating outside the traditional parameters of auctions by looking for all kinds of opportunities — everything from real estate to microbrewery products to the latest technology. People value the open-market transparency that auctions create.

Q. When did auctions become a distribution channel for everyday merchandise?

A. I think we were pioneers — the idea that auctions are a first resort and not a last chance.

Q. Explain that.

A. Manufacturers right now are primarily represented in big-box retailers, so they create their products, consign them to the big-box retailer and then wait to be paid — often four to six months. Let’s say you’re a bicycle manufacturer. With an auction, you can consign a large number of bicycles to the auction. We’ll sell them, and you will get paid in three weeks. Oh, and by the way, they will sell for much more than you’d get from that big-box retailer.

Q. Why?

Article source: http://www.nytimes.com/2013/09/05/business/smallbusiness/a-pioneering-auction-company-keeps-innovating.html?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

Small-Business Guide: Figuring Out When It’s Time to Add an Employee

August 28, 2013 by

First, he needs more people in the warmer months. He also has to consider where his jobs are and how long it will take his workers to drive from one job to another. Some jobs take longer than others, because vacuuming and scrubbing take more time than chemical treatments. Plus, he said, “Everyone wants their residential pool service on Friday.”

Of course, like most business owners, Mr. Johnson always wants to avoid having too many people and not enough work.

“Determining when and how many employees to hire is a bit tricky for our business as the demand for services varies based on account growth, seasonality, geography of homeowner addresses and customer requests,” said Mr. Johnson, who started the company four years ago.

Many small-business owners remain skittish about hiring. The National Federation of Independent Business reported that nearly 80 percent of small, private companies made no hiring changes in July and 12 percent let workers go.

Especially after the recession, many owners have been reluctant to spend the money to hire workers, especially if there’s a chance demand will recede and the workers will have to be laid off. The on-again, off-again recovery hasn’t helped. And with small businesses representing 49.2 percent of private sector employment, according to the Small Business Administration, this reluctance has inevitably had an impact on unemployment rates.

Some owners have turned to paying overtime. which makes it easier to scale back if demand slips. The downside is that it can be expensive and it can lead to an overworked staff.

For example, the work force at Narragansett Creamery in Providence, R.I., has grown slowly even as more customers are drawn to the company’s homemade yogurt and cheeses, said Mark Federico, the owner. Started in 2007, the company has grown to a staff of 30.

“We found that if we worked too many hours for too long a period of time, people get burned out,” Mr. Federico said. “People need days off. It’s not scientific, and we’re not right all the time.”

Based on the experiences of owners like Mr. Johnson and Mr. Federico, this small-business guide looks how owners determine when it’s time to hire.

HOURS WORKED Mr. Johnson said he ran his employment numbers weekly, as clients were added and lost, to ensure he had enough people. He uses a spreadsheet to help him decide when the company can support the wages of new employees.

He keeps careful count of the number of pools the company cleans and the hours required for each job. He separates residential jobs, which typically require 30 minutes of time, from those at commercial pools, which can take two hours.

To calculate the required number of employees, Mr. Johnson estimates the number of hours required to clean all client pools and divides that by a standard 40-hour workweek. When the result is greater than the number of employees on staff, he makes a new hire.

PAYROLL AS A PERCENTAGE OF REVENUE Earlier this year, when there was a surge in demand for swimming lessons at SwimLabs, in Highlands Ranch, Colo., Michael Mann was taken by surprise. Suddenly, the 15 full-time employees he keeps during the off-season — as opposed to 25 or more during spring and summer — were not enough.

Opened in 2006, SwimLabs offers one-on-one lessons to children and adults. All students are videotaped and analyzed as they take their strokes in small pools equipped with water jets.

The company saw the same surge in business after the 2012 Summer Olympics.

“The Olympics always elevates the sport,” said Mr. Mann, who holds several masters swimming records. His business got an extra boost because the four-time gold medalist Missy Franklin lived nearby.

To decide how many instructors he needed to hire, Mr. Mann looked at monthly gross earnings and calculated that the payroll should consume a maximum of 25 percent of his operating costs. If he generates an additional $10,000 a month in revenue, he knows he can afford another instructor who is paid $2,500 a month. As a result, Mr. Mann started hunting for two more part-time instructors.

CALL VOLUME Growth can be deceptive. Sometimes, efficiencies may keep three times as many customers from meaning three times as much work. That is a lesson learned by Hudl, a company in Lincoln, Neb., that builds video analysis tools for coaches in 20 different sports, allowing them to break down plays and share them with their players.

The company’s big market is high school football. In the 2011 season, its six-person service team went from working with 2,000 teams to working with more than 6,600. “We were staying up all night” to manage problems such as software bugs, said Bryant Bone, who heads the support team. Clearly, Hudl needed help.

Article source: http://www.nytimes.com/2013/08/29/business/smallbusiness/figuring-out-when-its-time-to-add-an-employee.html?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

Small-Business Guide: Figuring Out What Time Is the Right Time to Start Hiring

August 28, 2013 by

First, he needs more people in the warmer months. He also has to consider where his jobs are and how long it will take his workers to drive from one job to another. Some jobs take longer than others, because vacuuming and scrubbing take more time than chemical treatments. Plus, he said, “Everyone wants their residential pool service on Friday.”

Of course, like most business owners, Mr. Johnson always wants to avoid having too many people and not enough work.

“Determining when and how many employees to hire is a bit tricky for our business as the demand for services varies based on account growth, seasonality, geography of homeowner addresses and customer requests,” said Mr. Johnson, who started the company four years ago.

Many small-business owners remain skittish about hiring. The National Federation of Independent Business reported that nearly 80 percent of small, private companies made no hiring changes in July and 12 percent let workers go.

Especially after the recession, many owners have been reluctant to spend the money to hire workers, especially if there’s a chance demand will recede and the workers will have to be laid off. The on-again, off-again recovery hasn’t helped. And with small businesses representing 49.2 percent of private sector employment, according to the Small Business Administration, this reluctance has inevitably had an impact on unemployment rates.

Some owners have turned to paying overtime, which makes it easier to scale back if demand slips. The downside is that it can be expensive and it can lead to an overworked staff.

For example, the work force at Narragansett Creamery in Providence, R.I., has grown slowly even as more customers are drawn to the company’s homemade yogurt and cheeses, said Mark Federico, the owner. Started in 2007, the company has grown to a staff of 30.

“We found that if we worked too many hours for too long a period of time, people get burned out,” Mr. Federico said. “People need days off. It’s not scientific, and we’re not right all the time.”

Based on the experiences of owners like Mr. Johnson and Mr. Federico, this small-business guide looks how owners determine when it’s time to hire.

HOURS WORKED Mr. Johnson said he ran his employment numbers weekly, as clients were added and lost, to ensure he had enough people. He uses a spreadsheet to help him decide when the company can support the wages of new employees.

He keeps careful count of the number of pools the company cleans and the hours required for each job. He separates residential jobs, which typically require 30 minutes of time, from those at commercial pools, which can take two hours.

To calculate the required number of employees, Mr. Johnson estimates the number of hours required to clean all client pools and divides that by a standard 40-hour workweek. When the result is greater than the number of employees on staff, he makes a new hire.

THE PAYROLL PERCENTAGE Earlier this year, when there was a surge in demand for swimming lessons at SwimLabs, in Highlands Ranch, Colo., Michael Mann was taken by surprise. Suddenly, the 15 full-time employees he keeps during the off-season — as opposed to 25 or more during spring and summer — were not enough.

Opened in 2006, SwimLabs offers one-on-one lessons to children and adults. All students are videotaped and analyzed as they take their strokes in small pools equipped with water jets.

The company saw the same surge in business after the 2012 Summer Olympics.

“The Olympics always elevates the sport,” said Mr. Mann, who holds several masters swimming records. His business got an extra boost because the four-time gold medalist Missy Franklin lived nearby.

To decide how many instructors he needed to hire, Mr. Mann looked at monthly gross earnings and calculated that the payroll should consume a maximum of 25 percent of his operating costs. If he generates an additional $10,000 a month in revenue, he knows he can afford another instructor who is paid $2,500 a month. As a result, Mr. Mann started hunting for two more part-time instructors.

CALL VOLUME Growth can be deceptive. Sometimes, efficiencies may keep three times as many customers from meaning three times as much work. That is a lesson learned by Hudl, a company in Lincoln, Neb., that builds video analysis tools for coaches in 20 different sports, allowing them to break down plays and share them with their players.

The company’s big market is high school football. In the 2011 season, its six-person service team went from working with 2,000 teams to working with more than 6,600. “We were staying up all night” to manage problems like software bugs, said Bryant Bone, who heads the support team. Clearly, Hudl needed help.

Article source: http://www.nytimes.com/2013/08/29/business/smallbusiness/figuring-out-when-its-time-to-add-an-employee.html?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

Small-Business Guide: With Its Technology Aging, a Company Reinvents Itself

August 14, 2013 by

Started in 2002 and based in Nashville, Emma had grown quickly. By 2010, it had 90 full-time employees and 30,000 clients. It had recently passed $10 million in sales, but an awareness had begun to set in that its hardware system — built before the cloud even existed — was showing signs of strain. Capacity was running low and programmers had to navigate several layers of the system to update existing features or introduce new ones. These concerns crystallized at the conference when the Emma executives listened to Google employees discuss their plans for Gmail.

Hearing how innovative and agile Google’s software was and how many programmers the company could deploy, the Emma team began to question everything about the company’s ability to compete. “It became fairly obvious that we had to do something,” Mr. Smith said. But how were they going to rethink and rebuild the company while continuing to serve existing customers?

The first step, Mr. Smith said, was to “declare war on our technical-to-nontechnical staffing ratio.” Within a year Emma had ramped up its roster of developers from 20 to 41 — or nearly half of its full-time employees. “If we were to make this a world-class software company,” Mr. Smith said, “we needed to bolster our resources and look and staff up more like a software company.”

Next, the company considered a plan, outlined by consultants already on retainer, that was intended to extend the life of Emma’s existing system. But with a price tag of $250,000, the plan offered little more than a costly Band-Aid. As Mr. Smith and his team considered their options, they found themselves returning to the same question: What would Emma do if it were starting fresh?

Re-engineering both their platform and their products would take time, an anticipated 12 months, and it would cost money. They did not even try to put a price on the project. “It felt more like a commitment to a new way of operating than a one-time project,” Mr. Smith said.

They also knew that any transition process would bring glitches and delays and the real possibility that clients would flee. For an extended period, the company would not be able to adjust its system or processes; it would be stuck with all of the worst aspects of the old platform.

But if Emma did not rework its system, the company would lose long-term competitiveness, leading to a loss not only of existing clients but of future ones as well. In the end, Mr. Smith determined it would be riskier not to start over, noting, “Big fear beats little fear every time.”

When Mr. Smith looked for other small companies that had rebuilt their technology infrastructure, he found few templates. “I will say none of them had taken on the whole thing and certainly not in such a relatively short period of time,” he said.

One that came close is Stratose, a company offering health care cost-containment services in Atlanta. Ten years ago, it completely rewrote its own system, which its president, Tina Ellex, called “the Big Bang theory,” a tough process that required huge blocks of time and a dedicated team. Ideally, Ms. Ellex said, she would have preferred a modular approach. “Anybody would,” she said. “I’ve not seen a lot of companies do a complete rewrite.”

At Emma, the project took 18 months, six months longer than anticipated. And it cost $4.5 million. Preliminary research and design began in the summer of 2010. The company relied primarily on its own engineers and developers, hiring a small outside team to build one set of e-mail tools.

The principle operating guideline was to design a flexible system that would remove the need to do anything like this again. “We didn’t know what the marketplace would look like in five years,” Mr. Smith said. “Also, we didn’t know how databases would evolve in five years either. We couldn’t design for the future, but we could design something that could adapt to what the future will bring.”

Emma chose an application program interface design and a service-oriented architecture, which enabled it to produce and execute updates and new features. The design allows internal services to connect with each other as well as with outside services, which it had little ability to do previously. Emma also re-engineered its database structure to take advantage of cloud-based storage like Amazon’s S3 and new technologies like Redis and CouchDB.

Article source: http://www.nytimes.com/2013/08/15/business/smallbusiness/with-its-technology-aging-a-company-reinvents-itself.html?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,
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