Consultants

The Value of Acquiring and Retaining a Business Consultant

"The reality and value of a GOOD business consultant is that they don’t get caught up in the “Forest for the Trees” mindset."

Ron O'Herron - Pikes Peak SBDC Consultant Tweet

A business professor once stated to his class that the definition of a consultant was “a person who rides down from the top of the hill after the battle is over and shoots all the wounded.”

Another definition that has circulated in the business community is, “A person who borrows your watch to tell you what time it is and then charges you for it.”

Although opinions and mindsets will vary, the truth and fact of the matter is that a good business consultant can and will add significant value to the overall operation and growth of a business!

A strange but true story and example of a value-added Business Consultant relates to a serious problem that existed at a nuclear power plant. Their trouble was detected in one of the reactor transmission lines, which was becoming very costly and creating a possible safety issue.  A consultant was called in and after studying the problem for several days and meeting with numerous operations engineers, he provided a solution. On a diagram of the reactor and transmission lines in question, he drew a symbol for a strategically located special type of monitoring/relief valve.  The device was obtained and installed as suggested by the consultant. Immediately the problem went away, cost savings were realized, and the safety threat was eliminated. Upon receiving the consultant’s $75,000 invoice for work performed, the Chief Engineer was shocked and questioned the consultant. The explanation was quick, factual and simple…$25,000 was for the specialty valve and the balance was for knowing where to locate it!

The reality and value of a GOOD Business Consultant is that they don’t get caught up in the “Forest for the Trees” mindset…they don’t bring any industry specific “paradigms” to the table.  What they do bring, however, is an ability to listen, ask questions, think outside the box, analyze and provide value-added solutions to the desired growth direction of a business, its owners, and its employees.

The Business Consulting World has an array of consultants and consulting firms.  Some are generalists, while others specialize in a given field.  The vast majority of these consultants aspire to a “one-stop shopping” process, in that the process and methodology that they use, will work for any business. However, once again, the reality is that every business has its own personality…the personality of its owners, managers, employees, products and services offered, market or industry and equally important, their customers and clients.  Without a good understanding of all these operational areas and how they affect the business, a consultant’s suggestions and advice is “wishful thinking” at best!

So with all that said, making the decision “to use or not to use” a business consultant rests on the shoulders of the owner of the business.  A GOOD Business Consultant has “been there and done that” and their methodology and number one objective is helping you and your employees grow the business and be successful, by analyzing the past, dealing with the present and planning for the future!

3 Risk Levels to Becoming a Business Owner

"Starting a business from scratch is by far the riskiest way to become a business owner."

Steve Imke - Pikes Peak SBDC Consultant Tweet

Most of the clients I see want to start their business from scratch, but there are 2 other options to becoming a business owner. The first option is to buy an existing business and the second is to buy a franchise. Clients often tell me that these two options simply cost too much. They argue that they are choosing to start from scratch because it is the cheaper path.

At that point in the conversation, I often remind them that starting a business from scratch is by far the riskiest way to become a business owner. In fact, statistics from the US Department of Commerce say that 65% to 90% of start-up business are likely to fail within the first five years. In other words, only 10% to 35% will have a chance of success. The principle reason for this high failure rate is that most businesses take on too many fixed expenses early on. On top of that, their revenue ramps up slower than planned and the business simply runs out of money before breaking even and turning a profit.

One client who had previously been a pilot in the US Air Force summed it up when he said,

“I guess they had too much payload and not enough runway.”

Entrepreneurs that buy an existing business have a 90% to 95% chance of still being in business after 5 years. The principle reason for this higher success rate is that when you buy an existing business, you already have revenue from customers and have a predictable level of expenses. You know these expenses are less than the amount of revenue, which leaves the business some profit and cash flow to work with. Moreover, existing businesses often have employees that already know their jobs, are well trained, and the business has proven processes to capture customer value.

Entrepreneurs that buy into a franchise concept have a 90% chance of still being in business after 5 years. Although franchises need new customers to generate revenue, the entrepreneur is often buying brand awareness and a proven system. Moreover, most new franchises are able to reduce the cost of goods sold by taking advantage of the economies of scale established by the franchiser since they have franchise-wide buying power.

When you buy a franchise or another person’s business, you also have access to someone who knows both the business and financial model as well as someone who has a vested interest in your success. Obviously this is not the case with start-ups. Let’s not forget that the primary goal of business ownership is to make money for the owner.

Existing businesses make money on day one. A successful franchise will earn the owner income not too long after starting up. However, a start-up, even one that survives, may take months or years to begin to pay the owner a salary for working in the business.

When it comes to business ownership, have you considered buying vs. starting from scratch?

For more articles like this, visit Steve's Blog here!


 

 

 

 

 

The Hidden Value of Crowdfunding

By Steve Imke, SBDC Consultant and Small Business Specialist

Traditionally, entrepreneurs had 2 options to raise funds to start their business. They could either get a loan or give away ownership to investors. Because of the risk involved in the early stages of a small business, founders had to give up large blocks of equity to entice an early stage equity investor. On the other hand, having to make interest and principle payments for debt financing can, at best, slow growth or even cripple a company during it’s fragile early stages. Enter crowd funding, a viable option to preserve equity and eliminate the need for debt.

In a real estate deal a few years ago, a builder I know needed to raise capital to build a new residential tower in downtown Denver. With a mock-up of the finished building, some computer generated images, and some floor plan layouts, he pre-sold many of the units at a discount to come up with the seed money he needed to get the project off the ground. Crowd funding shares many similarities to the strategy used by the builder to raise capital and validate the concept.

In many cases, a product based crowd sourcing campaign allows people to pre-order the product before anyone else. This campaign accomplishes several vital steps for a company still in its early stages.

1. It provides the company with the capital it needs to build the first wave of products without either giving away equity, or pay back principle, or pay the lender interest. These benefits occur when equity is most under valued and capital preservation is most needed.

2. It validates the hypothesis that consumers are willing to exchange cash for the product. Proving the value of the product is a major tenet of the business model canvas and for business that employ the lean start-up methodology.

3. It can raise to the surface demand for new and innovative products that might be hidden without a large number of investors actually seeing the product.

4. It attracts early adopters who become social activists, evangelizing the product to their networks and raising product awareness.

5. Tiered raises create excitement. Excitement can create a valuable feedback loop to further product improvement by exposing the product to early adopters, the people who are most likely to provide feedback.

6. It provides funding for a particular product and not the company. It is like a direct investment in a single oil well rather than buying the diversified portfolio of an oil company, such as Exxon.

In addition to pre-order campaigns, some crowd funding campaigns allow for micro ownership of an early stage company. This creates a whole new class of investors who can buy into companies before they become large and go public.

Before crowd funding, only accredited investors (investors with more than a million dollars in net-worth or investors that earn over two hundred thousand per year in wages) could get involved with ground floor investments. Prior to crowd funding, companies who tried to raise money from unaccredited investors would run afoul with the Securities and Exchange Commission (SEC). Crowd sourcing allows small investment levels that bypasses SEC oversight, opening the opportunity for micro investors wanting to buy into early stage companies.

These micro investors hope these businesses will grow substantially. They hope that these businesses will then give them a significant return on their investment when the company experiences a exit event such as being acquired or going public. Before crowd funding, even accredited investors would have to either invest large sums of money in only a few companies, which is very risky since there is limited diversity in invested capital, or find a venture capital fund to invest in and lose ultimate control over the specific investment allocations in new companies. With crowd funding, a small time investor with only a few thousands dollars can invest in dozens of hand picked companies and achieve investment diversification, a domain only previously available to venture capital principle investors.

Setting up a crowd funding campaign generally requires a good video demonstration of a sexy new product. Need a little help getting your idea from conception to a point where you are ready to begin a crowd sourcing campaign? No problem! Companies, such as Quirky can help get you there in exchange for micro equity stakes.

However, the funding of your venture may be the easy part. The real work comes when the new company or product gets funded. Now the owners must produce the product. To do that, they must now manage a long supply chain and learn to run a real business.

For more articles like this, visit Steve's Blog here!