Way to Grow

Learning from Mistakes: Thoughts from Pam Slim

I won't be telling you everything that is in Pam Slim's book, Escape from Cubicle Nation. You should get the book yourself if you're even considering going out on your own. But I want to mention a little section in the book that is always relevant -- even if you stay in that cubicle -- and, what with the President's recent gaffe surrounding an arrest in Cambridge, it's especially topical right now.

Slim points out some possible reasons for making mistakes. Why is it important to consider the reasons? Because if you don't understand what caused your goof, you're likely to make a similar mistake again. Her reasons:

• Didn't listen to your intuition
• Had too many things happening at once and lost control
• Didn't have the right partners
• Avoided an uncomfortable area

I can say with certainty that I've done all of those at least once. Sometimes it is easy to let go of the mistake, but when the stakes are high, it can be tough. Slim recommends that you take a little time to ask yourself:

• What can I do next time to avoid this unfortunate result?
• How does this lesson position me for great success in the future?
• What is this situation trying to tell me?

SBA Loans Finding Their Way to Small Businesses

BusinessWeek reports in an interview with new SBA Administrator, Karen Mills, that the flow of loans to small businesses is underway. Banks and lending institutions are finally signing up. According to Mills,

The purpose of the $730 million received from the American Recovery & Reinvestment Act was to get capital flowing back into the hands of small businesses. We reduced the fees, and the banks wanted to make the loans. [And] when we put the guarantee up to 90% they said: "Now we can feel comfortable putting these on our balance sheet." Since the passage of the Recovery Act, our loan volume is up 40%, and [we] have put $6.2 billion in the hands of small business. We now have 600 banks lending that had not made a [SBA] loan since October 2008.

Getting Started with a Mentor

I've had several notable mentors in my career but, looking back, I realize I didn't cultivate them. They sort of "adopted" me. Indeed, a mentor relationship that develops organically is a good way to go, and I continue to value the help and support I received from those people in my career.

But I also realize that I haven't really had a mentor per se since starting my own business. Perhaps teaming with a small group of consultants early on helped fill that need. But could I have done better? While reading Pam Slim's book, Escape from Cubicle Nation, I think I could. She offers tips for kicking off a mentoring relationship (and I paraphrase only slightly):

• Introduce yourself -- or reintroduce yourself if it has been a while since you've spoken.
• Invite the person to coffee or lunch and find out what they are doing and are interested in.
• Ask for advice once and see how it goes. If the person seems open, keep the dialogue going. But if you detect reticence, don't push; thank them for the advice and move on.
• Offer support and advice back. Make introductions or share articles of interest.

Interestingly, Slim believes the best way to "create a force field of attraction for a mentor" is to be one yourself. Well, at least I'm doing that part right. I'm mentoring clean tech startups that are semi-finalists in the Clean Tech Open.

If you don't have a mentor, identify who you'd like it to be, and get started building the relationship.

Know Why You're Starting Your Own Business

In interview with people for my (work-in-progress) book about people who left corporate careers to start their own businesses, I found people had different reasons for taking that grand leap. A recent blog post from Martin Zwilling nicely captures the range. In Startups: Different Types for Different Folks, he lists these types of startup models -- or reasons for heading out on your own:

1. You really want to be your own boss
2. You have the technology [or product] to change the world
3. You just want to make lots of money
4. You are doing it to satisfy someone else
5. You're looking for something to keep you busy

I think the common belief is that entrepreneurs either fall into categories #2 or #3, but there are lots of people who make the change for the first reason. They want the freedom/flexibility/independence that life as an employee simply doesn't afford. Count me in the #1 category. After consulting for a while, when somebody offered me a job, I knew for sure why I was my own boss.

It's important for you to understand what your motive is. It will shape the business model that works out best for you.

[Post found via Zwillig's Twitter account, @startuppro.]

More Cash Can Offset Need to Borrow

Sure, it sounds good -- bring in more cash rather than take out a loan when you need to, say, buy equipment for your business. Not so easy to do, you say. Well, yes and no. Wall Street Journal Small Business recently offered some suggestions on Innovative Ways to Reel in Cash, by Diana Ransom of Smart Money. The article tells about a spa owner who raised $30,000 in a single day by pre-selling services.

Other tactics Ransom suggested may work for you, too:

• Offer upfront pricing - Customer pays cash now for future discounted goods or services
• Discount items, sometimes - Selective discounting
• Purchase money financing - Give vendors a Purchase Money Security Interest (PMSI), a lien against goods that the vendors agree to send your business, and pay them when the items sell. (Good deal for vendors because a lien on new goods trumps other liens in a bankruptcy proceeding.)
• Switch from fixed to variable costs - Use hosted services rather than purchasing technology equipment. Maybe doesn't raise cash, but certainly eliminates need to borrow.

(Article found via @curtisfinancial on Twitter.)

The Business Plan -- Don't Start Without One

The rule when you need to borrow money to grow your business is that you show the potential lender your Business Plan. Yet the business plan requirement remains an argued topic year after year. The outlines of what must be included in the plan are clear, and in principal, people agree it is important that you have thought through the choices a plan defines. But the tough part, especially for first-time entrepreneurs, is the financial projection!

Cathy Curtis of Curtis Financial took on this subject in one of the first posts in her Curtis Financial Planning blog. She hosted a panel discussion of four women in the food business at San Francisco's Commonwealth Club recently. The topic was, "To Plan or Not to Plan".  The four panelists had produced the obligatory business plan at the start, but each quickly became irrelevant as reality intruded.

You could judge that the time spent on a business plan is also irrelevant, but Curtis begs to differ. She says:

I have no doubt that these amazing women will succeed. Street smarts and passion can take a business a long way. However, as a financial planner I see what bootstrapping can do to a business owner’s personal finances and I am duty bound to counsel caution. Here are  my three reasons why you should consider developing a business plan.

Writing a business plan compels you write down the numbers and
decide which are most important to your particular business – then it’s
up to you to watch them like a hawk.

Taking shortcuts doesn’t work when it comes to growing a business.
Writing a plan helps you to think strategically and decide what’s best for the company in the long term. This can even include an exit strategy.

Assumptions change and circumstances change, but don’t make that an excuse to avoid having a plan.  Even if you launched on sheer gut instinct, step back and create a plan now. You’ll be rewarded with clarity and peace of mind.