Living Like Warren Buffett

I was reading Warren Buffett's "predictions" for 2009 this morning. They're not really predictions, they're more along the lines of Mr. Buffett's thoughts on the economy. The essence of what he said was that economies go through cycles, it's what they do. We happen to be in a low spot now, but that followed numerous years of expansion (albeit on the back of a housing and mortgage bubble). Mr. Buffett is not alarmed by the recent meltdown - he's a 'value investor', he purchases investments that have a good value (low cost to future earnings potential). He's looking at the current environment and seeing opportunity. Of course, there's more opportunity when you have a pile of cash in your corner....

Rather than get into economics and investing theories, I mention this because I thought about how this economic cycle impacts Mr. Buffett...which is 'hardly at all.' On the other hand, it seems those at the lower end of the economic pile in this country (or in this world) bear a disproportionate burden - sort of like being at the tip of the whip - it makes the widest arc and experiences the sharpest change of direction.

I mention this because many small business owners are over-extended financially right now - they're experiencing being at the end of the whip. I know several people in various business segments who were preparing for continued prosperity (or outright expansion) in the months leading up to the notorious 'crash' of 2008. They, like so many others, are now running on credit and hope - a dangerous foundation.

Mr. Buffett on the other hand may have seen his personal fortunes decline but when you have billions, that's not a hardship story by any stretch. However, Mr. Buffett is a unique individual in another sense and one that's worth noting right now even while you're experiencing the sharp pain of economic whiplash.

I've never met Mr. Buffett, but I did make a tenuous connection to him. I was invited to make a presentation on business and technology at the University of Nebraska a couple of years ago. I was told that Bill Gates and Warren Buffett had given a presentation in the same room, at the same podium just the year prior. One of the school officials told me that it was a fascinating day. Security for Bill Gates came in and spent the better part of a day securing the area and that he showed up surrounded (and protected) by his staff. Mr. Buffett drove himself in from Omaha in his old pickup truck.

I don't begrudge Mr. Gates his security detail, his face and fortune are well-known. However, Mr. Buffett still lives in a modest home in Omaha and drives an old pickup truck, despite being among the wealthiest men in the world.

My point? Even as a small business owner facing slowing sales and rising debt, you can use Mr. Buffett as a role model. Chances are good you started your business because you believed in what you were doing and you wanted to control your own fate (and fortune). No doubt you were also looking for the potential payoff down the road. Have you been living beyond your means in hopes that the payoff would come sooner than later? Have you spent too far ahead - personally or in your business? A you living more like Mr. Gates or Mr. Buffett?

What about value? Have you examined how you create it, how you measure it, how you demand it? Does your business provide value in its products or services? Do your current customers appreciate the value you offer? (Note: if not, don't chastise them, just do a better job communicating it or go find customers who do value your offerings). Have you looked at how you create value and whether or not what you create is of value in this economic climate? Do your vendors and staff provide value to your company or are they just coasting along?

You might want to start the new year by doing a value inventory - where is your company in the value chain? How can you increase the value you provide? How can you increase the value you receive? If you look at this economy as an opportunity to increase value, you'll be well positioned for any economic cycle. (Note: that doesn't mean things get easy, it just increases your chance of surviving this economy).

Here's an example. A real estate broker is struggling to pay rent for offices he signed a five year lease on in early 2007, when he thought things were going to continue along. He's had to let most of his agents go and the big office is now just a huge anchor on his finances. After coming to grips with the current economic outlook, he decided to change direction a bit. He's now working with homeowners to help them through the mortgage minefield to help them keep their houses. He is consulting, for a reasonable fee, with homeowners who still have some funds to pay for assistance and who are willing and able to continue paying their mortgage if they can make it through the current maze. He also is inviting financial professionals who might be looking for smaller digs to move in.

Time will tell if this approach will work, but what he did was shift his value proposition. He looked at his skills, knowledge and experience and found a way to put those skills to work in ways that are valued right now. While the approach may or may not work, it certainly is a better approach than continuing to go down a path that would simply lead to dwindling cash and the closing of his business. And who knows? By applying his skills in a new and different way, he might discover a unique path that leads to a more fulfilling and profitable future.

So, in this tough economic environment, look at the value you're providing and the value people are looking for. Find a way to meet that need within the context of your skills, expertise, knowledge and constraints. Be creative in value creation and you might find untapped earning potential you might never have discovered otherwise.

Here's to a better year ahead.

Saving Your Bacon

In lean economic times, businesses often look for ways to cut non-essential spending. One area that often gets cut first is business continuity and disaster recovery spending. But, if you're like many businesses, you don't have a BC/DR plan at all...and if your business doesn't have a BC/DR plan, you're risking your future.

Research shows that the most common business 'disaster' is fire. Studies show that businesses that do not re-open within days of a disaster have about a 10% chance of long-term survival.

So, make a plan - even if it's just a plan to protect your valuable corporate information. There's plenty of information out there to assist you, I've included a book that I've written to get you started - it's an easy read and brings you step-by-step through the process. Also check out a blog post with some barebones suggestions.

Make a New Year's resolution to create and implement a BC/DR plan in 2009. When the deck is stacked against you, take every opportunity to reshuffle the deck in your favor. A BC/DR plan is a good start.

Business Continuity and Disaster Recovery for IT Professionals

BC/DR blog post

Credit Crunch Redux

Here's part two. I was listening to NPR the other day and heard that due to Bank of America closing out a credit line for a small business whose sales were declining, 300 people were suddenly out of work.

Come on, (banking) folks. The US government did NOT give you all our taxpayer dollars so you could sit on the money and pull back credit for companies that are doing their best to survive.

My earlier post on American Express giving small businesses a hard time said that Bank of America was among the good guys. Based on the NPR story, it seems we may have to revise our view of BoA. We'll wait to see what happens in the coming weeks, sometimes there's more to the story than we hear.

Still, if the government keeps handing out money to companies and doesn't step in to help individuals, this US economic boat may just capsize. Let's hope someone recognizes this and starts tipping things in the other direction soon.

Credit Crunching Your Business?

For months we've been hearing about the credit crunch - but for many of us, it meant the tightening of mortgages or fewer new "You're pre-approved!" credit card offers. Now, though, many small businesses are feeling the real credit crunch - the rollback of credit lines.

Even if you have good credit and pay your bills on time, credit card companies are revising their tolerance for the debt they enticed you into taking on. Those pre-approved credit cards with ridiculously high credit limits have all but disappeared. Now, credit card companies are acting like an alcoholic after a particularly bad binge - swearing "never again" just before reaching for the bottle.

Several small companies I work with have experienced this. Here's how it works. Say your company has a $50,000 credit limit on your American Express card. You've made purchases on that card for business and you've been paying bills on time, though you've been carrying a balance. Let's say your balance is $45,000. You get a notice from American Express that your new credit limit is now $45,250. Hmm. Suddenly, and without warning, you now have no spending power on this card. Doggedly, you pay another $2,500 on the card so you can make the necessary purchases for your company. Hmm, another notice from American Express with your new credit limit at $42,000. Depending on your situation, as you pay down your card, your credit limit gets lowered behind you.

Not all credit card companies are doing this and American Express, in particular, seems to be the worst offender. They tout themselves as the resource for small businesses, but my anecdotal evidence tells me they've been the least small-business friendly in these recent credit reversals.

The question for small businesses is, where do you turn? Here are a few suggestions -
1. Look to your bank to see if you have additional options with them. Unlike a faceless credit card company, you may have a relationship with your local banking staff that you can utilize to have an earnest discussion about your financial needs for your business. If you don't currently have that relationship, now's the time to develop it.

2. Look to your vendors for assistance. Though chances are good they're in the same boat you are, by working together you may be able to help each other through these tough credit times.

3. Look for options at other financial institutions. I've heard from a number of people that although credit has tightened, thus far Bank of America has continued to work with small businesses in a positive manner. Contact Bank of America (this is not a sponsored ad, just information from several of my small business clients and we might as well support those who are working with small businesses!) and see if you can get needed credit or other banking assistance from them if your own bank can't or won't help.

4. Contact SCORE. This crew of retired business executives has a vast pool of experience from which to draw and though they may never have been through this particular economic environment (none of us has), they may have had experience working with companies in need of credit or financial assistance. See if your local SCORE folks can provide ideas and suggestions.

5. Get creative. Not with your bookkeeping, with your ideas. Though your options may be limited, I've often seen how rigid people's thinking can get when faced with fear. Try to stand back and look at the situation from a less detailed view. Then, try to think of alternatives. This may require a brainstorming session with your staff or with your trusted friends and associates to churn up additional ideas. Sometimes creative ideas pop out when you're in the shower or doing chores around the house or driving in the car. Pose the question then see what pops up in the next several days - the creative mind needs time to work. (Contrast this with flat out procrastination or avoidance).

6. Think, don't worry. It's easier said than done, but when your brain is in panic mode, rational thinking goes out the window and you're likely to make bad choices. A client of mine, after starting up a business said to me about a year later, "I've run out of worry, now I just get up and do what I can." Do everything you can think of to help your business survive in this time, but try to think instead of worry. Worry looks at the closed door, thinking helps you find the open door.

Good luck folks, better days are ahead.

Tis The (Economic ) Season For Entrepreneurial Scams

If you've watch any television at all in the past couple of weeks, you may have noticed a dramatic uptick in the number of ads for do-it-yourself entrepreneurial...well, scams. I call them scams because they completely misrepresent the opportunity (if one exists at all).

For example, I recently saw an ad for a well-established, multi-level distribution company. They basically say "Sign up to sell the stuff we sell you and you have an instant business. It's easy!" There are an increasing number of postings on job boards for "Six figure income working from home" and "No selling required, work part time earn $6K a week!"

Many of these fall blatantly into the "too good to be true" category. But many seem just tempting enough to explore. Add to the mix that people are increasingly becoming unemployed, under employed or worried about employment and you have an environment ripe for exploitation.

You'd think after this whole mortgage meltdown that we as humans would have learned our lessons - on both sides of moral coin. Predatory companies will always exist, though, so it's likely always going to be a matter of buyer beware. As consumers and potential investors in these "make your own financial future" schemes, we have to keep a level (read: skeptical) head.

Here are some questions to ask before you start thinking these get-rich schemes might be worth some of your time and your hard earned dollars (as they almost all require an investment of YOUR money....).

1. If this is such a big get rich scheme, why isn't everyone rich?
2. If it's so easy to make $6K a week working from home, why aren't we all working from home?
3. If this is such a big profitable idea, why are they reaching out to random people via anonymous job postings or Internet/tv ads?

And here's perhaps the most important question to ask yourself:
In a slow economy, would people actually buy MORE of this stuff?

Granted, even in a slow economy people have to purchase goods and services, but their behavior is constrictive not exapansive. What that means to you as a would-be entrepreneur is that you're going to have an even tougher time getting in front of your target consumer and grabbing their attention.

When people feel financially secure, they are open to new things including your would-be product or service. When people feel financially unstable, they are more likely to stick to what they know. The one real exception to this might be if you offer something that is of better value or lower price - but you still have to get in front of your consumer and that takes times and...well...money and I'm guessing most of these opportunities are going to require that money come out of your bank account not theirs.

So, if you want to start your own company, stay focused on what the economy is doing and how that impacts your target market. Some of these "become an entrepreneur" ads might be legitimate opportunities, but most of them will just suck the money out of your account and into theirs.

Starting and running a successful business is rarely something that becomes profitable overnight or even in the short-term - it's usually a longer, slower process. That's a very healthy model for success, but it doesn't solve the short term problem of the newly unemployed - the "I need an income today" crowd. The vast majority of entrepreneurial opportunities that involve a quick return on investment usually involve 3 card Monte.

If you need an income or a job now, don't waste your hard earned savings on these schemes. Look for work, use the skills and talents you have and find people who are willing to pay for those products or services in your own town. You're more likely to find opportunities to earn a living by interatcting with people in your home town than you are by buying some flimsy scheme you heard about on tv at 1am when you were so worried about your future you couldn't sleep.

So be extra careful out there, the waters are shark infested right now.

Auto Bail Out? What Ever Happened to Market Forces?

Does anyone understand why our government has been on a bailout binge lately? I know of thousands of small businesses that could really use some help - a low cost loan, a break on rent for a couple of months...just to get through this tough economic environment.

Instead, we bailed out Wall Street companies, bailed out mortgage companies, bailed out insurance companies...and now there's discussion about bailing out our automobile makers. What kind of bail-em-out insanity has gripped our government?

Granted, the auto companies are big employers in the midwest, their absence would certainly have a very significant and negative economic impact. Still, should we make a habit of bailing out companies just because they're large? Shouldn't we be looking at why these companies are failing? If they enjoyed strong sales during the good economic times, shouldn't they have put away some savings for the inevitable downturn that would follow (any) expansion?

Small businesses don't get special treatment, no one's lining up with offers of special bail outs for troubled small business. It begs the question - who benefits from bailing out the same businesses over and over and why do we keep agreeing to this? Banks, automakers, airlines...there must be a root cause of these failures that's not being addressed. Something to ponder.

$250 Business Plans...

I subscribe to project notifications on guru.com - and I'm often amazed by some of the requests for proposals or bids for business plans posted there. I guess I should put up a disclaimer first - I have never gotten a paid consulting job through guru.com. It took me a while to understand that my services are not what most people on guru.com are looking for.

Consider this type of posting (this is a conglomerate of many I've seen in the past few years):

--- Need business plan asap for venture capital and angel investors. Must include (list of 30 topics here...) and include market research and marketing plan, five year financial projections plus recommendations for how to start this business. Business idea is worth $500 million, need $50 million in capital to start call centers world wide to sell soap direct to consumers. Have website concept, needs development. Need full business plan by Thursday, submit samples of three prior business plans you've done plus references. Since this is a start up, I only have $250 for this project. More business could come out of this once we get funding. ---

Once you read through all of this, you quickly realize that anyone that thinks they can get a meaningful business plan for $250 is better off buying one off the Internet and doing a find/replace to change the name of the business. Maybe there are folks in countries outside of the U.S. who can do this profitably and well for $250 US, but it's highly doubtful.

I don't think you need to pay tens of thousands of dollars for a business plan, but I do know that $250 won't get it done. Period. As an entrepreneur, you either have to have time or money available - the good ideas are what make you an entrepreneur but you have to invest time, money or both to launch your business.

Take time to write up your own business plan, even if you're not a great writer you can capture the essence of the business. If you need help conceptualizing your business model or clarifying how you'll make money or how you'll differentiate yourself from your competitors, talk to a friend, colleague or (gasp) even a consultant who can help you figure out the basics.

Don't be penny wise and dollar foolish when starting your business. If it's not built on a solid foundation, it will crumble sooner or later - and no amount of financing will change that (and no financing will come along until you figure that out). The real cost of a $250 business plan is thousands of dollars of lost time and opportunity, as well as a potential loss (complete and utter loss) of credibility with any investor you might talk with. A business plan is a way of capturing YOUR plans for the business and laying them out in a compelling and cogent manner for would-be investors and for you to use moving forward. A cheap business plan can do far more harm than good, and it's fair to say that no plan is better than a cheap, ill-fitting plan.

Need help? Need advice? Need to understand exactly what you're getting into? Check out www.virtualteam.com for more information on my consulting services.

Bubbles Always Burst

The problem with bubbles is that they burst. There have been many notable bubbles throughout economic history, but let's only go back as far as the Internet bubble. If you recall at the time, Greenspan called it "irrational exerberance." I remember attending a venture capital conference at the Waldorf Astoria Hotel in New York City in October of 1999. That was probably the apex of the frenzy. I sat through numerous presentations by would-be entrepreneurs talking about some of the most insane ideas I'd ever heard. Not insane as in "wow, that's really a paradigm shifting break-through" - insane as in "there's no way this will ever generate a nickel of income much less profit."

In every market, there are people who push the envelope and help push us forward. But those were the minority during that time. The majority really were those who were playing in the realms of the imaginary. There was no intrinsic value being added in most of these bubbly ideas, which is part of why the bubble burst. Still, out of that time, we got a lot of new technology and a lot of innovative new uses for the Internet - so it wasn't all smoke and mirrors. But the businesses that added no real value and were all about moving money from the VC wallets to the entrepreneur's wallets - those all crashed and burned.

Fast forward to the real estate bubble of the past few years. What was happening? Look at television back then to see the surge in shows related to "flipping" real estate. People buying a house, putting a bit of cosmetics on it and re-selling it far above its value. Once again, not adding real value but looking to move money from buyers wallets to "flippers" wallets - many of whom crashed and burned when the market went south.

The third and final example for today, the sub-prime mess. So here we had a bunch of mortgage brokers getting squeezed out of the conventional lending market by the unmanaged growth of Freddie Mac and Fannie Mae, so they get creative. Hey, that was all legal in the wildly deregulated environment that had been created for them to play in. So they came up with all kinds of crazy financial vehicles - for home borrowers and for financial institutions. The problem? If you've been paying attention, you'll know the answer once again is that there was no intrinsic value in this mix and that it was all imaginary money once again moving from one wallet to another. While some call it a 'market correction', it's almost like a 'value correction' in that we need to look at where real value lies and what builds lasting value rather than effervescent bubbles.

The shake out always hurts - like the con man on the subway with the shell game - you walk away without that $5 bill you placed as your bet, shaking your head because you KNEW in advance you were being conned and yet you just couldn't resist. The economic shake out from this shell game will take time to unravel and to right itself.

What's the lesson for an entrepreneur? We can become so enamored of the potential payoff that we lose sight of building real, lasting value along the way. If it sounds too good to be true, it probably is. If it feels like a con, it probably is. If you can't point to the value proposition, step back and rethink it.

Work to create real value and to create a real exchange in order to build a lasting business. Anything else will be just a bubble that will invitably burst.

Run From The Crowds

A contrarian investing strategy is one in which you invest in the opposite manner as the rest of the market. If everyone's buying, you're selling. If everyone's selling, you're buying. The most recent, high profile contrarian move was when Warren Buffett announced a couple of weeks ago that he was buying US stocks at a time when the US stock markets were plummeting. Buffett looks for value in a company and invests accordingly. So, when he saw good companies trampled by the vagaries of stock market emotions, he decided there were some good deals to be had. That does not mean, however, that Buffett was investing across the broad markets.

A good contrarian strategy doesn't mean that just because everyone is selling you should be indiscriminately buying. If you look at what Buffett did purchase during that time, he got a preferred position that put his investment in the proverbial catbird's seat. He saw an opening and made his move.

How does this help you as a would-be entrepreneur? The greatest value is not in running with the crowds but in separating yourself from the crowds. There is often an opportunity when everyone is running one direction for you to slip in unnoticed and gain some traction in a less popular area somewhere else.

That doesn't mean that every contrarian move makes sense or that you will always find success running from the crowds. But in this economic environment, there's more opportunity than you might think. The key is to think differently than others and scour the economic landscape for your opening.

Starting Up During An Economic Meltdown - Crazy or Creative?

Starting up a business is tough in the best of times - but starting up a business now? What are you nuts? That's probably what your family and friends are asking you as you contemplate taking the plunge into your entrepreneurial truth.

So, first step - get real. Real about what it will take to successfully start a business.
Second step - get help. ..business help. You know a lot about something or you wouldn't be thinking of starting your own business. The question is - what else do you need to know before you jump in?

In the days to come, we'll look at some of the factors to consider when looking at starting up your own business - and you might be surprised to hear opportunity might be knocking on your door.