ACCEPT CRITICISM GRACIOUSLY

I believe that a strong attribute of a successful entrepreneur is to accept criticism and to do it graciously so that the person offering it will give it again.

Sounds simple enough, but a great number of people just can’t do it. They get angry, petulant, standoffish, etc., and resent the person offering it. The opposite should happen as most people offering it like you and are doing it to help you. In fact, it may be uncomfortable for them to do it. Those receiving the criticism should thank them.

To grow your business and yourself, you should seek out criticism. We all like to say we welcome feedback. However, you must remember feedback goes two ways. We love good feedback because if affirms our beliefs or actions. Often it is negative, and you should welcome it and delve into the reason behind the negativity as it could be very beneficial to you.

Most people offer criticism on a positive note. They don’t call you stupid. It’s hard to be gracious to someone who offers criticism in an insulting manner. However, your company may have treated them egregiously. Think about your experiences with large companies who have treated you poorly re: your purchase of their product or service. The airline has lost your baggage on your long awaited vacation; they don’t even call you with an update on your status; and if you call them, the phone is busy. You want to scream and will do so if you ever had a human to talk to. Your bank makes a mistake and bounces your check; when you call, they immediately suggest you made an error. If these companies would listen to their customers’ complaints/criticism, they would learn how to correct their problems, which would improve their bottom line and create long-term loyal customers.

This acceptance of criticism extends to all your human activities. Certainly, your employees will be more motivated and productive if the boss really listened and sometimes acted on their criticism.

Once you understand the benefits to you of accepting criticism, work hard at taking it graciously. This will ensure that the process will continue. . .all to your benefit. Criticism can be a source of continuous learning.

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BREAK-EVEN ANALYSIS – How It Helps You Judge Risk

This is a tool that is sometimes overlooked, even though it is easy to use and gives you valuable information in a number of different contexts. The break-even tells you in dollars or units what amount of sales you need to achieve in order to recoup all your fixed costs or investment. I am always amazed, when I visit MBA classrooms, at how few students take the time to make these relatively simple calculations. Are you trying to decide whether to proceed with a new product introduction? Are you trying to understand exactly where costs stop and profits start for your company? Are you trying to decide whether to buy a company? In all of these cases, the break-even analysis should be your tool of choice.

To do a break-even calculation on a product:

1.  Determine the cost of the product (let’s say it’s $9).

2.  Determine the average selling cost ($20).

3.  Subtract #1 from #2, which gives you your profit per unit ($11).

4.  Determine the total investment required for that product ($80,000).

5.  Divide #3 into #4. The result is the breakeven (in this case, 7,273 units).

The same analysis applies in calculating the break-even for a company in dollars.

  1. Determine your average Gross Margin, say 40%.
  2. Determine your Fixed Overhead, say $200,000 for a year.

3.  Divide $200,000 by .40, and your Break-Even is $500,000.

Thus you know in this case that you lose money on yearly sales under $500,000.

Once you know the break-even figure for a given product, you can ask the critical questions. Is it reasonable to attain the break-even sales figure based on

  1. The offering
  2. Our knowledge of the current market
  3. In light of the resources that will be required to bring this product or company to market, how risky is this bet?

If you think it is too risky, then you can consider mitigating it by reducing cost, raising the selling price, or getting a third party to assume all or part of the risk or assure you of higher sales.

Write Your Business Plan in Pencil

This is my May column in Entrepreneur.

The smartest entrepreneurs plan on growing and are prepared for change.

I have a few words of advice for first-time entrepreneurs, as well as seasoned business owners looking to hit a new stage of growth. My advice is this; write your business plan in pencil. I realize this may be difficult for all you non-golfers, but doing so will illustrate two important principles.

1. Change is inevitable.

I have little doubt that you (the small-business owner) will shortly have to change, amend, modify, scrap or abandon your original business plan altogether. One of the attributes of successful entrepreneurs is flexibility. By writing your business plan in pencil it forces you to look at change as the only constant. Make change your friend, embrace it and work it to your benefit. The reasons why your original plan will need to be changed after your company is operational are myriad. It’s likely you under or over-estimated your competition, margins, cash needs, competencies and suppliers. Or you misjudged market need and size. Every entrepreneur discovers new opportunities that didn’t appear until there was actually a business up and running.

2. We must avoid business plan worship.

When we see documents neatly typed (and maybe even received praise for them), we are reluctant to change. Especially for those who attended business schools where the plan took on a larger than life importance. People whose plans got high marks, or even worse, won a business plan contest, tend to feel their plan is inviolate. They also tend to believe that if they rigorously adhere to the plan it will yield the riches of their dreams. It’s my hope that the mental image of a pencil will remind you that change is good and will help you reach your goals.

Most small-business owners that I know never wrote a business plan. In 16 start-ups, I’ve never written one. And John Altman, a very successful entrepreneur, founder of six companies and former professor of entrepreneurism, never wrote a business plan for his start-ups, either. Most people who write a business plan do it to raise money or because someone told them that’s what they’re supposed to do. The fact is that a detailed plan is only required if you want to raise money from a bank or venture capitalist. And both hardly ever offer a loan or invest in early stage companies. So your energies are wasted writing those long and thick plans.

Now don’t get me wrong. I strongly believe in planning, just not in long, voluminous tomes that will probably go unread. For most sole proprietors, that business plan can reside in your head, or–if you must commit it to paper–on a napkin.

If you really want to write a plan, try this. At the start of each year write what your goals are and specifically target new areas of distribution and the names of new accounts that you want to clinch. Also, put on paper the names of current customers with whom you want a deeper relationship and the strategies you’ll employ to do so. This plan should only run one or two pages. I also recommend you write down your accomplishments and shortcomings from the previous year. While you can do this exercise primarily for yourself, I would also share it with members of my team.

As your company gets bigger, that’s when those written planning documents become paramount. As your company grows you want to be sure all your employees are on the same page and equipped with the knowledge of how they can contribute to the company goals.

It is a reversal of commonly accepted logic to suggest you postpone the business plan until you’ve reached a growth spurt. But, as John Altman said on this point, “If you’re going to empower the other people in your company, guess what; you’d better give them a map to the highway you’re on! Otherwise, they can’t share that vision in your brain.”

Bob Reiss is the author of Bootstrapping 101: Tips to Build Your Business with Limited Cash and Free Outside Help. He has been involved in 16 start-ups, is a three time INC 500 winner, a graduate of Columbia University and Harvard Business School and the subject of two Harvard case studies. He’s a frequent speaker at university entrepreneurial classes.

OPPORTUNITY FOR NEW BUSINESSES

Many Large Companies’ Horrendous Customer Service Invite the Creation of New Businesses

I am giving you a play-by-play of an experience I had with Sears to illustrate my point. They are not unique in their interaction with their customers that I classify as arrogance.

When I bought a treadmill from Sears a number of years ago, I bought a maintenance protection agreement as a treadmill is an important element of my regimen. The purchaser of this agreement is entitled to one free maintenance checkup every 12 months. The purchaser must call for this as Sears does not remind you.

So I called for an appointment and was given one for next Monday between 1:00 p.m. and 5:00 p.m. and rearranged my schedule to be home. At 3 p.m. that afternoon, a Sears representative called to say that they wouldn’t be able to make it that day and when would I like to reschedule. . .no big apologies.

I told the operator with respect (I never want to kill the messenger although it is sometimes tempting) that I would reschedule only if they gave me a specific time as I would not give up a half day again for their error. I also suggested that they give me the first appointment of the maintenance person’s schedule that day. I was told that is impossible to do. . .a word that is not in the vocabulary of most entrepreneurs. When I saw that my request was not going to be fulfilled, I asked to speak to a manager.

Reluctantly, she told me she would transfer me. Her transfer rang and rang for 7 minutes when I gave up and hung up.

Two days later, I calmed down and called again to speak to a manager. After an interminable delay and talking to recorded messages, an operator came on who proceeded to tell me she could not give me a supervisor until I explained why I needed to talk to one. So, I foolishly gave her the story of the broken appointment and my desire to set up a time-specific new one. She proceeded to tell me that I already had a new one, three weeks in the future with a 4-hour window. I told her that I did not make it, and it appeared that the first operator made it on her own to clear the matter out of her basket. The second operator suggested that my wife might have made the appointment for me. (You don’t want to hear the retort I had but held back on that crack.) She also told me of the impossibility of getting a time-specific appointment.

However, I had better luck this time as I did get to speak to a supervisor. After explaining the situation to him, he did not use the impossible word, but told me he could not honor my request as they must treat all customers the same. My retort was “Do they break appointments with all customers”. . .another argument ignored. No matter what I said, he repeated the mantra: “All customers must be treated the same” as if it was the Bill of Rights he was reciting. He, however, made what he considered a great counter offer. . .A new appointment in two weeks instead of three with, of course, no  time specificity. This ended our conversation and began my inspiration to write this blog to dramatize the opportunities that incidents like this one with Sears and thousands of similar ones with other companies every day, create for new fledgling ventures if they concentrate their efforts on maintaining customer satisfaction. Consumers, in my  opinion, will pay a premium for some courtesy and satisfaction.

I do not blame the individuals I talked to in my odyssey, but I do hold Sears totally responsible. I believe their training, monitoring, and policies are at fault. Guess where I will never shop again.

HOW BUYERS DECIDE WHO TO BUY FROM

After decades of personal selling and observing others sell, I am convinced most buying decisions are based on emotions rather than on a rational basis. The ratio of the two motivators varies with the individual buyer and the circumstances at the time, but clearly the seller must always be aware of the emotional component of the decision process. Having the best product, service, price, warranty, etc. does not ensure a sale.

Here’s a sampling of some of the non-rational reasons I have observed buyers employ in their buying decisions.

  • They like salesperson personally.
  • They have something in common with salesperson, like attending the same school.
  • Seller is friendly with their boss, or boss told them to buy.
  • The previous buyer bought from current vendor.
  • They perceive seller is friendly with someone in top management.
  • Something in your offer positively impacts their bonus. (This may be rational from their personal viewpoint, but their job is to find the best deal for their employer.)
  • They receive some personal gain from the seller.
  • The seller is great looking.
  • The seller is a stylish dresser.

There are an infinite number of emotional decisions involved in buying decisions. The buyer may be unaware of them.

So, if you are a seller and you know that your product or service is clearly superior to the one being currently bought by the buyer, do not assume he will switch to you. Do your homework and try to determine everything you can about your buyer to understand his/her emotional buttons so you can put them in play in addition to your rational approach. Your persistency can eventually overcome a buyer’s emotional bias.

If your many attempts fail, you might approach the buyer’s boss with your strong rational arguments that can trump the buyer’s emotional decision-making.

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