Will 2012 Be the Year You Start a New Business?

When you're entering the fifth year of a grueling economic downturn, it's easy to get discouraged. But some would-be entrepreneurs aren't letting unemployment figures get them down -- they're seizing the chance to start their own business.

While the tough economy poses challenges, there are also some distinct advantages to starting a business now, including:

• Cheap real estate
• Affordable leases and cooperative landlords
• Weaker competition
• Vendors willing to offer generous terms
• Low-cost advertising options

Most importantly, there's the thrill of chucking a job you hate -- or maybe a floundering small business that's not working -- to try out a new idea.

The biggest hurdle to jumping into entrepreneurship usually isn't economic, anyway -- it's between your ears. On the new Halogen network reality-TV show Jump Shipp, author Josh Shipp (The Teen's Guide to World Domination) helps people who're stuck in a dead-end job (or relationship) to break free and pursue what they really want.

Many of the stories are about would-be entrepreneurs who're trying to get up the gumption to take the leap and start their own business. In a recent episode, graphic designer Debbie Lee longs to become a freelancer in her chosen field, but is stuck working in her family's jewelry business, now distressed by the bad economy.

With Shipp's help, she gets both a realistic assessment of her portfolio and how to get it in better shape to land gigs, and moral support for breaking the news to her parents that she wants to quit working in the family business.

In another episode, a talented graphic novelist gets a push from Josh to take the plunge and try to make a living from her art.

"Her kryptonite is lack of commitment," Shipp notes. Isn't that true of so many people who wish they were starting a business, but never seem to get around to it?

What Every Entrepreneur Needs to Know About Public Speaking

What Every Entrepreneur Needs to Know About Public Speaking

Important Thing to Note No. 1: You're not as bad a speaker as you think. "When we have people give talks in shyness groups, they often do much better than they thought they did. There's a tendency to underrate your performance when you're feeling shy," says Dr. Lynne Henderson, director of the Shyness Institute, a nonprofit in Berkeley, Calif., that's dedicated to researching and developing manuals on social anxiety.

Important Thing to Note No. 2: A little anxiety is good.* Because it means you care. You just need to care about the right things. And the right thing in this situation is: the audience. The last thing the audience wants to do is sit there for half an hour and watch someone fidget and have difficulty speaking. They want to listen to someone who is in control. Because someone in control is someone who can help--someone who can help them, specifically.

Audiences are selfish. Which is the key to everything.

The First Part
Look at these people. No, really--look at them. How can you help them? How can you make a difference to them? What do you have that they need?

"Make eye contact. Square up your shoulders with your audience. It takes the spotlight that's shining in your eyes and turns it the other way," says Nancy Ancowitz, business communication coach and author of Self-Promotion for Introverts. "You're saying, I want to look at these people in front of me and really see them and provide something of value to them."

Looking at your audience--assessing them head-on--is the same thing you would do in any conversation. And all speeches should be conversations, even though you're the only one talking. And in order to have a conversation, you have to assess the audience on a personal level. It helps to acknowledge them--not in a vague way, in a specific way. "I'm delighted to be here" isn't as good as "I'm delighted to be here to talk with you."

And then, very clearly, and without much abstraction, tell them what you aim to do.

"State the facts about what you have to offer that will help the lives of the people you're talking to, and put yourself in their shoes," Ancowitz says. "What do you have? What do they need? Where does it overlap?"

"I'm here because …" is not a bad way to start things off. Any situation that's loaded with importance and process and false interaction, such as a speech, is best begun by deflating the whole thing. So tell them what you're going to talk about. Then establish your authority. Let's assume that part of the speech involves the story of your business. That's a great story to tell, because you know it better than anyone else. And everybody likes a well-told story.

The Story
The three best pieces of advice ever doled out in the Esquire offices:

1. The subject can be boring, but the story cannot be boring.
2. You're in charge of the story.
3. People won't miss what isn't there.

All this works for a speech, too.

Your speech might not have a riveting subject, but the speech itself must not be boring. You're in charge of the speech. And you should move things along at a pretty good clip.

Paint a picture--an impressionistic picture. But every now and then, get specific. "Give the audience something to take away. Ideas, tips, rules--something useful," says Dr. Karl Albrecht, an executive management consultant and author of the book Social Intelligence: The New Science of Success. "After all, they're there for selfish purposes." But let those moments be way stations. You're in charge. Move things along.

Things You Should Never Say While Speaking About Your Company On a Stage

Is this thing on?

Can I get a witness? (even ironically)

A great man once said …

Are you picking up what I'm putting down?

Is anyone else warm?

Four score and seven years ago …

And then [pause] boom! It hit me!

In conclusion, I'd like to tell you a story. It all started way back in …

What You Look Like
Be cool. Your energy level during a speech should be somewhere between "excited to be here" and "mildly enthused to be here." Says Ancowitz: "There's no need to push; there's no need to talk loudly; there's no need to be insistent, to pressure people." There's no need to sell, is what she's saying. Selling can be off-putting even when it's happening at an appropriate time. Onstage, it's excruciating. Think of a great historical speech. Every great speech involves selling something, but the selling is the subtext. The main point is information.

And maybe don't move around all that much. "Do you dance onstage?" Ancowitz asks. (We'll go ahead and answer this one on your behalf: No.) "Well, if you're in front of a group, you want to keep your feet grounded, and/or work the space. But you don't want to be moving without any purpose."

Every movement on a stage is magnified. When you cross your legs, people notice. When you scratch your face, people notice. When you play a thumb war with yourself, people notice. So be cool. People see everything. The best part is that controlling these kinds of movements has a way of calming you, too.

How to Wrap Things Up
Asking if anyone has any questions at the end of a talk and then waiting for someone to raise their hand is the equivalent of five people trying to split up the check three ways at the end of a great meal. It's an awkward way to cap off an otherwise wonderful experience.

Allowing people to talk isn't the problem. The problem is that no one feels comfortable until someone volunteers. So the best way to wrap things up is to ask people to raise their hands if they have questions (or to just yell the questions out) and then: Just keep talking. The hope is that you will get interrupted.

If nobody asks a question, you should hone your speech. Because you haven't made them wonder how your story affects their lives. Because you haven't had a conversation. You've been talking to them, not with them. Think of the raising of hands as a score card.

Your goal should be to get to a point where you can say: "We have time for only one more question." Which is a beautiful thing. It means you provoked them. You showed them what you can do for them. It means they understood what you can do for them and they want to know more about how your story can meet their needs. Which suggests that you're doing good work--onstage and off. 

*If you have a severe problem with anxiety, you should stop reading this column and call a professional for help. Read this column in the professional's waiting room. Because it doesn't have to be this way.

Key Technical Matters

Do not poll an audience of 10 or fewer people by a show of hands.

Do not imagine the audience in their underwear.

Do not imagine yourself in your underwear.

Do not look at your watch. If you start wondering how much time you have left, the audience will start wondering when you're getting off the stage.

Thank no more than three people at the beginning.

Keep your hands out of your pockets.

Unless you're a stand-up comedian. From the 1960s.

Do not close your eyes in a dramatic fashion at a key point in the speech.

Do not move your arms in a dramatic fashion at a key point in the speech.

Or your legs.

Or your hips.

Or someone else's arms, legs or hips.

Leave the pounding on the podium to the dictators.

Three Traits of a Successful Entrepreneur

Sometimes when you're wondering what to do next in life, good advice can come when you least expect it — like when you're getting your hair cut.

Jenn*, the hairstylist giving me a trim, mused aloud about what she was planning to do with her career. Cutting hair was just one part of her livelihood; she was also a professional caregiver as well as the owner of a rig that her husband operated. But her husband was about to retire from the road, and now they were wondering, "What next?"

Over the course of our brief conversation, in no more than the time it took Jenn to cut my hair, I picked up on three attributes of her success that are helpful for any entrepreneur:

Practical. Listening to her brainstorm reminded me that successful entrepreneurs know how to keep their feet on the ground. First, they get inspired through personal observation, developing ideas from needs they see in the world around them. Second, they develop a concrete plan. They may work the plan, changing it as they go, but always with an eye towards getting a good return.

Purposeful. People with a practical outlook seek opportunities that add value, as opposed to opportunities that just seem "cool." (It's easy to forget this distinction, especially in well-established organizations.) Their focus is offering products and services that customers need and will pay for. For instance, Jenn's second job as a caregiver: that's a service for which there is always a need.

Impatient. Sure, patience is a virtue in some cases. But for an entrepreneur, so is impatience. Jenn is eager to make things happen so that she can continue to earn a good living. When it comes time for her husband to leave the trucking business, she will be ready with another venture. Her gumption and ambition make her impatient for success, and that drive increases her chances of getting there.

There's one final trait that successful entrepreneurs share: They realize that inspiration is useless without perspiration. During my 15 minutes in Jenn's chair, we talked about three different industries she's involved in — personal service, health care, and transportation. People who work for themselves have to rely on their own get-up-and-go.

People like Jenn enjoy working for themselves because it affords a level of independence. With hiring still sluggish at large firms, I suspect we will encounter many more such entrepreneurs. The future of our economy may indeed depend upon such folks, whether they are running a company that cuts hair, or running a company that makes microprocessors.

People who can think and plan ahead, are comfortable with uncertainty, and have the discipline to work hard are an asset, and are ideal candidates for business ownership.

How to Get Involved with Your Employees Work Without Micromanaging People

One of the more vexing problems most small business owners face every day is how to get involved in the work of their people without doing the work themselves or micromanaging those doing it.

You can resolve this when you think of every activity not as one step — doing — but three distinct steps: prepare to act, act, and then reflect on the outcome and what can be learned from it.

Start by expecting your people to use Prep-Do-Review themselves in their work. Not only will it make them more effective, but it will provide a way for you to become involved in their work as appropriate for the person and the situation.

This is the way it works:

Prep: Start by previewing people's plans with them and suggesting changes, if necessary. You do this by asking crucial questions. What are you going to do? Why — for what purpose? How will you do it? How can you use this to make progress on our goals and plans? Who should be involved or kept informed? How can this be used to help you learn and get better? What if your assumptions are wrong or the unexpected happens? This is how you move your group's purpose, plans, and work forward, how you coach and develop others, how you delegate more confidently, how you assure yourself that someone is well prepared and ready to act on her own.

Do: Based on what you learned in the Prep stage, you can decide whether and how to be involved in the doing of the activity. Working with a novice, you may want to perform the activity yourself while the person observes. Next, you may want to monitor periodically as the person does the activity and then give them feedback afterward. Thereafter, you probably don't need to be present at all — the Prep and Review stages are where you'll be involved.

Review: Great managers make post-action review a regular practice for themselves and their people. You can make it the focus of a one-on-one after an activity has been completed. Or it can be part of periodic meetings with each of your people or a standard procedure you go through in the updates your people provide at staff meetings. Be sure to model what you expect when you describe something you did — Here's what we learned. Next time we'll do it this way.

Remember to do a review regardless of the outcome of an action — failure or success. We are much more likely to reflect on our failures. Too often, we don't take time to learn from our accomplishments and never really understand the keys to our success and what lessons we can take forward.

Most of your managerial interactions with people will occur in the Prep and Review stages. Only with someone inexperienced or in situations of high stakes and high risk will you, or should you, be involved in the actual performance of a task.

Used this way consistently and consciously, Prep-Do-Review becomes a powerful management tool that will improve how you manage your people. By giving you ways to be involved without directly intruding as your people do their work, it will make your interactions with them richer, improve outcomes, help people learn, and make you a better delegator.

If you operate this way as a boss consistently, you'll find certain core management tasks become easier and more systematic. It will let you delegate more intelligently, based on both a person's skill and experience level and on the situation. It will help you coach people more effectively; indeed, it will help you turn many tasks into learning experiences. And it will let you use your time more effectively by helping you determine when you do and don't need to be involved.

With very experienced people, and especially with routine tasks, you needn't be involved in either Prep or Do, but as a boss you never completely let go of the Review stage. You may not review outcomes after every task, but ongoing performance review is something you'll never give up entirely.

If you think about it, Prep-Do-Review is the fundamental cycle of activities by which effective bosses manage — through a perpetual loop of prep-do-review-prep-do-review. By using it to become more mindful and deliberate in all you do, it will help you convert mundane workaday activities into management activities. It will help you make progress through the daily work. And it's the way you guide your people, produce results, and help them learn without inserting yourself unnecessarily into what they do. It's not the solution to every management challenge, but it's a powerful approach and the closest thing to a management secret that we know.

Groom Your Company with a Buyer in Mind

One of the reasons that so many companies are formed in Silicon Valley is that they are all groomed from Day One for sale to another Silicon Valley company. Proximity makes it just that much easier for a company to be sold, which makes it that much easier for the company to raise capital. When a company has a huge-market capitalization, it can use that stock or cash to go on an acquiring binge. For many years, we started companies with a specific buyer in mind, such as Microsoft, Oracle, or Cisco. More recently, Google, Groupon, and AOL have been active acquirers. The movie companies are also in the wings as they decide to get into or out of the game business. It is a good strategy to watch the IPO market this year and ask yourself what newly-public companies would like to buy. Groom your start-up from to be a fit into their portfolio. Then move fast and get something going quickly before they have spent their money or find out that some of the things they bought are crap. Your sale will make your shareholders rich and you get to work with these companies for a couple of years as part of the deal. After that, you can buy your boat (or perhaps an island) and live happily ever after.

Re-Build to Sell

It's sad to say but many small business owners who come to me wanting to sell are in a crisis. They haven't kept up with the times and have outdated equipment and pricing that is below industry standards, and are up to their eyeballs in debt. One thing to keep in mind is that when you do something to enhance your service, it will have an impact on the eventual sale of your business.

Here are a few things to consider when getting your business ready to sell:

1. Equipment: If you were six months away from putting your service on the market than I would not recommend purchasing new equipment or upgrading your software. You will not make back your investment in that period of time. The buyer may also prefer a particular brand of equipment or may buy only your accounts. You would then have to sell your equipment on the used market, which usually brings only pennies on the dollar. If you are two to three years from selling and have old equipment, then by all means buy newer equipment. This enables you to keep up with your competition by offering the same or more enhanced services.

2. Rate increases: Annual rate increases are recommended. One of the most important formulas I use in evaluating a business is determining profitability, which comes down to rate structure. I recently sold a medical service for more than 14 times its monthly billing and the reason it sold for that multiple was the way the services were priced. It was very profitable, averaging $365 per client. The service had only 140 accounts but billed more than $50,000 per month, producing a net profit margin of more than 38 percent. Do not increase your rates just before selling your business to boost your monthly billing. A potential buyer will want to see a reasonable conversion history for the rate increase. I would also recommend switching to a 28-day billing structure. This will give you an additional one month's billing per year, which should increase cash flow along with your annual revenue.

3. Automate: One way to cut down on your biggest expense, labor, is to automate some of the message taking and delivering functions. By delivering messages via email, fax, voice mail, pager, or cell phone, it will free up the time it takes the operator to deliver the messages in person. Some services offer an automated attendant feature, giving the caller a choice of where the call should be directed with instructions that if they have an emergency, the caller should press zero for an agent.

4. Cut the fat: Get your business lean and mean. Cut out all frivolous expenses and cut the dead wood clients. If you have clients who are non-payers or who do not produce a profit for your company, get rid of them.

5. Financial record keeping: Buyers are interested in businesses with a good profit margin of at least 20 percent, advanced equipment with updated software, solid management in place, and a history of growth. One of the first items buyers ask for after reviewing your listing information is a current financial statement, along with at least one previous year's statement. This shows the prospective buyer how your business has grown financially in the past and its likely future growth trend.

6. Clean your financial history: Make sure that you have clear titles to your equipment and other assets, and that all your federal and state taxes are paid, along with being current on your payroll tax deposits. Buyers will do lien searches on you and your business, so if you have any skeletons in your closets, clean them up before placing your business on the market.

Of course location, cleanliness of the operation, and a reliable, well trained staff, all have something to do with how salable your telephone answering service will be, but the above points are critical to getting your business ready to sell.

Tips for Negotiating an Earn-out

Less than half of entrepreneurs stick around long enough to reach their earn-out goals. Using these tips, though, might make it worth the wait.

Less than half of entrepreneurs stay for the length of their earn. A lot depends on the entrepreneur. If the earn-out looks at all doubtful, and they have an idea for another business, they’re not going to stay around for three years.

How can you negotiate the earn-out to be beneficial for you, as a seller?

1. Ask for a seat at the table when the goals are being set

Most earn-out agreements are drafted in isolation by the acquiring firm and presented to the seller as a final package. Instead, business owners should ask to be involved in setting realistic post-sale goals for the joint company.

2. Agree to goals that reward integration results

Using an earn-out tied to your company’s profits as a division of the buyer encourages the business owner to prioritize profits of his/her division over the integration of the two entities.

For example, let’s say you use Peachtree for accounting, and the buyer uses SAP. The last thing you want to do is waste time changing accounting platforms when you have an earn-out number to hit, yet having one bookkeeping software program would accelerate integration. The same trade-off is played out in decisions around the sales team, product lineup, real estate, marketing and so on. Integration trade-offs can be the enemy of short-term profit and can create serious tension between the selling entrepreneur and the buying firm.

Instead of signing up for an earnings goal exclusively, ask the buyer to consider also including goals that measure the performance of the integration, such as cross-selling targets, revenue in a new geographic region, number of new customers, etc.

As opposed to profits, earn-outs can be based upon the acquired owner serving their time, client retention or earning a patent, etc.

3. Sprinkle goals throughout the earn-out period

Three years is a long time to wait to get paid, yet most earn-out contracts are heavily weighted to the last year of the agreement. Both buyer and seller would be better served by negotiating smaller payments throughout the earn-out period that reward results along the way.

Try to increase your up-front payment and put less in the earn-out. If the acquirer has their “way” of structuring an earn-out and won’t budge from it, he probably isn’t the right buyer for your business, and you probably won’t see the amount that you had anticipated receiving for your business.

Remember, you have to work with the buyer for years to come. If the buyer gives off a rigidity nature, the track record of earn-outs and the natural tension between integration and maximizing short-term sales, it is unlikely any seller will last six months post-sale.

A Tale of Reported vs. Actual Income – Sellers Beware

Among the genre of small business owners, there is one individual whom I met that stands out from all the rest. He was the epitome of one obsessed with a need to minimize his reported taxable income. I was amazed at the lengths he went to, to distort his sales revenue and expenses on his financial statements. You name it, he did it: pocket cash sales and never enter them on the books, bloat reported expenses by recording personal purchases such as travel, meals, magazine and newspaper subscriptions, personal auto expenses, home repairs and maintenance and so forth as business expenses. He held back credit sales in November and December and didn’t book them until January; he stuffed his postage meter in December with enough postage to last him until August but reported the total purchase as an expense in December, and on and on. Moreover, he was quite proud of this accomplishment. He told me that he met with his CPA several times a year to “brain storm” new ways to minimize his reported income. The energy he put into this practice was enormous. He was truly consumed not with just a desire, but it seemed to me, a compelling need to avoid paying income taxes.

However, the enormous difference between his advertised earnings and what appeared on his financial statements and tax returns didn’t sit well with the buyers.

In addition to the negative affect that distorted financial performance reporting has on a business’s market value, such statements also become less useful—and in many cases useless—as a business planning and control tool. This is dangerous because there comes a point in a growing business where the absence of accurate financial reporting becomes the kiss of death.

There also comes a time in most growing businesses when the need arises to borrow money to finance new operating equipment, leasehold improvements, the purchase of real estate, inventory perhaps and so forth. Without good financial statements (and accompanying tax returns) that demonstrate a history of solid earnings, the ability to borrow the needed money becomes significantly more problematic.

And finally, one always runs the risk of being audited by one or more taxing authorities. If they should discover that you have been deceptive in reporting your company’s earnings, they can make you wish you hadn’t. In fact, I asked the business owner who I have told you about here if he was at all concerned about an audit. He assured me he was not. He said he was confident that he was much too clever to get caught by an auditor. I had my doubts about that. After all, he readily spilled the beans to both prospective buyers. One of those buyers could have been an under-cover I.R.S. agent. They really do stuff like that. Now there’s something else to think about.

Retention Bonuses Prove Effective for Companies in Transition

Mergers, downsizing and reorganization all can wreak havoc with operations. To make transitions run smoothly, companies increasingly turn to retention bonuses, or "stay pay," to entice employees to remain through the rough patches.

Retention bonuses are becoming more common in the corporate landscape because companies are going through more transitions. They need to give key people an attractive incentive to stay on through the transition to ensure productivity, particularly with a liquid labor market today in which individuals can easily move on.

In contrast, a large international communications firm in the process of completing a merger has offered retention incentives to selected management and sales personnel. The company wants to ensure that those employees remain through the transition.

Retention bonuses have proven to be a useful tool in coaxing employees to stay. In a recent survey, 70 percent of the companies reported that retention bonuses were effective in holding employees through transition periods.

COMPANIES NEED A RETENTION STRATEGY

Incentives for retention are a matter of common sense. Whether a corporation is moving headquarters or merging with another company, the corporation is going to need certain people to carry out the project. In this economy, companies need to offer something, because otherwise employees can and will seek employment elsewhere.

While bonuses are becoming a major factor in employee retention, they may not be enough to hold top employees if used alone. A company can't simply dangle a bonus before employees and expect them to stay. As with any incentive, retention bonuses should be part of a larger strategy.

The company has to know what's desirable to the employee, and that isn't always money. Like any form of compensation, a retention bonus isn't going to work without communication. Companies need to find out what employees want and offer a package. The retention bonus may be part of it, but so is a good working environment, praise, challenges and other things that make it attractive to stay.

Although retention bonuses often are used to retain high-level executives, they are not the exclusive domain of management. Where some business owners tempt front-line hourly workers by offering one month's pay for those who agreed to stay on for three months during a merger.

MANY VARIETIES OF STAY-PAY PLANS

There is no single formula for establishing a retention bonus plan that will work for all companies. The experts agree that a successful retention plan depends on both the amount of the bonus and the time frame of the retention period.

A survey found that non-management employees generally receive about 10 percent of their annual salaries in bonuses, while management and top-level supervisors earn an additional 50 percent of their annual salaries.

While bonuses based on salary percentages are the norm, some companies choose to pay a fiat figure. These flat-rate bonuses range anywhere from $1,000 to $40,000, depending on the employee and the company.

A flat figure is simply a different way of expressing the same thing as a percentage, and each company should implement a plan that makes sense for them.

There's no one way to determine how much to pay, but being competitive is key. First, you have to determine if your base pay level is competitive, and as for what percentage, there's no rule of thumb. It depends on the situation and what it will take to retain the employee.

DETERMINING THE RETENTION PERIOD

Just as there is no set formula for determining the size of the bonus, there's no one retention period that works for all companies. However, a typical retention period runs somewhere between six months and three years.

Determining the retention period shouldn't be difficult if a company has developed specific goals and has done long-range planning. The retention period really depends on the objectives of the particular company and whether it's looking at long- or short-term projects.

Because there's always a risk that employees may bolt before the project is complete, most companies draw up agreements to bind them to the company for a specified time period. There's usually a contract that outlines the agreement, so that if employees don't stay, they don't get to keep the bonuses.

A WIN-WIN PROPOSITION

The growing interest in retention bonuses is testament to their effectiveness. They work because it's a win-win proposition. It's a win for the company, which can retain key employees through crucial transitions, thus saving time and money by keeping operations fluid. And it's a win for employees, who not only benefit from the extra pay but also avoid sudden layoffs, making it easier for them to put together strong resumes and begin searching for future employment.