Way to Grow

You've Heard It Before: Make Lemons Out of Lemonade

In crises, there are opportunities, according to an old Chinese proverb. In a downturn, there can be ways to start your business at significantly lower cost than during boom times. During the dot-com bust in 2002, a chemist acquaintance of mine was laid off by a disk drive manufacturer. She was able to start her own chemicals analysis lab by buying test equipment at bankruptcy auctions at a fraction of their actual value. Starting that business would have been prohibitively expensive in a good economy, so the poor economy actually helped her get started.

A recent Wall Street Journal article on starting a business on a shoestring included a section on finding creative deals. It quotes Ken Yancey, chief executive of SCORE:  "With so many businesses suffering these days, many suppliers are willing to accept nontraditional deals to keep themselves afloat. For instance, if you have purchase contracts for your product, some suppliers are now willing to help with upfront capital needs if it means they’ll get your business."

The article goes on to discuss barter deals. Several young men I know are starting a microbrewery in the back of a cafe, rent-free in exchange for heavily discounted beer the cafe will resell to customers. They would be unable to get financing to start a business in this economy but have found a creative way to get started at relatively low cost. If you can devise a creative barter deal, make sure you have a detailed agreement that explains who gets what in exchange for what.

Each business is different. Think about ways you can make the most of the times we're in to equip your business.

Hiring Is Up and So Are Salaries

According to the SurePayroll Small Business Scorecard, hiring by small businesses was up by 1.8% in May. It was the sixth straight month of hiring growth according to their data. Salaries rose even more -- by 2.7%. Small business salaries in the U.S. now average $32,142.

SurePayroll's President, Michael Alter, is surprised at the growth figures because GDP growth has been "fairly unimpressive. It's an intriguing question. If we are producing less, why is it that businesses are hiring more and how on earth are they able to pay higher salaries? It's a bit like the local weatherman is forecasting a rainy day and you look out the window and there's not a cloud in the sky. All we can say is what we see: small businesses are hiring, so the economy must be doing reasonably well." 

Alter goes on to suggest that the increase in salaries is a sign of a growing labor shortage. If that's the case, expect salaries to continue to climb for some time.

A nod to Dane Carlson who found the Entrepreneur Daily's article on the report.

How to Fire an Employee

Not anyone's favorite subject, but some day in your business the time will come -- if it hasn't already -- when you need to let somebody go. Be prepared, and know how to handle it before you need to do it. Jill Pugh offers 10 things to keep in mind when you need to fire somebody. Some of it seems pretty obvious, some not so. Here's the list, but read it in full for the explanations:

1. Don't lie
2. Don't leak the decision to anyone who doesn't need to know
3. Don't fire someone on a Friday or right before a holiday
4. Don't email of text an employee with the news
5. Don't withhold money from the paycheck, except what is allowed by law
6. Do have a third party present [This is tricky if the entire business is just you and one employee. See my note below on this one.]
7. Do have a security plan in place (in case something turns violent)
8. Do follow your policies and procedures [and I must add, have written policies and procedures, and share them with employees]
9. Do back up the employee's computer files and contact your IT person
10. Do contact an attorney in advance if you think this termination could lead to a lawsuit.

Now, on point #6, one of the subjects of my book came close to having to fire her sole employee who had taken a second job, was attending night classes, and whose attendance at work had become erratic. On several occasions, she backed up discussions they had about the problem with written "minutes" which she signed and had her employee sign, and each got copies. Although he protested at first, she explained it was for his protection as much as for hers.

How You Pay Makes a Difference

Michael Sturman at Cornell's School of Hotel Administration found in a study that while raises increase performance, bonuses increase performance significantly more.

Simply spending more on employee pay would yield minimal results. Improving the merit-increase pool by one percentage point but otherwise not making any allocation changes, for example, would be projected to increase performance only by roughly 2 percent. However, if the same money was applied to pay-for-performance bonuses, the analysis suggests a performance increase of better than 15 percent. Indeed, the results suggest that providing a strong pay-for-performance link for bonuses rather than raises had the greatest potential benefit, predicted to improve employee performance by nearly 20 percent.

Sturman acknowledges that his study covered just one company of 700 employees. Further research might turn up differences. The result could be tied to other factors that weren't measured. But my gut tells me that while performance improvement may not always be as large as in the group he studied, there is a genuine motivational factor at work here. If employees believe, for example, that a pay raise is a cost-of-living adjustment, there is little challenge to them to perform better. However if they are told the increase is a bonus that is related to performance, there is a clear incentive to improve work habits.

Interesting. Even though the bonus is a delayed increase in compensation, it is valued more by hard-working employees.

A nod to Guy Kawasaki for uncovering the report.

Efficient Packaging for Shipment

I ordered a pair of shoes recently and was surprised that the shoebox arrived shipped in a tough, dense plastic bag instead of a cardboard carton. I figured it was probably a cost issue, and it is, in more ways than one. Turns out that a big part of shipping cost is weight.  The cardboard box weighs alot more than the plastic bag and requires "fillers" to keep the item from shifting around in transit.

Another consideration for businesses that are environmentally conscious is the energy cost to produce the bag vs. the energy cost of producing the carton. GreenBiz.com had a good article called Thinking Inside the Box that provides a thoughtful review of the factors that go into a decision about what packaging material to use for shipping.

And, oh by the way, my shoes, the shoebox and the bag all arrived via the US Postal Service quite intact, with no damage.

Ways to "Share the Hats"

A recent study by Visa USA and SCORE (Service Corps of Retired Entrepreneurs) indicates that solo entrepreneurs know that "wearing all the hats" prevents them from doing everything they should do for their businesses. But they also either can't or won't "share the hats". Gary Bourgeault cites an Inc.com article that yields statistics from the study.

Bourgeault made an important point: "The most important thing to keep in mind to me is to decide whether you're happy with your business where it's currently at. If you're not, then you do need to face making changes in the business; which means you need to be willing to change yourself first. To grow a business always involves giving up some control. You must be willing to do that to grow."

Of the survey respondents, 69% said they could not afford to add staff. That may be understandable, but nowhere does it say you need to hire full timers. There are a number of ways you can get help that will free you to grow your business:

1. Hire part-timers - Figure out which of your tasks could be done effectively by someone else on a part-time basis, and of those, which calls for skills you can find readily in your community. Don't overlook simple tasks that could be done by a high school student. You can place an ad on Craigslist.com or in your local classifieds.  And don't hesitate to ask around your network of friends and colleagues to see if they can suggest someone. A referred hire is often your best worker.
2. Bring in an intern - Many college students value opportunities to get real world business experience by working as an intern. The terms of the internship can be as long or as short and at whatever rate the two of you agree it should be. Contact the college(s) in your community and ask how you could find an intern.
3. Hire contractors on a project basis - If you have a particular project such as a marketing campaign or setting up a contact management system that would help your business development efforts, look for an expert with these skills. Once again, check the ads and ask people you know for recommendations.

Freeing your time to bring in more customers and develop repeat business will help you build the cash flow required to have a full-timer on the payroll. Yes, managing an employee will be a new hat to wear, so consider hiring a vendor -- a payroll service -- to make sure you get all the details right.

Retirement Plans for Small Businesses

As your business grows and you add employees, you'll be thinking about benefits you can offer that will help you attract and retain top talent. It's increasingly a "seller's" market for labor in a number of industries, and the competition for recruits can be stiff.

Consider an attractive benefit that you can offer, even as a small business: a retirement plan. There are several different ways you can structure this type of employee benefit. I recommend that you read Retirement Plans for Small Businesses in which Anthony Cerminaro summarizes the options and some of the pros and cons of each.

Hire Above the Mean

Peter Norvig of Google Research has evaluated Google's hiring strategy, which he calls the Lake Wobegon Strategy, against others used by other companies. Google's rule is to "only hire candidates who are above the mean of your current employees". Norvig suggests that this is how Google has maintained skill level while doubling in size each year. Not by other hiring strategies, "better than at least one of your current employees" or "no hiring manager".  All backed up with charts. (Via Ken Dyck.)

Maybe you don't have the money to pay top salaries, but clearly, always hire as high as you can. Hire people who are overqualified with the promise and expectation that your company will grow and the people you hire will be ready to take on senior roles as things take off.

Hiring Your First Employee

Are you a one-person business that has grown larger than a one-person business?  Congratulations on your success!  Now, how do you go about hiring your first employee?  Inc.com offers some very practical information -- everything from the basics like a hiring checklist and job description template to Hiring and the Law.

Partner to Get Product to Market

Ilana DeBare in the San Francisco Chronicle addresses the best way to finance the manufacture of your first product. Should you make it yourself or find someone to buy your idea? Or should you try to find venture funding?

DeBare's advice is very useful if you've never been down this road before. She quotes Heidi Jacquin, who has: "Designing a product from start to finish is like building a house: It takes twice as long and costs three times as much as you think it will...My advice is use a partner. If you've never done it before, find someone to license or buy it, because it's so expensive to go on your own."

Another entrepreneur who has done it, Cristy Clarke, worked with a designer who became a financial partner, and then Clarke got manufacturing quotes from a site called www.mfg.com.

Although selling your idea to an existing company is an inexpensive solution, DeBare calls it a long shot. And she eliminates venture capital funding unless your business has high profit margin potential.