Beth Plutchak Consulting LLC

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Science Fiction Writers are often asked where they get their ideas. Almost all of them hate this question. One SF writer even famously quipped, “They get mailed to me by a gentleman who lives in Schenectady.” The truth is, ideas are easy. It is implementation that is hard. At the same time there are a couple of obstacles to an entrepreneur’s ability to implement a great idea, which at first blush seem out of the entrepreneur’s control – timing and connections.

To illustrate let me tell you how I invented “the cloud”, “the cloud” that now ubiquitous ability to work collaboratively across the internet, and to store documents where they can be easily accessed by multiple users across multiple platforms.

In 1988 I was working as a credit analyst in a regional bank. Our department had recently installed desktop computers for all of the analysts. At $4,000 a pop, having a desktop at home was something lowly credit analysts could only dream of. I was working on a loan presentation for a small publisher that had branched out into educational software. Their target market was the home user and they had failed to meet projections for three quarters running.

“Well”, I thought, “no wonder. They are trying to sell this stuff to young families who can’t afford the hardware.”

A large part of the price of the hardware was the cost of computer memory. Another large component was the cost of buying and upgrading software. The software and files at the bank were stored on central servers. It was not a big leap to think that software companies could offer to store files on their central servers and hardware companies could sell bare bones machines at a much reduced cost.

In hindsight, “the cloud” became ubiquitous after the cost of hardware came down and after the Great Recession, when many down-sized and laid off workers started their own businesses and a new market for cloud computing emerged.

I would bet dollars to donuts that people in the industry had the same thoughts about cloud computing that I did in 1988. Maybe, they even thought it would solve precisely the same problem, although in the end it solves a different business problem. Rather than helping to bring down hardware cost, it makes file sharing easier.

Ideas often come before their time and it is not always easy to see which steps will be necessary to implement the idea. Many ideas are dismissed out of hand because the path to implementation is not clear. Companies that succeed can’t afford to do this. Successful companies have a culture that fosters innovation, that allows people to make mistakes and that is flexible enough to hold onto their great ideas until technology catches up.

One of the things that distinguishes true entrepreneurs from other business owners, is that entrepreneurs have the ability to dream products and services out of their ideas. Barriers to implementation are not seen as reasons to trash the idea but problems waiting for a solution. Implementation becomes the process of working through these problems to become first on the market with a new idea. So, it’s all in the timing, but more of the timing is in your control than you might think.

Related articles

• Cloud Control: Why CEOs Need to Lead the Cloud Decision-Making (vistage.com)

Dan, my husband is what you’d call a detail person and I’m more of a big picture thinker. I usually get home from work before he does and a couple of years ago I listened as he pulled into the driveway. I heard the garage door go up and then a big Thunk. I waited a few minutes and then heard a string of language coming from the garage that I am not accustomed to hearing. At that point I went out into the garage to see what the heck was going on.

The motor for the garage door was hanging from the electrical cable, the fixture holding it in place pulled out of the ceiling. Dan came home from work and all he wanted to do was put the car away and close the garage door. Instead, he had one hand stretched over his head holding up the sagging rigging while he was reaching for an out of reach step ladder with the other. I pulled the ladder over for him and while he scrambled up it went in search of the duct tape.

A little later he scrambled down the ladder and while I yelled “No, no, no,” he went to close the garage door. What he hadn’t taken into account was the way the motor connected to the door itself. As soon as the door moved, it would move the whole system and the motor would no longer be stabilized.

Sometimes events are not made up of their parts, but are dependent upon the way the parts are interconnected. It is the same in business. The very skills that you need to deal with the day to day issues of running a business, both stand in the way of seeing potential long-term problems and impact those very problems in hard to predict ways. Not only that, the people who are the very best at the detail level are often hard-wired to be the worst at the big picture or system level.

Business management needs to be able to think sharply in a number of directions. They need to be able to put out the day to day fires of customer service, quality control, supply chain emergencies, what have you, all of this while being aware how these small decisions are impacting short and long term strategies and goals. Sometimes this is accomplished by making sure you have a good mix of personality types on your management team. Sometimes it is accomplished by making review of your goals and procedures a frequent recurrence.

Biologists like to say that change happens at the edge of chaos. That doesn’t mean that we as business owners can’t control those changes. It means we have to be ready to see the implications of all of our decision making at a moment’s notice, right when we are reaching over to close the garage door.

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Some things change. Some things stay the same. Banks have traditionally asked for 20% down on real estate financing and as much as 50% down on receivables, inventory and fixtures. Prior to the 2008 recession it was easier for small business owners to come up with that 20% or more down. The chief asset small business owners have, outside of the business itself, is the equity in their homes. Since 2008 home values have plummeted wiping out that equity source for many.

An additional hurdle that small business owners have to overcome is the cash flow coverage ratio (CFC, the ratio of cash available for debt service to total debt). Banks calculate cash flow by averaging the 2 or 3 most recent year-end financial statements or tax returns. A bad year pulls that number down for the 1 or 2 years surrounding it.

Five Things You Need to Know to Secure Bank Financing Today

1. Cash Flow Coverage

Find out how your bank calculates Cash Flow Coverage (CFC). If they average three years of statements, ask what it would take to get CFC calculated on two years, instead. Usually, whether the bank asks for two or three years of statements depends on the amount of financing requested. If you can get by with a smaller loan amount, you may be able to show better CFC.

Some banks are now calculating based on a rolling year, rather than a fiscal year. This means that they will calculate CFC backwards from the date you apply for a loan, rather than the last fiscal year-end. This can work to your advantage, particularly if 2009 was your worst year and you’ve improved since. It may be worth the expense to get accountant prepared interim statements.

If you have a family business or multiple businesses, the bank may be able to add in other income sources when calculating CFC. Make sure you are giving your banker complete information.

2. Collateral Coverage.

The collateral value of your business property may have fallen, as well as the collateral value of your personal property. In the New Economy you may have to cross-collateralize some assets that you had been able to keep separate in the past. You may have to pledge personal assets that you haven’t pledged in the past. This is not likely to change any time soon.

 3. Cash flow vs equity lending.

In the past, community banks often relied more heavily on equity and overlooked problems in cash flow. This contributed to small business failures when asset values plummeted. All banks are taking a harder look at CFC now. If you can show improving cash flow, your bank may be able to help you with a guarantee program that compensates for other weaknesses.

 4. Nobody likes surprises.

 If you have problems that show on your personal credit bureau, let the banker know before credit bureaus are pulled. If the circumstances that caused the problem were outside your control or have changed significantly, you may still be a good credit risk from the bank’s point of view. Commercial underwriting is not tied to personal credit scores the way personal underwriting is and special circumstances can be taken into account. If the banker sees an adverse condition or warning on your credit bureau that she wasn’t warned about, she may wonder if you are trying to hide something.

 5. Some things remain outside your control a/k/a the regulatory environment.

Different banks have different regulatory constraints. In Wisconsin there are at least three different agencies that might govern your bank: Comptroller of the Currency, FDIC or State Department of Financial Institutions. Even when governed by the same agency, banks are subject to different rules depending on asset size and capitalization. If you are told you don’t qualify for funding because of changes in bank regulations, you may not get the same answer from the next bank down the road. You can check out bank ratings from numerous sources on the internet. The more sound the bank, the less likely they are to be under certain lending constraints.

Feel free to share your questions and experiences in the comments.

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We want great business results but where and how do we start?

The Nielsen Wire has a great blogpost on launching a new product. Their 12 steps to consumer adoption is  based on actual data collected from tracking 600 product launches. Following these steps increases the probability of a successful product launch to 75%. Step One is to develop a distinct proposition that offers true innovation.

Adapting These Steps to non-Consumer Businesses

I talked about Entrepreneurial Focus in an earlier post. My mantra is that Entrepreneurs Focus on Results. The ultimate result is the success of your business, the sale of your product or service. It can be difficult to define the product when the product is not a thing. When I began my consulting business I really missed the bi-weekly paycheck and was willing to take any consulting job that came along. After capturing the low-hanging fruit of working with people who knew my style and my expertise I found it difficult to leverage my experience into consulting jobs in the wider market. I quickly found myself competing on price. Luckily years of sales training kicked in. I knew that leading with price is the response if you are not really sure that you have value to offer. To increase sales and protect my price I needed to lead with value.

Develop a Value Proposition

To get to results focus on step one. Develop a distinct proposition and offer true innovation. A new product must occupy an innovative niche. It must be a product or service that the buyer needs. Service businesses in particular need to understand who their potential customers are and what value they provide those customers. What is unique about the offering? And it can’t be quality, customer service, or timeliness. These are minimum expections that clients have when they pay for a service provider.

My unique value proposition is that I use my cross-industry experience to help companies protect their margins and increase their sales. All of my services are designed to meet this value proposition. It took a great deal of focused work to come up with a value proposition and services that satisfy the distinct proposition of step one above. It meant taking a hard focused look at my unique strengths, talents and business experience. The idea is never enough. It’s all about execution. Execution demands focus.

Which step is your company on? What kind of focus did you need to get there?

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Part Two in an Ongoing Series on Entrepreneurship

Focus is the Key

I love the big idea. I love analyzing companies to see what makes them tick. You can tell a lot about a company by a simple drive-by. Location choice is very informative. They may be located in a cluster of like businesses. They may have made that choice because they are in an industry that benefits from clusters or they may be there because of local zoning rules. General area demographics and transportation patterns say a lot about both overhead costs and access to markets and suppliers. This is my passion. I’d do this for fun. I do do this for fun. Take a road trip with me someday. I love to take the long way through the industrial park and do snapshot analyses of companies that I might never do business with.

It makes sense to take my skills, my training and my passion and form my own business. And then comes the day to day. Now I have to get out there and start telling my story – over and over and over again, and pretty soon OMG I’m starting to bore me. I am not a detail person. So, what can I do as a sole proprietor to improve my implementation? Remember, ideas are easy it’s implementation that’s hard.

The 99 Percent

1. I recently ran across a company that specializes in helping entrepreneurs make this breakthrough. Scott Belsky the Founder of Bëhance and The 99 Percent took to heart the Thomas Edison quote “Genius is 1% inspiration and 99% perspiration” and built his company on helping entrepreneurs get a handle on the 99% part of this equation. I’ve been having a good time working my way through all of the free tips and videos available on the site, but there is one in particular I want to share with you.  
   

Building the Team You Need

Another thing that helps me to focus on both results and my personal strengths is to build the right collaborations. One of my partners Sue Gleason, uses Myers-Briggs® analysis and other tools to help companies form teams that use the strengths of differing personality types. A break-down Kiersey Sorter personality types is the following, which is provided by Dr. David M. Kiersey:

The Four Temperaments

• As Concrete Cooperators, Guardians speak mostly of their duties and responsibilities, of what they can keep an eye on and take good care of, and they’re careful to obey the laws, follow the rules, and respect the rights of others.
• As Abstract Cooperators, Idealists speak mostly of what they hope for and imagine might be possible for people, and they want to act in good conscience, always trying to reach their goals without compromising their personal code of ethics.
• As Concrete Utilitarians, Artisans speak mostly about what they see right in front of them, about what they can get their hands on, and they will do whatever works, whatever gives them a quick, effective payoff, even if they have to bend the rules.
• As Abstract Utilitarians, Rationals speak mostly of what new problems intrigue them and what new solutions they envision, and always pragmatic, they act as efficiently as possible to achieve their objectives, ignoring arbitrary rules and conventions if need be.

I am a rational and need to surround myself with collaborators who have the characteristics that I don’t have. That way I can concentrate on building on my strengths and let my collaborative partners bring their strengths to the table.

I have also been using some of the time management tips available at The 99 Percent, to break my tasks into small parts and stick with them. It is hard not to be distracted by the shiny and to accept small changes as a way to the big changes I see ahead.

What strategies do you use to keep yourself from being distracted and moving to your goal?

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Attitude Toward Risk

For years I’ve heard that Wisconsin has a lower level of entrepreneurship than other states because Wisconsinites are more risk averse. While it may be true that we prefer to keep things cozy and familiar, I’m afraid that analysis only measures first year start-ups against start-ups in other states, and does not measure net business creation (businesses that opened minus businesses that closed) or long-term growth. When you look at net business creation and longevity Wisconsin does not fare nearly as badly.

From the outside it may look like a full time job is more secure than investing your time and assets in a venture that you may control but where the paycheck is uncertain. However these days, it seems no one’s paycheck is secure. In a knowledge economy it may make more sense to take what I know and profit from it myself. But, how do I know I will be around after that fateful first five years in which most new businesses fail?

I’ve come across some information recently that helps me answer that question, both for myself and for my customers. Successful entrepreneurs may not be any less risk averse than the rest of the population, after all. They may simply be better at measuring risk. We all take measured risks every day. We get into our cars and go to work or take the kids to school. We know that people die in car accidents every day, but we determine that our chance of reaching our destination is acceptably high. Entrepreneurship requires the ability to look at both the upside and the downside of business risk and measure the likelihood of getting where you want to go, so to speak.

Attitude Toward Failure and Business Plans

But, how do Entrepreneurs get the information they need to make this determination? One thing that entrepreneurs are better at than non-entrepreneurs is the ability to view failure as a learning experience. Failure is not the end result of an experiment in business, but rather a stepping stone that helps you avoid making the same mistakes in the future.

Another thing that successful Entrepreneurs excel at is planning. According to Scott Shane author of The Illusions of Entrepreneurship and researcher at the Kaufmann Foundation data shows that chances of success are greater if you write a business plan, yet few entrepreneurs do. In a New York Times article Shane speculates about the reasons that more people don’t start with a business plan.

Measured Risk and Information 

I’d like to add an additional reason – they really don’t have access to useful information. Ten years ago I had two customers come into the bank in the same week. Both of them wanted to borrow money to open a new retail business. Both of them had extensive work experience in the type of business they wanted to open. One wanted to open a restaurant and the other a retail store. I asked for a business plan from both of them and both of them got it done, because the bank made them.  

The prospective restaurateur built his projections based on his knowledge of restaurant turns and restaurant finances. He knew how many meals he would need to serve and how quickly based on the square footage of the location he had in mind. He could make the numbers work on paper, but he really had no idea if there were enough customers that would choose to eat there and generate the turns he needed. All he could do was assure me he would get the word out and get the customers to come.

The retailer was opening a franchise store. Her franchisor supplied her with demographic and traffic pattern data. She chose the location of her store based on comparative demographic data. She also had worked long enough in the business to know how many sales per square foot she would need in any period of time to be successful and she had comparative data to support that she could get those customers in the door.

We never made a start-up loan to the first customer. At the end of the first year in business when the second customer’s note came up for renewal her projections differed from her actual financials by all of a dollar.

I would argue that appetite for risk is not a key characteristic for an entrepreneur, but access to information that helps to measure risk is. What do you think?

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I’ve recently been following a number of online conversations on what makes a growth-oriented entrepreneur different. The consensus seems to be that the serial entrepreneur who rapidly grows one business after another just is a different kind of an animal. S/he appears to have a drive that is difficult to consciously duplicate. In my mind, s/he also has a way of seeing the world in terms of connections. In quantum physics it is more and more understood that it is not aggregations of the smallest bits of matter that count, it is how they interact.  It’s not the things themselves that matter, it is the relationships between the things. Growth-oriented entrepreneurs are relational thinkers.

I recently attended a presentation by Brian Wiegand cofounder of Alice.com. This is his fourth internet business. The other three were successfully sold and are still operating in one form or another. His new business identifies a market failure in the delivery of certain commodity priced, consumer staples. He identified an opportunity in that many of the brand name items were being forced off store shelves by store brands. He looked at the reasons online groceries continue to fail and came up with a different model to monetize his idea. He used a combination of “long-tail” theory and conventional business model theory to figure out where the weaknesses were in existing models. What he didn’t do was decide to go into the online grocery store business and begin his research with the end model in mind.

Although the site may look like a typical online shopping site the business model is quite different. One of the things that stood out for me in listening to him was that he thought in the big picture arena of how the particular goods that he was interested in are produced, distributed, and delivered to consumers. What he did not do was focus on the specifics of the current models surrounding brick and mortar and online shopping. It was this big picture thinking that allowed him to identify the market clearance failure he hopes to exploit.

I don’t know whether you can train yourself to think that way or not. I tend to think on the macro level and it is the macro questions that fascinate me. Here are a couple of examples of big picture ways to think about some familiar businesses. I hang out with a lot of people in the publishing industry. Writers in particular seem to believe that a “knowledge-based” economy will be an economy that is post-the production of stuff. However, the biggest example of a successful knowledge based business is Wal-Mart. They were early adopters of specialized supply chain and point-of-sale software, which is one  the main things that led to their success. Amazon is not just a company with an internet front-end; they warehouse and distribute books and other goods.

 There are steps common across industries that get goods from production to consumers. Producers-> Processors        ->Distributors->Sales Outlets. Some of these four might be collapsed, but this chain follows across industry. Examples – the pork industry – Producers (hog farmers)-> Processors/Distributors (meat processing plants) -> Sales Outlets (grocery store).  The publishing industry  -> Producers (writers) -> Processors (publishing houses) -> Distributors (book distributors) -> Sales Outlets (book stores).  In the recent past pork processors have created shortages and controlled the prices farmers are paid and grocery stores can charge by exercising the advantage of their position in this chain. Amazon’s biggest success has been in collapsing distribution and the sales outlet to the consumer and controlling both. What market clearance failures and opportunities can be identified by taking the big picture view of your industry?

Part Two – Rethinking Business Types-Marginal or Troubled Businesses

It is common practice when talking about market studies or zoning to think about business categories in a specific way, usually broken down as retail, commercial, and industrial. This categorization is useful in many ways, but there is a better way to think about business when making a determination of which businesses will be financially successful and which will have a long-term positive impact on the communities in which they operate. As a banker, it didn’t take me very long to come up with a totally different classification system based on long-term business viability. I broke businesses down into the following categories:

• marginal or troubled businesses
• static businesses
• growth businesses

As a lender I needed to find and identify the growth businesses. They were my best bets for making loans to customers with the ability to repay.

Marginal businesses are businesses with problems which seem insurmountable without some kind of financial assistance. The problems may be caused by poor management, changes in economic conditions, changes in local conditions, lack of access to capital, etc. The key commonality is that the management seems to be stuck yet unwilling to make significant business changes. This is a fairly harsh assessment, but I think a key one for Economic Development Professionals to make. Applying the old 80/20 rule these types of businesses are likely to be 80% of demand for services, but only 20% of them will be successful in turning their businesses around. Municipalites and Economic Development Professionals need to do a strict cost/benefit analysis when providing services to these types of businesses.

There is a fundamental difference in mindset of the entreprenuer who will turn the business and the entreprenuer who will always be on the edge of disaster. One is forward thinking and one continually second guesses the past. I want to compare two retail owners and their response to the economic downturn of early 2001. Both had multiple retail locations. One took the opportunity to close down her poorest performing location and write off the loss over the next ten years. The other could not make a decision and kept second-guessing her long-term commitment to keeping the business running. She wondered if she should have closed all her locations five years ago, or ten years ago, or fifteen years ago, but could not bring herself to make any current changes to the way she ran her business. In the end, she also lost one of her locations, but at a much greater financial loss. Business at her remaining location is still struggling. The first entreprenuer has been able to expand her business and even though growth is slowed in the current economy she has a stronger capital base to see her through.

It is likely in your community that the second business owner will be the one asking for some form of help, for instance TIF financing. The first business owner may never ask for help. If the first were located in a TIF district, TIF returns could be used to enhance the amenities in the district rather than to shore up the viability of the business owner. This would have a measurably greater positive impact on the downtown district.

Part One – Defining the Process of how businesses function, grow and contribute to the community.

I came at Economic Development sideways. I spent twenty-one years as a commercial banker, doing every job imaginable on the commercial lending, deposit and ops side of a number of regional commercial banks. When I first became a lender I was encouraged to join a community service group as a business development exercise – Chamber, Optimist’s, Kiwanis Club. I joined the local Chamber of Commerce and helped the Chamber organize a local Economic Development Group. At the time there was a great deal of concern in my community about empty storefronts. This was in the late nineties. Stil sound familiar? Personally, I thought this would be a great opportunity for an up and coming new loan officer. Those storefronts needed to be filled. People needed to buy and rent buildings and start and grow businesses. I needed to make new loans.

Soon after I got involved on the committee loan applications did start to come in. I got a chance to look at the cash flows of businesses that were looking for financing to continue to operate in a declining downtown. Most of these businesses did not cash flow unless they had owned their building long enough for it to be paid for. If they were buying an existing business that did cash flow, the cash flow went out the window when their new cost of financing was figured in. In those years I turned down more loans than I made. However, working on that committee I found out about many of the tools and theories that municipalites and communites have in their toolbelts to try to turn some of these things around.

Unfortunately, I discovered that many although not all of the tools, were directly responsive to requests from business owners that had bigger business problems than a community developer or municipality was equipped to deal with. This didn’t mean that the tools didn’t work. It meant something more was at play than how the tools were applied. Municipalities and Agencies typically operate under different constraints than entrepreneurs or developers operate under. They have broad constituenties they must be responsive to. Their budgeting processes are completely different than a private businesses. They are limited by law in the kinds of impact they can make. If they are elected officials a mis-step in one of these areas can result in the loss of a job, where success often seems to go unnoticed. I have seen many municipalites and agencies apply the tools at their disposal in efforts to stop naturally occuring trends. Interactions with their constitutiencies are often in the form of citizen or business owner complaints. Agencies and municipalites are forced into a re-active role.

I believe there is a better way. But, first we need to reframe the entire conversation and re-think how we can use the tools at hand in business terms. Economic development is a process problem. There are ways to reapproach solutions and rely on process analysis rather than product. I’ll go into more detail on process vs product in my next post.