A friend of mine recently opened his first business, this is a franchise business, that has started strong. I stopped by his shop the other day and asked how it was going. He told me he had never worked this hard in his life. I could see in his eyes that this someone who now understands.

Every day I thank God I have been blessed with the opportunity to own my own business. I know there are many days when being a business owner can seem like anything but a blessing. There are big deals that will go sideways, big orders you won’t get, and equipment that breaks down. There are days when it is great and days when it is tough, and getting yourself through the days when it is tough is when you earn your stripes. There are many times that I have to remind myself that I chose this path for a particular reason, it was not thrust upon me, it’s just what I was built for! I think that is the case with most serial business owners, they do their own thing because working for someone else just doesn’t seem to fit.

Unless you have lived the real challenges of owning your own business, it will will be difficult to understand what an entrepreneur really goes through. Waking up at 3 a.m. and worrying about meeting payroll, or taking care of particular customer, or just making sure the pop machine is full is all part of the game. To really understand this a person needs to feel it, they need to live it. They need to be able to say, been there, done that, got the t-shirt! Until they have lived it, it is a pressure they will never truly understand!

A friend of mine recently opened his first business, this is a franchise business, that has started strong. I stopped by his shop the other day and asked how it was going. He told me he had never worked this hard in his life. I could see in his eyes that this someone who now understands.

Every day I thank God I have been blessed with the opportunity to own my own business. I know there are many days when being a business owner can seem like anything but a blessing. There are big deals that will go sideways, big orders you won’t get, and equipment that breaks down. There are days when it is great and days when it is tough, and getting yourself through the days when it is tough is when you earn your stripes. There are many times that I have to remind myself that I chose this path for a particular reason, it was not thrust upon me, it’s just what I was built for! I think that is the case with most serial business owners, they do their own thing because working for someone else just doesn’t seem to fit.

Unless you have lived the real challenges of owning your own business, it will will be difficult to understand what an entrepreneur really goes through. Waking up at 3 a.m. and worrying about meeting payroll, or taking care of particular customer, or just making sure the pop machine is full is all part of the game. To really understand this a person needs to feel it, they need to live it. They need to be able to say, been there, done that, got the t-shirt! Until they have lived it, it is a pressure they will never understand!

I just got off the phone with a business colleague, and he was looking for some advice on how to deal with a “problem employee.” You see, he isn’t really positive the employee is a problem, but he is getting the sense that there may be an issue, that this individual is not fully committed to the success of the business. He is wondering how he should approach the problem and if it really is a problem.

We all do the same thing when we run into these types of HR issues. We want to give our employees the benefit of the doubt. We always seem to want to give a second, third and fourth chance. We seldom want to face the reality of what we need to do. That is why there are so many organizations out there that have employees who don’t quite pull their weight. So before you start kicking yourself for an employee that is not pulling their weight ask yourself some simple questions:

1) Have you outlined the goals of your organization? – Have you taken the time to explain to your team what it is you are trying to accomplish and when you need to get it done. Have you given them progress reports along the way, and let them know where things stand. Have you done you best to point the ship in the right direction?

2) Have you outlined expectations? – Is your problem employee a problem because they don’t know what to do, or because they simply don’t want to do it. If you have taken the time to clearly spell out what you expect of them, it is difficult for them to fall short with a valid excuse. Clear, written expectations can bring problem employees into focus quickly.

3) Have you given them the tools to do the job? – Does this problem person have the appropriate resources, training and support to get done what is expected of them? If not then they may have a valid excuse for not getting things done. If they have the necessary tools at their disposal, then they need to make use of them.

Many times these things just come down to gut feel or instinct. If you sense that you are not quite getting someone’s total effort, and they are not committed to the goals of the organization, then that is probably the case. Just remember when you run across the problem employee, the longer you wait to resolve the problem, the worse the problem will become.

I just got off the phone with a business colleague, and he was looking for some advice on how to deal with a “problem employee.” You see, he isn’t really positive the employee is a problem, but he is getting the sense that there may be an issue, that this individual is not fully committed to the success of the business. He is wondering how he should approach the problem and if it really is a problem.

We all do the same thing when we run into these types of HR issues. We want to give our employees the benefit of the doubt. We always seem to want to give a second, third and fourth chance. We seldom want to face the reality of what we need to do. That is why there are so many organizations out there that have employees who don’t quite pull their weight. So before you start kicking yourself for an employee that is not pulling their weight ask yourself some simple questions:

1) Have you outlined the goals of your organization? – Have you taken the time to explain to your team what it is you are trying to accomplish and when you need to get it done. Have you given them progress reports along the way, and let them know where things stand. Have you done you best to point the ship in the right direction?

2) Have you outlined expectations? – Is your problem employee a problem because they don’t know what to do, or because they simply don’t want to do it. If you have taken the time to clearly spell out what you expect of them, it is difficult for them to fall short with a valid excuse. Clear, written expectations can bring problem employees into focus quickly.

3) Have you given them the tools to do the job? – Does this problem person have the appropriate resources, training and support to get done what is expected of them? If not then they may have a valid excuse for not getting things done. If they have the necessary tools at their disposal, then they need to make use of them.

Many times these things just come down to gut feel or instinct. If you sense that you are not quite getting someone’s total effort, and they are not committed to the goals of the organization, then that is probably the case. Just remember when you run across the problem employee the longer you wait to resolve the problem, the worse the problem will become.

As an entrepreneur I hear this all time. Vince, you need to rise above the fray and work on the business, rather than in the business. Just today my business partner and I were having this conversation. The problem we have is like many small businesses, we are constantly being pulled down into the day-to-day details.

Some days there is a steady stream of people standing outside my door just waiting for me to solve their problem. People are constantly asking for help, the issues are usually small, and many are things people can handle on their own. I don’t have any specials genie powers to answer the constant flow of questions, I have made myself an easy go-to answer. Although, I must admit, as a business owner this sometimes makes me feel pretty good about myself, it makes me feel valuable to my organization, I have to ask if this is valuable for my business.

During my career as an executive, other than managing my people, the things that I’ve done that have had the most long-term impact on my business have been the big things, not the little ones. When I have worked on acquisitions, new facilities, new products and strategic direction, the big things, I seem to move the business in big ways. When I allow myself to focus on the day-to-day, I tend to get stuck there, and my business gets stuck with me.

I have to ask myself, how many times over the years have I been able to leave and nothing happens? I go on vacation, I go on business trips and when I return the business is still here. Everyone gets along just fine without me. Orders get filled, customers get served, problems get solved and I didn’t even need to be there. If we allow ourselves to think big and fly high, we can move our businesses to new heights. If we lose ourselves in the day-to-day, we may miss that important sign which indicates we are losing our business!

As an entrepreneur I hear this all time. Vince, you need to rise above the fray and work on the business, rather than in the business. Just today my business partner and I were having this conversation. The problem we have is like many small businesses, we are constantly being pulled down into the day-to-day details.

Some days there is a steady stream of people standing outside my door just waiting for me to solve their problem. People are constantly asking for help, the issues are usually small, and many are things people can handle on their own. I don’t have any specials genie powers to answer the constant flow of questions, I have made myself an easy go-to answer. Although, I must admit, as a business owner this sometimes makes me feel pretty good about myself, it makes me feel valuable to my organization, I have to ask if this is valuable for my business.

During my career as an executive, other than managing my people, the things that I’ve done that have had the most long-term impact on my business have been the big things, not the little ones. When I have worked on acquisitions, new facilities, new products and strategic direction, the big things, I seem to move the business in big ways. When I allow myself to focus on the day-to-day, I tend to get stuck there, and my business gets stuck with me.

I have to ask myself, how many times over the years have I been able to leave and nothing happens. I go on vacation, I go on business trips and when I return the business is still here. Everyone gets along just fine without me. Orders get filled, customers get served, problems get solved and I didn’t even need to be there. If we allow ourselves to think big and fly high we can move our businesses to new heights. If we lose ourselves in the day-to-day we may miss that important that indicates we are losing our business!

It is funny how so many people will expect the business owner to know precisely what is going to happen and when. They believe that everything is black and white, a right answer or a wrong answer, there is nothing in between. Too many times I have allowed these types of people to get me down, to wear me out, and reduce my enthusiasm and excitement for what the future holds. It is very easy to point out something was wrong or should not have been done when you have the benefit of hindsight. It is brave when you move forward cautiously, measuring risk and opportunity and trying to push back the barriers to success and reaching your dreams.

There are some days, when as a business owner, you will feel as though you are surrounded by people who are hoping for you to fail. People who get a strange satisfaction out of seeing one of their fellow humans fall short of their goals. I believe seeing others fail gives the more insecure among us the opportunity to rationalize our fears and say, “That’s why I don’t try!” Do your best to stay away from those types of people, they are a barrier to success, they can be a weight tied around your ankles, trying to hold you down.

When they come at you with your failures or shortcomings, remind them that as an entrepreneur you don’t have all the answers. You are after all human, and you will make mistakes. Sometimes things work and sometimes they don’t. Savvy business owners know how to cope with those difficult times, remember “tough times don’t last, tough people do!”

We have had to manage our business through some very challenging times over the last 24 months, we have been blessed over the last 12 months with continued growth and opportunity. For me the trick to coping with both success and failure has always been the same. When things go well, I thank God for blessing me, my family for supporting me, and my co-workers for helping me get there. When things go bad, I figure out why, I try to learn from my experience, I pick myself up, dust myself off and try again. In the end that’s all you can do.

The next time someone tries to wear you down with their 20/20 hindsight, or pounces at any of your mistakes so they can stake claim to a position of moral or intellectual superiority ask them, what barriers did they try to push back today, what risk did they take, and why are they so afraid of you and the possibility of your success!

It is funny how so many people will expect the business owner to know precisely what is going to happen and when. They believe that everything is black and white, a right answer or a wrong answer, there is nothing in between. Too many times I have allowed these types of people to get me down, to wear me out, and reduce my enthusiasm and excitement for what the future holds. It is very easy to point out something was wrong or should not have been done when you have the benefit of hindsight. It is brave when you move forward cautiously, measuring risk and opportunity and trying to push back the barriers to success and reaching your dreams.

There are some days, when as a business owner, you will feel as though you are surrounded by people who are hoping for you to fail. People who get a strange satisfaction out of seeing one of their fellow humans fall short of their goals. I believe seeing others fail gives the more insecure among us the opportunity to rationalize our fears and say, “That’s why I don’t try!” Do your best to stay away from those types of people, they are a barrier to success, they can be a weight tied around your ankles, trying to hold you down.

When they come at you with your failures or shortcomings, remind them that as an entrepreneur you don’t have all the answers. You are after all human, and you will make mistakes. Sometimes things work and sometimes they don’t. Savvy business owners know how to cope with those difficult times, remember “tough times don’t last, tough people do!”

We have had to manage our business through some very challenging times over the last 24 months, we have been blessed over the last 12 months with continued growth and opportunity. For me the trick to coping with both success and failure has always been the same. When things go well, I thank God for blessing me, my family for supporting me, and my co-workers for helping me get there. When things go bad, I figure out why, I try to learn from my experience, I pick myself up, dust myself off and try again. In the end that’s all you can do.

The next time someone tries to wear you down with their 20/20 hindsight, or pounces at any of your mistakes so they can stake claim to a position of moral or intellectual superiority ask them, what barriers did they try to push back today, what risk did they take, and why are they so afraid of you and the possibility of your success!

It is funny how so many people will expect the business owner to know precisely what is going to happen and when. They believe that everything is black and white, a right answer or a wrong answer, there is nothing in between. Too many times I have allowed these types of people to get me down, to wear me out, and reduce my enthusiasm and excitement for what the future holds. It is very easy to point out something was wrong or should not have been done when you have the benefit of hindsight. It is brave when you move forward cautiously, measuring risk and opportunity and trying to push back the barriers to success and reaching your dreams.

There are some days, when as a business owner, you will feel as though you are surrounded by people who are hoping for you to fail. People who get a strange satisfaction out of seeing one of their fellow humans fall short of their goals. I believe seeing others fail gives the more insecure among us the opportunity to rationalize our fears and say, “That’s why I don’t try!” Do your best to stay away from those types of people, they are a barrier to success, they can be a weight tied around your ankles, trying to hold you down.

When they come at you with your failures or shortcomings, remind them that as an entrepreneur you don’t have all the answers. You are after all human, and you will make mistakes. Sometimes things work and sometimes they don’t. Savvy business owners know how to cope with those difficult times, remember “tough times don’t last tough people do!”

We have had to manage our business through some very challenging times over the last 24 months, we have been blessed over the last 12 months with continued growth and opportunity. For me the trick to coping with both success and failure has always been the same. When things go well, I thank God for blessing me, my family for supporting me, and my co-workers for helping me get there. When things go bad, I figure out why, I try to learn from my experience, I pick myself up, dust myself off and try again. In the end that’s all you can do.

The next time someone tries to wear you down with their 20/20 hindsight, or pounces at any of your mistakes so they can stake claim to a position of moral or intellectual superiority ask them, what barriers did they try to push back today, what risk did they take, and why are they so afraid of you and the possibility of your success!

It is funny how so many people will expect the business owner to know precisely what is going to happen and when. They believe that everything is black and white, a right answer or a wrong answer, there is nothing in between. Too many times I have allowed these types of people to get me down, to wear me out, and reduce my enthusiasm and excitement for what the future holds. It is very easy to point out something was wrong or should not have been done when you have the benefit of hindsight. It is brave when you move forward cautiously, measuring risk and opportunity and trying to push back the barriers to success and reaching your dreams.

There are some days, when as a business owner, you will feel as though you are surrounded by people who are hoping for you to fail. People who get a strange satisfaction out of seeing one of their fellow humans fall short of their goals. I believe seeing others fail gives the more insecure among us the opportunity to rationalize our fears and say, “That’s why I don’t try!” Do your best to stay away from those types of people, they are a barrier to success, they can be a weight tied around your ankles, trying to hold you down.

When they come at you with your failures or shortcomings, remind them that as an entrepreneur you don’t have all the answers. You are after all human, and you will make mistakes. Sometimes things work and sometimes they don’t. Savvy business owners know how to cope with those difficult times, remember “tough times don’t last tough people do!”

We have had to manage our business through some very challenging times over the last 24 months, we have been blessed over the last 12 months with continued growth and opportunity. For me the trick to coping with both success and failure has always been the same. When things go well, I thank God for blessing me, my family for supporting me, and my co-workers for helping me get there. When things go bad, I figure out why, I try to learn from my experience, I pick myself up, dust myself off and try again. In the end that’s all you can do.

The next time someone tries to wear you down with their 20/20 hindsight, or pounces at any of your mistakes so they can stake claim to a position of moral or intellectual superiority ask them, what barriers did they try to push back today, what risk did they take, and why are they so afraid of you and the possibility of your success!

Over the past couple of years I have spent a lot of time second guessing my decisions. I could have stuck it out in the corporate world, retired at 60, and done just fine. That however is the problem, I could have done just fine, not great, just fine. At the end of the day I was afraid of looking back on my life and regretting not taking the chance when the opportunity presented itself.

Owning your own business, especially if you are the most senior of the partners, can be a thankless job. Everyone expects you to have all the answers to every problem, when many times you are just figuring it out as you go. People get upset when you can’t solve their issue at the drop of a hat, or angry when something doesn’t go quite right, and you get to be the punching bag, that entity that gets to listen to everyone vent. Every once in awhile you will lose your patience and blow your lid, but most of time you have to rise above the fray. Sometimes it makes you wonder who works for whom.

You will rarely be thanked for your sacrifice, no one will complement your work, people will lie to you, they will cheat you and they will expect that they are so much smarter than you. You will get to mediate between your partners when they are not getting along and you will be expected not to say what is on your mind, while all those around you are not held to the same expectation. No one bothers to think about what would happen if you decided to throw in the towel and walk away. Who would worry about paying the bills and the employees, who would float the company loans when cash runs short, who would take the time and energy to really consider how you can do what is best for everyone?

All of this will drive you to ask, is this really worth it? Are the investments of time, energy and money really worth it. The fact is only time will tell, and if you keep yourself and your business going long enough you will get the chance to see that it really is. Because, at the end of day, despite all the frustrations, we all know this is so much better than the alternative, and when I look back on my life it will certainly not be a life wasted and opportunities missed, it will one filled with rich experiences and fascinating people. A life lived as an entrepreneur!

Over the past couple of years I have spent a lot of time second guessing my decisions. I could have stuck it out in the corporate world, retired at 60, and done just fine. That however is the problem, I could have done just fine, not great, just fine. At the end of the day I was afraid of looking back on my life and regretting not taking the chance when the opportunity presented itself.

Owning your own business, especially if you are the most senior of the partners, can be a thankless job. Everyone expects you to have all the answers to every problem, when many times you are just figuring it out as you go. People get upset when you can’t solve their issue at the drop of a hat, or angry when something doesn’t go quite right, and you get to be the punching bag, that entity that gets to listen to everyone vent. Every once in awhile you will lose your patience and blow your lid, but most of time you have to rise above the fray. Sometimes it makes you wonder who works for whom.

You will rarely be thanked for your sacrifice, no one will complement your work, people will lie to you, they will cheat you and they will expect that they are so much smarter than you. You will get to mediate between your partners when they are not getting along and you will be expected not to say what is on your mind, while all those around you are not held to the same expectation. No one bothers to think about what would happen if you decided to throw in the towel and walk away. Who would worry about paying the bills and the employees, who would float the company loans when cash runs short, who would take the time and energy to really consider how you can do what is best for everyone?

All of this will drive you to ask, is this really worth it? Are the investments of time, energy and money really worth it. The fact is only time will tell, and if you keep yourself and your business going long enough you will get the chance to see that it really is. Because, at the end of day, despite all the frustrations, we all know this is so much better than the alternative, and when I look back on my life it will certainly not be a life wasted and opportunities missed, it will one filled with rich experiences and fascinating people. A life lived as an entrepreneur!

Over the past couple of years I have spent a lot of time second guessing my decisions. I could have stuck it out in the corporate world, retired at 60, and done just fine. That however is the problem, I could have done just fine, not great, just fine. At the end of the day I was afraid of looking back on my life and regretting not taking the chance when the opportunity presented itself.

Owning your own business, especially if you are the most senior of the partners, can be a thankless job. Everyone expects you to have all the answers to every problem, when many times you are just figuring it out as you go. People get upset when you can’t solve their issue at the drop of a hat, or angry when something doesn’t go quite right, and you get to be the punching bag, that entity that gets to listen to everyone vent. Every once in awhile you will lose your patience and blow your lid, but most of time you have to rise above the fray. Sometimes it makes you wonder who works for whom.

You will rarely be thanked for your sacrifice, no one will complement your work, people will lie to you, they will cheat you and they will expect that they are so much smarter than you. You will get to mediate between your partners when they are not getting along and you will be expected not to say what is on your mind, while all those around you are not held to the same expectation. No one bothers to think about what would happen if you decided to throw in the towel and walk away. Who would worry about paying the bills and the employees, who would float the company loans when cash runs short, who would take the time and energy to really consider how you can do what is best for everyone?

All of this will drive you to ask, is this really worth it? Are the investments of time, energy and money really worth it. The fact is only time will tell, and if you keep yourself and your business going long enough you will get the chance to see that it really is. Because, at the end of day, despite all the frustrations, we all know this is so much better than the alternative, and when I look back on my life it will certainly not be a life wasted and opportunities missed,

It is hard to believe, but we only have two business days left in January. I already am getting a sense that 2011 is going to be a year of growth, how much remains a mystery. Our primary business is up, although there are some unusual circumstances around our 2010 January results. Our fourth quarter of last year was very strong, and many of my business associates are saying the same thing, that it just feels better out there. Of course that could be because things have been so weak for so long! The question is how real and solid is this new era of growth?

This is the challenge for every business owner. Is what I am seeing today temporary or are we ushering in a new period of economic expansion. We are all left to guess, we are trying to assign predictability to unpredictable events, and it is pretty rare when we get it right! The problem is that if we react too slowly we will miss the opportunity bus, if we react too quickly we could get run over. No one really knows, they will espouse what they believe, some can give an educated guess, but no one really knows!

I am hopeful that we are in a new period of economic growth and expansion, but like most business owners I am hedging my bets. Although, if January is any indication, 2011 could be a strong year, and we could all be in for one heckuva great ride!

It is hard to believe, but we only have two business days left in January. I already am getting a sense that 2011 is going to be a year of growth, how much remains a mystery. Our primary business is up, although there are some unusual circumstances around our 2010 January results. Our fourth quarter of last year was very strong, and many of my business associates are saying the same thing, that it just feels better out there. Of course that could be because things have been so weak for so long! The question is how real and solid is this new era of growth?

This is the challenge for every business owner. Is what I am seeing today temporary or are we ushering in a new period of economic expansion. We are all left to guess, we are trying to assign predictability to unpredictable events, and it is pretty rare when we get it right! The problem is that if we react too slowly we will miss the opportunity bus, if we react too quickly we could get run over. No one really knows, they will espouse what they believe, some can give an educated guess, but no one really knows!

I am hopeful that we are in a new period of economic growth and expansion, but like most business owners I am hedge my bets. Although, is January is any indication, 2011 could be a strong year, and we could all be in for one heckuva great ride!

It is hard to believe, but we only have two business days left in January. I already am getting a sense that 2011 is going to be a year of growth, how much remains a mystery. Our primary business is up, although there are some unusual circumstances around our 2010 January results. Our fourth quarter of last year was very strong, and many of my business associates are saying the same thing, that it just feels better out there. Of course that could be because things have been so weak for so long! The question

I got up this morning for my usual workout, as I was drinking my juice and taking my vitamins I was checking my email on my IPAD (or me precious as my wife calls it). My day started with one of my sales reps peppering me with emails about the status of orders she has in-house. I got into the office and one of our customer service reps was frustrated about the way we saved art files in the past. A practice that was changed in August of last year. I then went into my morning production meeting, as I was trying to pump up the troops to close the month strong, one of my key folks reminded me they would not be here Monday, the last shipping day of January. It was at that point when I began to ask myself if I was really ready for today?

However, it does not really matter, this is how it works. If you want to own your business, you better be prepared for the good, the bad and the ugly! Some days you will feel as though you can do nothing wrong, and some days you will be wondering if you’re still the boss. The trick is to not get too full of yourself when things are going really well, and to not beat yourself up too badly when things are not. As an entrepreneur you will have to deal with both ends of the spectrum and everything in between, you just need to sit-back, smile and find your balance. Also, never get too comfortable, as soon as you do things will change and you will be up and running again!

I got up this morning for my usual workout, as I was drinking my juice and taking my vitamins I was checking my email on my IPAD (or me precious as my wife calls it). My day started with one of my sales reps peppering me with emails about the status of orders she has in-house. I got into the office and one of our customer service reps was frustrated about the way we saved art files in the past. A practice that was changed in August of last year. I then went into my morning production meeting, as I was trying to pump up the troops to close the month strong, one of my key folks reminded me they would not be here Monday, the last shipping day of January. It was at that point when I began to ask myself if I was really ready for today?

However, it does not really matter, this is how it works. If you want to own your business, you better be prepared for the good, the bad and the ugly! Some days you will feel as though you can do nothing wrong, and some days you will be wondering if you’re still the boss. The trick is to not get too full of yourself when things are going really well, and to not beat yourself up too badly when things are not. As an entrepreneur you will have to deal with both ends of the spectrum and everything in between, you just need to sit-back, smile and find your balance. Also, never get too comfortable, as soon as you do things will change and you will be up and running again!

I had a huge success last night. I was able to log into my network at the office at while I was at home. Now to many people this may seem minor, but to me this was a great success.

This all started when one of my business partners suggested we replace our back office order management and accounting system for our apparel business. The programs we currently use are online and managed offsite by a contractor. The new system requires a server or shared drive onsite, a back-up methodology to preserve data, and a VPN connection for our employees who are on the road. I went to my local Mac dealer armed with this information and asked them to put together a quote based on our needs. As with most projects in business I had budgeted $2,500 and they came back with $5,100, $3,200 of it was labor for setting everything up. Now the picture of my success starts to come into focus!

Given my new found frugality, and my desire to keep our numbers in the black the entire year, I decided to tackle this project myself. I purchased the hardware, set-up the server, installed a firewall, created a VPN connection and logged in. It took me almost two weeks to do this, and I am sure had I paid the $3,200 they would have had everything set-up in a day, but like most entrepreneurs I found a way to get it done.

That is the true lesson of entrepreneurship, finding a way to get it done. As a business owner there are many days when you will feel like the deck is stacked against you, you will begin to believe that no one really is committed to your success. We have all been there, the lonely deserted island where everyone has left us to wallow in our own thoughts and despair. Entrepreneurship is finding a way to get it done even when everything is stacked against you. Whether it is setting up your own network, setting up a sales team, or raising capital in a difficult environment, if you want to own your own business, then you need to be prepared to find a way to get it done!

I had a huge success last night. I was able to log into my network at the office at while I was at home. Now to many people this may seem minor, but to me this was a great success.

This all started when one of my business partners suggested we replace our back office order management and accounting system for our apparel business. The programs we currently use are online and managed offsite by a contractor. The new system requires a server or shared drive onsite, a back-up methodology to preserve data, and a VPN connection for our employees who are on the road. I went to my local Mac dealer armed with this information and asked them to put together a quote based on our needs. As with most projects in business I had budgeted $2,500 and they came back with $5,100, $3,200 of it was labor for setting everything up. Now the picture of my success starts to come into focus!

Given my new found frugality, and my desire to keep our numbers in the black the entire year, I decided to tackle this project myself. I purchased the hardware, set-up the server, installed a firewall, created a VPN connection and logged in. It took me almost two weeks to do this, and I am sure had I paid the $3,200 they would have had everything set-up in a day, but like most entrepreneurs I found a way to get it done.

That is the true lesson of entrepreneurship, finding a way to get it done. As a business owner there are many days when you will feel like the deck is stacked against you, you will begin to believe that no one really is committed to your success. We have all been there, the lonely deserted island where everyone has left us to wallow in our own thoughts and despair. Entrepreneurship is finding a way to get it done even when everything is stacked against you. Whether it is setting up your own network, setting up a sales team, or raising capital in a difficult environment, if you want to own your own business, then you need to be prepared to find a way to get it done!

Every Monday morning we review the weekly results with our employees. We are small enough (only 20+ employees) that getting everybody together for a few minutes once a week to check how we are doing is relatively easy, and for the most part worthwhile. The challenge for us has been deciding what numbers are important, and then getting our hands around how to manage those numbers.

For every business owner, at some point, the path to making money is to understand how the financial dynamics of your business work, and how to measure those dynamics so you can understand how you are doing. The trick is not just to measure, it is to measure what really matters. Measure the things that will help lead you to your business goals. It will be different for every business, for the electronics manufacturing business we owned, gross margin was not a worry. I spent most of my time paying attention to market share and base cost. For the decorated apparel business we own today, gross margin is key, and managing that number is key. Maximizing efficiency and limiting waste are now critical aspects of helping the business achieve its goals. Our focus on these items has led to a dramatic increase in our profitability, cash flow, and revenue.

The trap I see people fall into is focusing on metrics that don’t matter in an effort to convince themselves that their business is doing much better than it really it is. I recently had a discussion with a business owner who was very excited that her business grew 20% in 2010. This sounds pretty exciting until you realize that her business is so small that 20% does not get her near where she needs to be. I believe I popped this entrepreneur’s bubble when I asked if she was making any money. She was pumped up about a measurement that really didn’t matter. I have fallen into that same trap, and until I took a good hard look in the mirror and asked myself what really mattered to my business, I was doing the same thing. Getting excited about measurements that didn’t matter.

So this week I suggest you take the time to understand what your business goals are, and how you should measure your progress in achieving those goals.

Every Monday morning we review the weekly results with our employees. We are small enough (only 20+ employees) that getting everybody together for a few minutes once a week to check how we are doing is relatively easy, and for the most part worthwhile. The challenge for us has been deciding what numbers are important, and then getting our hands around how to manage those numbers.

For every business owner, at some point, the path to making money is to understand how the financial dynamics of your business work, and how to measure those dynamics so you can understand how you are doing. The trick is not just to measure, it is to measure what really matters. Measure the things that will help lead you to your business goals. It will be different for every business, for the electronics manufacturing business we owned, gross margin was not a worry. I spent most of my time paying attention to market share and base cost. For the decorated apparel business we own today, gross margin is key, and managing that number is key. Maximizing efficiency and limiting waste are now critical aspects of helping the business achieve its goals. Our focus on these items has led to a dramatic increase in our profitability, cash flow, and revenue.

The trap I see people fall into is focusing on metrics that don’t matter in an effort to convince themselves that their business is doing much better than it really it is. I recently had a discussion with a business owner who was very excited that her business grew 20% in 2010. This sounds pretty exciting until you realize that her business is so small that 20% does not get her near where she needs to be. I believe I popped this entrepreneur’s bubble when I asked if she was making any money. She was pumped up about a measurement that really didn’t matter. I have fallen into that same trap, and until I took a good hard look in the mirror and asked myself what really mattered to my business, I was doing the same thing. Getting excited about measurements that didn’t matter.

So this week I suggest you take the time to understand what your business goals are, and how you should measure your progress in achieving those goals.

Every Monday morning we review the weekly results with our employees. We are small enough (only 20+ employees) that getting everybody together for a few minutes once a week to check how we are doing is relatively easy, and for the most part worthwhile. The challenge for us has been deciding what numbers are important, and then getting our hands around how to manage those numbers.

For every business owner, at some point, the path to making money is to understand how the financial dynamics of your business work, and how to measure those dynamics so you can understand how you are doing. The trick is not just to measure, it is to measure what really matters. Measure the things that will help lead you to your business goals. It will be different for every business, for the electronics manufacturing business we owned, gross margin was not a worry. I spent most of my time paying attention to market share and base cost. For the decorated apparel business we own today, gross margin is key, and managing that number is key. Maximizing efficiency and limiting waste become critical aspects of helping the business achieve its goals. Our focus on these items has led to a dramatic increase in our profitability, cash flow, and revenue.

The trap I see people fall into is focusing on metrics that don’t matter in an effort to convince themselves that their business is doing much better than it really it is. I recently had a discussion with a business owner who was very excited that his business grew 20% in 2010. This sounds pretty exciting until you realize that her business is so small that 20% does not get her near where she needs to be. I believe I popped this entrepreneur’s bubble when I asked if she was making any money. She was pumped up about measurement that really didn’t matter.

This past week my business partner asked me if the rumors that the U.S. Economy was headed for a double dip recession were accurate. Unfortunately I really had no answer. I always find it difficult to tie predictability to unpredictable events. I have enough trouble trying to figure what our sales are going to be for the next month, much less guessing what the broader economy will do over the next several months; however, ignorance has never stopped me from throwing my two cents in before, why should I should start being sensible now?

There was a great deal of concern in the media about the June jobs data. This is probably unwarranted. The numbers in March, April and May were highly inflated by the addition of temporary census jobs, and we paid for that in June when those temporary jobs went away. Private employment was up slightly in June, this modest job growth appears to be a continuing trend. The Rough Air Demand Index indicates that growth will continue to move along slowly. I would expect growth to be slow for some time. The weak housing market and tepid job market will weigh on consumer spending. As long as overall consumer and business credit remains tight, businesses will struggle to find significant growth.

Business credit continues to be tight as banks continue to overreach in terms of collateral requirements for small business loans. This will likely lead to a trend of small business owners looking for other sources of capital, things like 401k accounts, friends, relatives and so on. We are a perfect example, we have been using our own capital to remove the bank from the equation, it just makes operating the business easier. This cycle will change in the next few years as banks begin to struggle to prop up revenues, because they make money by lending it, not holding it.

The bottom line is I would expect a period of status quo in regards to the economy. I don’t foresee a huge economic boom, or another big decline. It appears we are in for a period of slow growth, low interest rates, limited credit and weak hiring. All of this will come down to the consumer, when Americans begin to feel better about their economic prospects, the stronger growth will return. I am sure there is another big economic bubble out there just waiting for us all!

This past week my business partner asked me if the rumors that the U.S. Economy was headed for a double dip recession were accurate. Unfortunately I really had no answer. I always find it difficult to tie predictability to unpredictable events. I have enough trouble trying to figure what our sales are going to be for the next month, much less guessing what the broader economy will do over the next several months; however, ignorance has never stopped me from throwing my two cents in before, why should I should start being sensible now?

There was a great deal of concern in the media about the June jobs data. This is probably unwarranted. The numbers in March, April and May were highly inflated by the addition of temporary census jobs, and we paid for that in June when those temporary jobs went away. Private employment was up slightly in June, this modest job growth appears to be a continuing trend. The Rough Air Demand Index indicates that growth will continue to move along slowly. I would expect growth to be slow for some time. The weak housing market and tepid job market will weigh on consumer spending. As long as overall consumer and business credit remains tight, businesses will struggle to find significant growth.

Business credit continues to be tight as banks continue to overreach in terms of collateral requirements for small business loans. This will likely lead to a trend of small business owners looking for other sources of capital, things like 401k accounts, friends, relatives and so on. We are a perfect example, we have been using our own capital to remove the bank from the equation, it just makes operating the business easier. This cycle will change in the next few years as banks begin to struggle to prop up revenues, because they make money by lending it, not holding it.

The bottom line is I would expect a period of status quo in regards to the economy. I don’t foresee a huge economic boom, or another big decline. It appears we are in for a period of slow growth, low interest rates, limited credit and weak hiring. All of this will come down to the consumer, when Americans begin to feel better about their economic prospects, the stronger growth will return. I am sure there is another big economic bubble out there just waiting for us all!

This past week my business partner asked me if the rumors that the U.S. Economy was headed for a double dip recession were accurate. Unfortunately I really had no answer. I always find it difficult to tie predictability to unpredictable events. I have enough trouble trying to figure what our sales are going to be for the next month, much less guessing what the broader economy will do over the next several months; however, ignorance has never stopped me from throwing my two cents in before, why should I should start being sensible now?

There was a great deal of concern in the media about the June jobs data. This is probably unwarranted. The numbers in March, April and May were highly inflated by the addition of temporary census jobs, and we paid for that in June when those temporary jobs went away. Private employment was up slightly in June, this modest job growth appears to be a continuing trend. The Rough Air Demand Index indicates that growth will continue to move along slowly. I would expect growth to be slow for some time. The weak housing market and tepid job market will weigh on consumer spending. As long as overall consumer and business credit remains tight, businesses will struggle to find significant growth.

Business credit continues to be tight as banks continue to overreach in terms of collateral requirements for small business loans. This will likely lead to a trend of small business owners looking for other sources of capital, things like 401k accounts, friends, relatives and so on. We are a perfect example, we have been using our own capital to remove the bank from the equation, it just makes operating the business easier. This cycle will change in the next few years as banks begin to struggle to prop up revenues, because they make money by lending it, not holding it.

The bottom line is I would expect a period of status quo in regards to the economy. I don’t foresee a huge economic boom, or another big decline. It appears we are in for a period of slow growth, low interest rates, limited credit and weak hiring. All of this will come down to the consumer, when Americans begin to feel better about their economic prospects, the stronger growth will return. I am sure there is another big economic bubble out there just waiting for us all!

This past week my business partner asked me if the rumors that the U.S. Economy was headed for a double dip recession were accurate. Unfortunately I really had no answer. I always find it difficult to tie predictability to unpredictable events. I have enough trouble trying to figure what our sales are going to be for the next month, much less guessing what the broader economy will do over the next several months; however, ignorance has never stopped me from throwing my two cents in before, why should I should start being sensible now?

There was a great deal of concern in the media about the June jobs data. This is probably unwarranted. The numbers in March, April and May were highly inflated by the addition of temporary census jobs, and we paid for that in June when those temporary jobs went away. Private employment was up slightly in June, this modest job growth appears to be a continuing trend. The Rough Air Demand Index indicates that growth will continue to move along slowly. I would expect growth to be slow for some time. The weak housing market and tepid job market will weigh on consumer spending. As long as overall consumer and business credit remains tight, businesses will struggle to find significant growth.

Business credit continues to be tight as banks continue to overreach in terms of collateral requirements for small business loans. This will likely lead to a trend of small business owners looking for other sources of capital, things like 401k accounts, friends, relatives and so on. We are a perfect example, we have been using our own capital to remove the bank from the equation, it just makes operating the business easier. This cycle will change in the next few years as banks begin to struggle to prop up revenues, because they make money by lending it, not holding it.

The bottom line is I would expect a period of status quo in regards to the economy. I don’t foresee a huge economic boom, or another big decline. It appears we are in for a period of slow growth, low interest rates, limited credit and weak hiring. All of this will come down to the consumer, when Americans begin to feel better about their economic prospects, the stronger growth will return. I am sure there is another big economic bubble out there just waiting for us all!

The Rough Air Demand Index uses several relevant economic measures to evaluate recent trends and give us some idea of the current economic environment. The economy continues to move forward slowly. Demand is sluggish, but improving. The overall trend is positive, but growth is being held down due to a weak job market, a lack of available credit for consumers and businesses, and a weak housing market. Until we get solid improvement in one of these areas economic grow

The Rough Air Cost Index is a measure to help small business owners understand the cost of doing business in the current environment. Like the demand index we look at several relevant economic measures and their current trends. Except for some fluctuations in oil prices, overall prices continue to be stable. Over the last quarter the cost index has been declining steadily. This indicates there is no real evidence of inflation on the horizon.

The Rough Air Demand Index uses several relevant economic measures to evaluate recent trends and give us some idea of the current economic environment. The economy continues to move forward slightly. A big driver of the current demand rating has been the improving employment picture. While November’s job losses were the least since January 2008, the job market retracted again in December causing some concern about the pace of the overall economic recovery. Although the economy is not rebounding as quickly as many would like, it does seem to have settled into a positive trend.

The Rough Air Demand Index uses several relevant economic measures to evaluate recent trends and give us some idea of the current economic environment. The economy continues to move forward slightly. A big driver of the current demand rating has been the improving employment picture. While November’s job losses were the least since January 2008, the job market retracted again in December causing some concern about the pace of the overall economic recovery. Although the economy is not rebounding as quickly as many would like, it does seem to have settled into a positive trend.

The Rough Air Cost Index is a measure to help small business owners understand the cost of doing business in the current environment. Like the demand index we look at several relevant economic measures and their current trends. Except for some fluctuations in oil prices, overall commodities continue to be pretty stable across the board, this has allowed the U.S. Federal Reserve to keep a lid on interest rates in hopes of getting businesses to invest in expansion activities. The challenge has been business owners finding lending institutions that are willing to loan for expansion projects.

Rough Air Associates offers professional training in the form of coaching, workshops and seminars designed specifically for small and family business. Seminars and Workshops may be customized to meet your organization’s needs and can be conducted in a variety of venues.

Rough Air Training Classes:

Creating Your One Page Plan ($399.00)
Invest four hours of your time to get a focused plan for your new business.

Getting Out ($399.00)
A half day class where you will learn about the best ways to exit your business and maximise your investment.

Check back soon for 2009 class dates!

On Site Classes and Workshops:

Business Planning
(One Day – $2,500.00, Two Days – $4,000.00 + Travel and Expenses)
Have your next business planning session be led by someone who has been there. One and two day sessions available.

Succession Planning ($4,000.00 + Travel and Expenses)
Are you grappling with succession in your business. This two day class for family businesses or small businesses can help you move forward.

For additional information, upcoming seminar dates and locations, or to find out how Rough Air Associates can help meet your training needs, contact us today.

Consulting Services:

Interim CEO Service (Call for Quote)

Advisory Board Set-Up and Management
($2,500 Per Meeting + Travel and Expenses)

Total Business Review
($4,000 One Day Session and Compilation Report, $7,500 Two Day Session and Compilation Report)

For additional information or to find out how Rough Air Associates can help meet your needs, contact us today.

Online Training & Resources:

Business Planning

Selling Your Business

Pursuing Your Passion

Succession Planning

I had a breakfast meeting with a group of Dayton area business owners and executives this past Friday. We met at Logos@Work, a business I own, which focuses on custom apparel for business, schools and events. Since my business partner and I just moved this business into a new facility, this group that I meet with on a regular basis decided to have our March meeting at our new location. As we discussed some of the hoops we had to jump through to get this deal real estate done, the discussion turned to small business in general and how many small companies are still struggling. One business owner even opined that the fundamentals of entrepreneurship had been shifted significantly during this recession, and would likely not shift back for another ten years.

Everyone agreed that the seeming lack of support for small business in the current economy must change if we are to move forward. Considering that 50% of the private sector work force works in small business, and this is typically where the most significant new job growth comes from, it is logical to assume that the economy will not turn around completely until the environment improves for our nation’s entrepreneurs. I thought about it this weekend, and I have come up with three ideas that could help small business now:

1) Create incentives for banks to lend – The federal government says they want banks to lend, but the regulatory actions they have taken encourage banks to only make zero risk, or very low risk loans. The current fed funds rate is .25%, six month CD rates are over 1%, a bank could borrow at .25% put it in a CD and make more with less risk than writing loans with those same dollars. As long as this is the case, banks will cherry pick the lowest risk lending opportunities and say no to everything else. Incentives need to be created that will make it more lucrative for banks to free up credit rather hoard cash.

2) Reduce the cost of health insurance premiums – I have no idea which option floating around DC about health care makes the most sense, I do know that in my business, other than material and labor, health insurance is one of our most expensive line items. The problem is we don’t have a lot of choices or opportunities to find more competitive pricing. Generally we get stuck with large increases and reduced coverage every year. Small business owners can’t continue to try to keep up with the spiraling cost of providing health insurance for employees, at some point this will no longer be a benefit we can provide.

3) Reduce tax rates for small business owners and the self employed – One of the biggest cash drains for small businesses that make money is taxes. A significant short-term reduction in rates for small business owners and the self-employed would give these organizations additional capital. This capital could be used to help business owners provide funding for operations during a time when it is difficult to borrow money from banks. It could also be used to reinvest in businesses for growth. A two year reduction in rates may be the medicine small businesses need to get through the current environment.

Over the past two years our government has been focused on bailing out large financial institutions and our nation’s automakers. Perhaps it is time they turned their attention to those organizations that really drive economic growth and ingenuity in this country, small business. Politicians can turn a blind eye when their community loses a small business, because the business can no longer survive. The number of job losses is usually not large enough to make the news, and many act as though the impact is small. But, if a community loses enough small companies due to the economy, they will feel the impact. Perhaps that is when folks will determine that something needs done, when it is too late!

I was meeting with another area business owner this past week, and we were discussing the things he has had to do over the past couple of years to keep his business going. It was reminder to me of what entrepreneurs have been facing in the current economic climate, and the deafening silence coming from all of our leaders about how we might be able to fix the problem. In today’s environment business owners are going to extraordinary measures to keep the doors open. They are cashing in life insurance policies, they are getting money out of their 401Ks, and working for zero pay, all in an effort to keep the business going until that turnaround comes.

I am not sure most people are truly aware of what a small business owners faces today. Small companies don’t have the luxury of being “too big to fail!” If a small company goes under in today’s climate, we all shrug it off, and say well the owner assumed the risk, if they weren’t willing to take the risk, they should have never tried to go into business for themselves. So for the small business owner there is no billion dollar bailout, or initiative to save small companies around the country. We have reached the reverse bubble, the period of irrational apathy. Those that control the capital have become so fearful of what may happen next, that they have chosen to only pursue initiatives with zero risk!

In this environment lenders only want to lend when they can have loans collateralized 100%. The high collateralization needed for new loans forces business owners to tie up capital for the bank. This creates the ultimate catch 22, you tie up your capital to get a loan, then you lose access to that cash when you need it to save your business. Although this will make the loan look great on paper for the regulators, I would argue that it places many businesses in a riskier position. It locks up their cash, at the time they need it most.

Unfortunately this problem is not going to go away quickly. Until bankers and regulators realize that the way to make money in the financial industry is to lend it, not sit on it, entrepreneurs will have to continue to operate in an environment of capital starvation. Until capital begins to flow more freely, we business owners will be forced to find new and unique ways of raising money for our businesses if we want to keep things going until the next big upswing!

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On this bitterly cold Sunday morning in Southwest Ohio I stopped by my local bagel shop for breakfast on my way to the office. I know it’s Sunday and I shouldn’t be working, but these quiet weekends in the office allow me to get all the things done that I can’t normally focus on during those hectic weekdays.

When I ordered my breakfast this morning I noticed the counter person was efficient, but not friendly. I didn’t get the impression I was a major inconvenience, but I was certainly not made to feel as though I was the most important customer she would have all day. This led me to think about how much our impression of good service has changed over the years, about how we have become so focused on efficiency and keeping our staff cost low, that the customer has become just another task on our list of things to do today, as opposed to the whole reason we are there. Whatever happened to all of those great books on service, and how we need to be “ladies and gentlemen serving ladies and gentlemen?”

Whatever happened to the person that answers the phone. Very few companies have someone answer the phone anymore, in the name of efficiency they have an automated attendant. A computerized voice, or a recording of an employee is typically our first interaction over the phone with another company. We are then given a complete menu of options, and the one we want is never listed, so we need to guess which one will work. Many times, once we navigate our way through several menus, we find there is no one to take our call. On occasion we get the opportunity to leave a message, and more often than not we are asked if we wish to be called back by a representative in “X number” of minutes. Don’t they realize if I wanted to speak with someone in 20 minutes I would have called 20 minutes later. I am calling now because I have the time to call now. We have spent years creating all of these great communication tools, only to determine we don’t have time to talk to anyone!

Whatever happened to the person who greets customers when they come in the door. More often than not I find myself standing in a cold, sterile lobby with locked doors, a phone, and a list. When you pick up the phone to dial your contact, you get the company’s automated attendant. We have all of these businesses that are building these fortresses around themselves so they never have to talk to the outside world. I love to walk into a company and find they take the time to have someone work the front desk, they have someone greet me when I come in. As opposed to giving the impression that “they are just too busy to speak with me,” they give me the impression that they have been waiting for me to walk in, they want my business.

How about the idea that the customer is always right. How many customer service people have you had on the phone lately that are doing everything they can to convince you you’re wrong. Sometimes they even try to make you feel bad for complaining about something “so trivial.” I am convinced that some organizations no longer teach customer service skills, they teach negotiating skills. They just keep telling you no until you go away. This is part of the short term mentality that is so prevalent in american business today. Don’t do anything that will negatively impact short term results. When you argue with that customer about an issue, you may very well win the argument, but you will eventually lose their business.

I can’t tell you how many times I have run into the “company policy” argument. If you are a customer and you complain about something, this is a response you will eventually hear, “I am sorry sir, but that is against our policy.” I’ve heard this from employees in my own business. I remember not long after we acquired Logos@Work listening to one of our customer service people tell a customer we could not do something because it was against our policy, she continued to insist it was against our policy even after I told her it was O.K. It was as if her programming would not even allow her to shift gears at the behest of the CEO.

I don’t believe that all businesses have fallen into the efficiency trap at the expense of taking care of the customer, but it seems more and more each day make the conscious decision to put efficiency ahead of the customer. It is ironic, after all we have spent the last several years transitioning our economy from a manufacturing based economy to a service based economy, only to find out we are not that good at service!

It goes without saying that today we are in an environment where it is extremely challenging for small businesses to borrow money. Despite three consecutive quarters of GDP growth, everyone seems to continue to find reasons to be pessimistic about the economy. The naysayers will point out that GDP growth means nothing without job growth (just like they did after the last recession). They will also say that there has been a considerable of one time hits that won’t spur long term growth like last summer’s “Cash for Clunkers” program or other government spending. It is if an entire segment of our population has decided that each piece of positive news should be struck down immediately, and we should commit to being stuck in a sluggish economy.

All of this negative talk does nothing for our psyche, and only adds fuel to the “anti-lending” fire. The government then blames the banks for not lending, and the banks blame the regulators for being too restrictive about the types of loans they can write. At the end of the chain are all of us small business owners who are struggling to meet payrolls, because we can’t find new sources of capital. No one really seems to understand what the new normal is. We all want to go back to the way it was before the crash, and yet, we all blame the loose credit environment for the mess we are in today. The bottom line is that business owners need to get more creative when raising capital, and they need to be prepared if they are headed off to the bank to get a loan.

Today’s New York Times has a good article on how small business is covering the gap. Recently I learned of a local restaurant owner who needed to raise $70k for repairs to his building. The bank refused to lend him any money so he went to his best customers and offered a prepayment/investment opportunity. If you do find yourself in the position of needing to raise capital, and you plan on heading off to see your local banker, there are some things you need to be prepared for.

1) You will need collateral – In today’s business lending environment banks want collateral. The old standards of machinery, equipment, real estate, inventory and AR just won’t do. They want cash, stocks, and bonds. They want to tie up your personal capital. It seems to me they are creating their own problems when they do this. By tying up the entrepreneur’s liquid assets they prevent that same entrepreneur from accessing those assets to grow their business. This really impacts the business owners ability to take risk and invest.

2) Personal guarantees are the norm – In today’s environment personal guarantees are no longer something that can be negotiated away. The bank wants the business owner to not only have some skin in the game, they want them to have all their skin in the game. This means guaranteeing every loan with personal assets, not an attractive proposition to many entrepreneurs.

3) Real estate is not what it used to be – Many business owners have used the equity in their home or commercial real estate as a source of leverage when borrowing. Although these assets are not viewed as totally worthless by banks today, they are viewed as not attractive. Borrowing against your house to invest in your company is no longer something that can be done easily. So all of these years you thought you were building equity in real estate have been washed away.

4) Personal credit must be spotless – Those bumps in the road from your past can no longer be explained away, your need to have a clean credit history. Banks are no longer willing to take chances on riskier borrowers, they want risk free opportunities. There are not many of those out there.

5) You must make your case – Making the business case for the loan is more important now than ever. If it makes good business sense you need to spell it out for your banker. They are under a great deal of balance sheet pressure, and as a result are doing fewer new deals. In the past banks competed for your business, now you may be competing with someone else to get a loan. Be prepared to make a strong business case, otherwise you make walk away empty handed.

I have been through the lending challenges several times over the last eighteen months as my business partners and I have raised capital for a new acquisition and a real estate expansion. Our expansion opportunity was initially rejected, but then approved after we demonstrated that our business, while down, was improving dramatically. For our SBA 504 loan we had to find an outside party to act as an interim lender, because our bank wanted to keep us under the local threshold for money borrowed. We have proven that it is not impossible to borrow money in today’s environment, but you may swallow a lot of pride and Tums along the way!

The U.S. Commerce Department reported Friday that the U.S. economy grew at a rate of 5.7% in the 4th quarter of 2009, this is the fastest rate of growth in six years. The preliminary GDP number was above analyst’s expectations, and is an indicator that the economy has managed to pull itself out of recession. The big economic challenge we face now is new job creation, if history is a guide it will still be a few months before the job market begins to rebound.

The Rough Air Demand and Cost Indexes continue to remain stable despite a disappointment in December’s job numbers. Most economic indicators point to an economy that has bottomed and is recovering slowly. The primary concern from analysts is how quickly the overall job market will cover, a slow recovery in job creation will likely translate into a slow overall recovery. Inflation also continues to remain in check, oil prices have risen slightly in the past few weeks, and there is an overall expectation that oil prices will continue to climb through 2010. Despite this, overall inflation remains in check, which means interest rates are likely to remain stable for the near term. Check out the indexes on on our home page at www.rough-air.com.

The Rough Air Cost Index is a measure to help small business owners understand the cost of doing business in the current environment. Like the demand index we look at several relevant economic measures and their current trends. Except for some fluctuations in oil prices, overall commodities continue to be pretty stable across the board, this has allowed the U.S. Federal Reserve to keep a lid on interest rates in hopes of getting businesses to invest in expansion activities. The challenge has been business owners finding lending institutions that are willing to loan for expansion projects.

The Rough Air Demand Index uses several relevant economic measures to evaluate recent trends and give us some idea of the current economic environment. The economy continues to move forward slightly. A big driver of the current demand rating has been the improving employment picture. While November’s job losses were the least since January 2008, the job market retracted again in December causing some concern about the pace of the overall economic recovery. Although the economy is not rebounding as quickly as many would like, it does seem to have settled into a positive trend.

During the middle of 2006, while I was still CEO of Hyde Park Electronics, I had a discussion with my wife about what I wanted to do next. Working together she and I, and and the rest of her family, had successfully grown and then sold our family business. After the sale to Schneider Electric in 2003, I stayed on to manage the integration of the business into Schneider, and to help grow the automation business for Schneider in the United States. It was more than three years after we had sold the business, and I had determined it was time for me to start something new, it was time to move on.

So in the middle of 2006 my wife and I started a new venture, Rough Air Associates. We had two goals in mind, one was to do consulting and coaching for family concerns, and the other was to find small businesses in the Dayton, Ohio area we could acquire, manage and grow. That first year we did $1,000 in total revenue for Rough Air, and we lost $6,000. We continued to put capital into our new venture, and as of today Rough Air and its affiliates operate out of two locations with 20 employees and more than $2 million in sales. We are by no means a large company, and I am sure there are more interesting entrepreneurial growth stories out there, but we have certainly built something we can be proud of, again!

Having spent the better part of my career working as, for, or with entrepreneurs I have come to the conclusion that successful entrepreneurs are a very rare breed, and possess several common characteristics that differentiate them from the pack. Although the ability to spot market opportunities and capitalize on them is a key, and “rat like cunning” can make a huge difference, there are some basics that will help you understand whether or not you have what is needed to be a successful business owner. If you wish to be an entrepreneur, and you don’t possess all of these characteristics, then I would suggest not leaving your day job. If you find yourself running your own business, and you lack these traits, I suggest finding a way to build them, quickly. Here are the traits that separate the successful business owners from the not so successful:

1) You need a high capacity for work – A successful entrepreneur has to be able to do a lot, and has to be willing to do a lot. Most of the time, especially when starting out, you will not be able to staff it out. If something needs done you will find that you may be the only person around to do it. Many look at entrepreneurship and relish the thought of being their own boss, most forget that while being your own boss comes with great benefits, it also comes with great responsibility. You have to be willing to roll up your sleeves and jump in to just about anything, and you need the mental and physical energy required to get things done. If you are not driven to get a great deal done on any given day, and if you don’t possess the energy to do it, then business ownership may not be for you.

2) An indifference to the time commitment required – Successful business owners are not clock watchers. I am up before 5:00 everyday during the week, in the office just after seven, and with the exception of meal times, and some social activities, I typically find myself working into the evenings. If you are of the mindset that working more than eight hours a day is a burden, then entrepreneurship is not for you. You have to be willing to work as long as it takes to get the job done. Some will say you just need to work smarter, not harder. I think you need to do both. Your will get out of your business exactly what you put into it. If the time commitment required comes as a hassle to you, then you should probably resist putting your capital at risk and taking the entrepreneurial plunge. You must have a strong indifference to the time it will take to create success.

3) A whatever it takes mentality is critical – A high capacity for work and an indifference to your time commitment really add up to being willing to do whatever is required to make your business successful. When you begin to restrict the amount of effort, capital or sacrifice you are willing to put into your business, then you will restrict the amount of success you will get back. Doing whatever it takes can be just about anything (within reason). It could be cleaning the bathrooms, taking out the trash, or going without a paycheck until you can afford to pay yourself. Once you say I am not willing to do that, then you create a self-imposed limit on how successful your business will be.

4) You have to enjoy the planned struggle – I have seen several entrepreneurs who seem to believe the company owes them something. They focus more on their paycheck than they do their business, and they don’t understand that sometimes business ownership is about planned struggle. My in-laws often tell me about eating “tomato sandwiches” when they were first getting Hyde Park started. In the lean times at Hyde Park, and when starting Rough Air, I have gone long stretches without getting paid, with my only satisfaction being the knowledge that I know I am moving my business forward. It has to be about more than just a paycheck, and you better be willing to sacrifice.

5) A persistent determination is required – You have to be determined to never give up your efforts to grow your business. If you don’t play you will have no chance of success, and if you quit in the middle you can never win. Whether times are great, whether times are bad, or whether they are just normal, you must possess a determination to see it through. You need to create a vision of what it is you are trying to achieve and remind yourself of that vision everyday. You then need to build up the determination that makes quitting unthinkable, and success the only option.

Entrepreneurship is not a game you can approach half-way. You can’t stick your toe in to test the water, and then back off if its too hot or too cold. If your desire is to be a successful business owner, then you need to go all in, all of the time. Like any endeavor in life, half-efforts equal half-results. You will get out of business ownership exactly what you put into it. Those that limit what they put in, will limit what they get back!

I cannot remember a time in my career when I have spent more energy questioning the decisions I have made recently in regards to my business and my career. I am sure it has a great deal to do with the challenging economy every business owner has faced over the last eighteen months, and the impact that economy has had on my business and the business’ of my Rough Air clients and Logos@Work customers.

Almost seven years ago at this time I was negotiating the sale of our family’s business, a business I had helped grow to be the world leader in ultrasonic proximity sensing, and sold to a Fortune 500 manufacturing company. Three years ago my wife and I made the decision to give up my six figure salary and corporate career to do our own thing. At that time it was just the two of us, today we have three operating entities, with 20 employees and three locations. We are one of the few companies in our business, in our area, that is actually making long term capital investments and gambling on continued expansion. Despite all of that, I am still spending a great deal of time questioning whether or not we are headed the right direction.

Some of this is the normal pulling of the mind an entrepreneur has, that gut feeling that you are missing something, or need to rethink your actions. I will admit that at times I find myself wondering if I even have the energy to do it all again. Then I remind myself that I don’t have much of a choice, the only direction I know is forward, I don’t have a reverse, so despite my worries I must press on. There are a million decisions to make, a million things to get done, this is the same universal problem every small business owner has. The only thing any of us can do is keep moving forward.

Moving forward is tough to do nowadays. The media keeps reminding us of how difficult things are in the business world, the government keeps finding new and interesting ways of making us focus on something other than growing our business, and it always seems the deck in the business world is stacked against us. Despite all of the challenges, many still do it. They still put their capital at risk, they still open themselves up to considerable stress and they still keep their eyes open for new entrepreneurial opportunities. Perhaps we are all inflicted with the same genetic flaw, or perhaps we all realize, that our country was built on entrepreneurship, and we are simply building on a foundation that was laid many years ago by our forefathers!

We updated the Rough Air Demand and Cost Index today. The business outlook is much more positive heading into 2010 than it was going into 2009. Although the job market continues to shed jobs, it is doing so at the slowest pace in two years. At the same time inflation has stayed in check which gives the Fed plenty of ammunition to keep interest rates low. This could provide a good foundation for economic growth in 2010.

This is the toughest year in business I have experienced. I have been in the business world for the last twenty-five years, the last fifteen have been as a business owner. The economic and market challenges have spread far and wide. It is difficult to find anyone in business who has not been impacted by the downturn, even businesses that I thought were impermeable to recession have seen sales decline and profits squeezed. Although it has been an extremely challenging year, it has been a great year for re-learning some basic business lessons.

Lesson number one, cash really is king. Every business owner I know spends a great deal of time trying to manage their cash flow. When things slow down paying attention to cash flow is critical. You must be constantly looking at the road ahead to understand what your short term cash needs are, and where the money will come from to cover those needs. The larger your business is the more difficult managing cash becomes. When my wife and I started our business three years ago managing cash was relatively simple, now that we have three businesses operating out of three locations with 20 employees, things have gotten a bit more complex. Understanding our short-term capital requirements, and how we will fund them has been critical.

The second lesson for me this year has been that you do need to work on your business, but you also likely have to work in it. Too many people approach entrepreneurship with the gilded notion that they will be able to operate solely as the shielded CEO only focused on big picture items and never having to get their hands dirty. Trust me, it just doesn’t work that way in the real world. The most effective entrepreneurs I know are never afraid to roll up their sleeves and jump in to help get the job done. Sure you need to work on the big picture items, that’s what evenings and weekends are for; however, if you are approaching business ownership with the idea you will not have to put in the time or effort, then you likely need to reconsider the prospect of business ownership.

My final big lesson of the year has been that no one will care about your business as much as you. This lesson isn’t new, I have always known this, but in a year when we seem to spend more time staying afloat as opposed to moving ahead it becomes apparent that no one will ever be as committed as you are to your organizations success. Few people around you, friends, employees or vendors will understand the stress a person undertakes when he puts a significant amount of personal capital at risk to chase a dream. When things go south those that have appeared to be on your side will quickly start running for the doors. At the first signs of difficulty many employees will throw their loyalty out the window and many vendors will become difficult to work with. On your path to entrepreneurship finding people who will truly commit themselves to your dream, and your success are few and far between.

Without a doubt this has been one tough year, and I don’t know about you, but I plan on taking the lessons I have learned in 2009, and carrying them and my businesses into the future.

The U.S. Department of Commerce reported today that preliminary estimates show the economy shrank 1% in the second quarter of this year versus an adjusted contraction of 6.4% in the first three months of 2009.
The 1% decline was slightly better than analysts expectations, and indicates that the economy may have hit bottom.

At the beginning of July we posted the current Rough Air Demand Index, which had started to indicate a slight shift in the overall economy. We even posted an article advising small business owners to begin thinking about new growth initiatives rather than continuing to keep their heads low. All of this is good news, and indicates that the very worst may be behind us, but there is still a long road ahead.

It would be unrealistic to expect any recovery to come in the form of a “V” shape. Although many pundits will likely get impatient quickly with a slow recovery, the reality is that it will take a considerable amount of time for the U.S. Economy to really begin to pick up steam. The job market is likely to be weak in the coming months, which will lead to some trepidation among consumers, but Rome was not built in a day and neither will our economy recover in one quarter.

I know this is a scary time for many business owners, I have heard some say this is the worst business environment they have ever seen. The takeaway from today’s news is that nothing last forever, whether it is a contracting economy or a growing economy, so now may be the time to get ahead of the curve and begin preparing for growth. I know with my businesses, Rough Air Associates, 4 Iron Development, and Logos@Work our thinking has begun to shift from how do I position for survival to how do I position for growth? 

Rough Air Ahead

Entrepreneurship can be a turbulent ride, but author and business owner Vince Lewis’ debut, Rough Air Ahead: The Life Cycles of Small Business (published by AuthorHouse), is better than a dose of Dramamine for readers whose destination is success.

All small-business owners, whether they are a one man show or have hundreds of employees, are preoccupied with the same challenge: How do I maximise the value of my business? Using the backdrop of small business life cycles, the 40-year case history of his family business, examples from other shrewd entrepreneurs and his own management techniques (which lent to the burgeon of his past corporate conquests, including a turn at CEO of Hyde Park Electronics, the world leader in ultrasonic sensing) Rough Air Ahead gives the small-business owner the tools needed to start, grow and manage a business – and exit wealthy.

Read the ForeWord Magazine review

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Rough Air Educational Series – Business Planning Podcast

Every business owner knows that we need to do more of it; however, most of us don’t want to invest the time in planning. Vince Lewis, the Founder and CEO of Rough Air Associates, has worked with many small business owners to help them create a plan for their business. Whether their business plan is short term or long term, from the start-up business to the established business, business owners who follow the Rough Air planning guidelines can set their business up for long-term success. This podcast will help you understand the planning process Vince has used to help his own business and others create success.

Business Planning Podcast
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Running Time: 14:56

Business Planning on CD
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Running Time: 14:56

Rough Air Educational Series – Selling Your Business Podcast

Rough Air Educational Series PodcastWhat do I do when I am ready to sell my business? What do I need to know? What challenges will I encounter? How much is my business worth? These are all questions that confront the small business owner who is ready to sell. Vince Lewis has been there, from both sides, he has gone through the process of selling his family’s business, creating a valuation, finding the right buyers, and getting the maximum value for his business. He has also worked from the buyers side in shopping for businesses. This experience has given Vince great insight into helping a business owner sell his or her business. This podcast will help business owners understand the process for selling, what to expect, and what they need to do to prepare their business for sale.

Selling Your Business Podcast
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Running Time: 18:26

Selling Your Business on CD
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Running Time: 18:26

Rough Air Educational Series – Generational Business Succession Podcast

Rough Air Educational Series PodcastMoving your business from one generation to the next can be a major challenge for any small business owner. The business owner must balance family needs, employee needs, and business needs to create a successful generational transition. Vince Lewis understands what you are going through, having been a member of an incoming generation in a family business and an advisor to other family businesses going through business succession. This podcast will help the business owner understand some of the challenges they will face as they try to move their business from one generation to the next.

Generational Business Succession Podcast
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Running Time: 9:47

Rough Air Educational Series – Picking Your Passion | A Lesson for Success

Do you want to be an entrepreneur? Do you have dreams of having your own business? Do you wonder what it will take to be successful in business? Vince Lewis, through a process of setting big goals and staying upbeat and positive has created tremendous success for himself and his family. By pursuing his passion Vince was able to achieve his goals and live life on his terms. Listen to what Vince believes is the key to being a successful entrepreneur! This podcast will help you pursue your passion with success.

Picking Your Passion Podcast
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Running Time: 21:46

Picking Your Passion on CD
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Running Time: 21:46

There is little doubt that we are currently challenged with an extremely difficult economic environment. Some are saying this is the worst they have ever seen, or this is as bad as it gets. That could be true, it is without doubt a challenging time to be a small business owner. My banker told me yesterday that the businesses that are doing well are only down 20%!

Given the rough environment, there is no shortage of consultants ready to spread their advice about how to manage the turbulent times. Most of it is relatively generic business advice, like this. That is probably because although we have all managed through difficult times, this is likely one of the most difficult we have encountered. Given all of that I thought I would share what my partner and I are doing to manage our business through the downturn. It is all pretty simple stuff.

1) Watch cash – I have developed a weekly cash flow model that allows me to project our needs over the next thirteen weeks. This is somewhat a moving target, since it requires me to project sales and expenses, but it gives a rough idea of trends, and where we might see trouble.

2) Capital – Monitoring cash flow closely is one thing, being able to do something about it is another. You need to have some plan for raising money if you find yourself in the position of having to pump capital into your business. I have seen several operations lately that don’t consider this until they are behind the curve. At that point it is really too late and no one wants to talk to you. You need to know where you are going to go to raise money when you need it.

3) Pay Attention to Customers – Now is the time to over-serve. Transition periods are always difficult, and when markets are receding you need to defend your turf. That means exemplary service and attention to your customers as well as any new customers you have the good fortune of finding. This is a buyer’s market, don’t push people away, pull them closer.

4) Don’t stop selling – Many business owners pull in the sales reigns when the economy slows. We believe you have to sell harder and be out there more. Whether it is direct sales or advertising, it is important to drive more the business in the door, especially since some of your competitors may not survive.

5) Understand your P&L – Paying attention to the cost side of your business now is critical. This game is all about adjusting your cost for the new realities your business faces. Don’t wait until it is too late, and cutting cost just prolongs the inevitable. Get healthy now!

All of the data we are looking at indicates we are past the halfway point in this downturn. If you have made it this far, you can probably go the distance. Focus on the fundamentals and you can steer your business through this rough air!

PNC Bank published their national economic outlook today. There are some positive glimmers in the news. It appears the housing market has bottomed, which is a good indication, since this is where all of this started. Employment is still weak, but keep in mind the job market tends to lag the overall economy.

The bottom line is it appears that things are started to get better!

Back in late 2007 and early 2008 I began blogging about the economic downturn and the possibility that we were headed for a recession. At the time the mainstream media and most pundits were still infatuated with the booming economy, there was little concern shown for the declining real estate market or the slowing job market.

Yesterday I was listening to a business reporter from The New York Times on the radio. He was commenting on the week’s news. His main them being that the past week’s report that our economy had lost 400,000 jobs in June meant we will continue to suffer from a stagnant economy. The jobs data did have markets worried on Friday and caused the pundits to lament about continued economic distress.

This all sounds vaguely familiar. If you would recall our prior recession in 2001, there were many analyst concerned about the jobless recovery. As late as 2003 many economist were pondering the impact of the jobless recovery and what it meant. There was a great deal of concern that the lack of a strong recovery in the job market would translate into the lack of a strong economic recovery overall.

Our economy is certainly not in a growth mode yet, but all indications are that we have turned the corner. Jobs data is a lagging indicator. Why wouldn’t it be? After years of consultants telling managers to “hire slowly and fire quickly,” everyone seems surprised when the practice actually translates into a job market which lags economic activity.

Our economy has started the process of recovery. Many numbers still indicate an economy that is contracting, but there are indications that the trend data is heading in the right direction. Given these mixed signals what should a business owner do? Should you continue to keep your head low, and think only of survival, or is it time to start planning for your next growth spurt. My suggestion is to stay ahead of the curve and began today preparing for what may be down the road.

Business owners should start considering what the next wave of economic growth may mean for their business. Now is the time to plan for how you can position your business to capitalize on a growing economy. Consider what investments will need to be made, and where the money will come from to make them. Create an org chart that shows what new positions will be created and when they will need to be filled. The downturn is old news, we all have a pretty good idea of what the recession has meant for our businesses, and the steps we had to take to survive. Now we need to think about what a recovery will mean for our business and how we can lay a strong foundation to capitalize on an economic upswing.

Is the worst over? No one really knows, but the data is starting to indicate that we may have seen the bottom of the downturn. You can check out The Rough Air Demand Index and The Rough Air Cost Index on our home page. Both indicate we may be reaching a point of stability in our economy.

It has been three years since Rough Air was founded. In fact at this very moment I am sitting in the exact spot I was sitting in when I decided to leave my corporate job and start a new business. It has been two years since I quit my job, and began focusing on Rough Air full-time. My goal was to focus on finding small businesses to acquire and grow, and do some consulting work on the side.

At this point I have committed to five investments, there is a small investment in a local angel fund, I have completed two acquisitions of other businesses, and I have acquired one piece of commercial real estate with another set to close later this year. As of today we now have 18 employees, with more than $2 million in sales, and three locations. We are by no means where we need to be, we have a very long way to go, and it is way too early to start declaring victory. We have made some progress, and as I sit here pondering my next steps I have been thinking about the “valuable” lessons I have learned these past two years. A few come to mind quickly:

1) Don’t expect a lot of help – When I started I met with various groups locally that are supposedly in the business of helping entrepreneurs get started. At the end of the day none of them really did anything for me. There were some exceptions, a friend of mine who runs a local entrepreneurship program at a nearby college has been very supportive and helpful. My business partner took a risk and joined up early on. My wife has been in the game from the get-go. But all those groups that tout their desire to help entrepreneurs must be spending their time on other folks. At the end of the day, my wife, my partner, and I have had to do the heavy lifting. I get the impression that none of these groups want to attach themselves to your business until they are certain you are going to make it, otherwise you are on your own.

2) Cash is still king – My old CFO at Hyde Park always told me cash is king. She was of course right. Getting this thing started has sucked a lot of cash. At times, just when you see some light at the end of the tunnel, you find out it is an oncoming train. The whole deal is getting the system churning, and trying to prevent any hiccups. Even once you have established a respectable flow of money coming in and money going out, there will always be those unexpected hits. Understanding our cash flow has been a key to helping us keep things moving forward.

3) Wear a lot of hats – I know more today about wireless networking, phone systems, and other items that I never really needed to know much about. In the last two years I have installed, and reinstalled wireless routers. I have learned I don’t like DSL or cable. I have rewired motors on industrial dryers, taken out the trash, swept the floor, delivered orders, made sales calls, coached consulting clients and on and on. My partner and I are constantly amazed at the number of different things we may have to do in one day. What happens is something breaks and everyone looks to the boss to fix it, whether you know how or not.

4) Culture change is a bear – Our first acquisition was relatively easy. Everyone involved was pretty service oriented and seemed to view customer service in the same way we did. The second acquisition is a bit different. I know it may not be reality, but it seems in some ways the culture was designed to find ways to say no to customers as opposed to yes. We are working to get everyone more customer focused, but this is a challenge. Some are grabbing onto the idea of just doing what is necessary to make the customer happy, others still want to put problems in the customer’s lap and not take the responsibility to solve them.

5) The barrage of stuff is part of the game – I was with one of our attorneys recently and I was telling him about all of the major challenges we have had with our new business. A terrible economy, loss of key employees etc. After I finished lamenting about how tough things were, he said it sounds to him like the normal course of business. He’s right, all of the stuff a business owner gets pounded with everyday, employee issues, financial issues, operational issues, everything is just par for the course. All that stuff that seems so overwhelming is what most entrepreneurs are going through everyday. So when you find yourself scratching your head and saying it just can’t be this hard, guess what? It is!

By the way, did I mention, no one really wants to help!

Rough Air Associates offers professional training in the form of coaching, workshops and seminars designed specifically for small and family business. Seminars and Workshops may be customized to meet your organization’s needs and can be conducted in a variety of venues.

The 2009 Rough Air Training Classes:

Creating Your One Page Plan ($399.00)
Invest four hours of your time to get a focused plan for your new business.

Getting Out ($399.00)
A half day class where you will learn about the best ways to exit your business and maximise your investment.

Check back soon for 2009 class dates!

On Site Classes and Workshops:

Business Planning
(One Day – $2,500.00, Two Days – $4,000.00 + Travel and Expenses)
Have your next business planning session be led by someone who has been there. One and two day sessions available.

Succession Planning ($4,000.00 + Travel and Expenses)
Are you grappling with succession in your business. This two day class for family businesses or small businesses can help you move forward.

For additional information, upcoming seminar dates and locations, or to find out how Rough Air Associates can help meet your training needs, contact us today.

Consulting Services:

Interim CEO Service (Call for Quote)

Advisory Board Set-Up and Management
($2,500 Per Meeting + Travel and Expenses)

Total Business Review
($4,000 One Day Session and Compilation Report, $7,500 Two Day Session and Compilation Report)

For additional information or to find out how Rough Air Associates can help meet your needs, contact us today.

Online Training & Resources:

Business Planning

Selling Your Business

Pursuing Your Passion

Succession Planning

I have pretty much lost my faith in publicly traded markets. There are too many people who make too much money off the volatility of markets, and the value of a company’s shares rarely reflects the actual value of the business. People talk markets up, and they talk markets down. They typically do this because of a pre-disposition about the current environment, or because of some other self-interest. The fall in yesterday’s markets due to the retail sales number from March is a perfect example.

Retail sales fell in March 1.1%, .9% if you exclude automobiles. It was reported in the media that the markets viewed this as extremely negative. Some even reported that this is an indication the economy isn’t recovering. Seventy-Five percent of the time retail sales will either rise or fall less than 1%. A drop of 1.1% in March is not the end of the world, and it is likely not an indicator that the economy isn’t recovering. Given where we have been over the last several months, it strikes me as more of a victory than a defeat!

Today there are many analyst and pundits working to convince you that the economy has died, and will never recover. These are the same folks who were telling us eighteen months ago that global growth would stave off a recession in the U.S. I did not believe them then, and I do not believe them now. Focus on your business, find ways to grow, and remember nothing lasts forever, this recession included!

The strategy for 80 percent of executives and business owners this year seems pretty clear at this point, cut your cost to the bone and ride out the storm. Many of us have come to the conclusion that the only solution to the current crisis for our business is to make the business smaller, but is that really the panacea we all seek.

Eighteen months ago I was suggesting to my Rough Air readers and clients that they do everything to conserve cash. The evidence of a declining economy was overwhelming, and we were telling clients to be prepared. Now I recommend putting that cash to work. We all know that asset prices are depressed and that now is a great time to be a buyer. I think today’s environment also provides business owners with the right mindset, an unprecedented opportunity to grow! It could be a generation before you have this chance again.

Following the pack is a reasonable approach, but it will not help you move your business forward in today’s environment. Those that step out and take calculated risk today, will reap in the rewards in the near future. Those who face their fears in the current environment, will be the ones all of us are writing about in the years to come.

I was reminded of this yesterday while I was listening to the Easter Sermon at church. Our Pastor was discussing the resurrection of Christ, and the terror and amazement that his followers felt at the moment of discovery. I am sure they had to confront considerable fear and doubt when they debated the risks of sharing their story with the rest of the world.

Fear and doubt have overwhelmingly gripped the business world today. Bankers, business owners and executives are all waiting for the next shoe to drop as opposed to leaning over and picking up the one that is already on the ground. We need an economic resurrection, we need people to step up to the plate and take calculated risk. We will not move forward if we are constantly looking backward. We cannot change what has happened, we can only dig deep into that great sense of American innovation and entrepreneurship, and start the process of moving forward again!

Let me start by saying congratulations! Congrats to those of you whose business is still managing to stay in the air, despite the turbulence. Congrats to those of you who have managed to hang-on to your jobs, or have found a new one, and remain gainfully employed. I am not sure the current downturn is over, but if you have made it this far then you must be doing something right, and chances are you will weather the storm!

I would not get too excited, but the data, and the rhetoric, indicates that we are at or near the bottom. That is a great sign. Core retail sales are doing slightly better, the housing market is trying to show signs of life, and there is some hope that all of the actions taken by our government over the last year will start to have a positive impact on economic growth. Although I believe we still have a little ways to go before the job market begins to rebound, all indications are that this recession is beginning to run out of gas.

The real question is what does that mean, should we expect a “V” bounce, or an “L?” I think it is probably unrealistic to expect your business to suddenly rebound to where it was prior to the downturn. It took some time to get to that level, it will take some time to get back there. There may be an initial bounce when all of the government’s spending efforts begin to take hold, but I would expect that to level out. It is going to be a long road back, but if you made it this far you have likely structured your business to weather the storm, the hard part of the battle is over! 

At this point we can’t get away from it. Business owners all over are feeling the pinch of a difficult economic environment. Gross Domestic Product in the fourth quarter of last year fell 6.2%. Unemployment continues to rise, consumers hold on to their cash, and the economy remains trapped in a vicious cycle. How long it will last is anyone’s guess, some say months, some say years. Here are five suggestions that may help you deal with the challenge.

1) Nail down revenue projections – We are two months into the year, at this point you should have a clue as to how your business is tracking versus prior years. You need to structure your business for the new reality. Stay on top of the cost structure of your business, and make sure it fits your current revenue stream. Find creative ways to keep your team together, and lower your cost.

2) Keep your eyes on cash – Combining tight expense control with a clear understanding of current cash needs will help you manage through the crisis. If possible try to keep from dipping into your line-of-credit or other sources of capital until absolutely necessary. Your best bet may be to hold those back for a rainy day.

3) Cement customer relationships – Now is the time to double down and work harder cementing those valuable customer relationships. Many of your customers may have no money to spend right now, but you should still focus on keeping them as customers. Paying attention today will pay dividends in the future.

4) Look for opportunities – Some businesses will not weather the storm. This will present opportunities for those that can weather the storm. Now is a time you may find great deals on used equipment or other assets. Keep your eyes open for any opportunities you may be able to take advantage of.

5) Invest so you can sleep – If you have cash invested in securities or bonds, make sure your portfolio is structured in a way that allows you to sleep at night. Your major challenge right now is navigating your business through this crisis. The last thing you need is to spend your nights pacing your bedroom worrying about your 401k!

As we go through this inflection point keep in mind, nothing lasts forever. Our economy goes through periods of growth and periods of contraction. These periods always end, just as this one will some day. Focus on steering your company through this downturn, and you will be positioned for the next period of growth!

As I was getting ready for work this morning I caught a story on the local news that got my blood pressure up! The beginning of the story was ominous enough, “another local plant falls victim to the slowing economy.” The reporter went on to say that Meadwestvaco is going to close a plant near Dayton. Although the company is using the backdrop of a slowing economy as a reason for the closure, the 316 jobs from the plant are being outsourced to another Meadwestvaco plant in Mexico. So at a time when we face a deepening financial crisis here at home, this U.S. based company is cutting workers and shipping their jobs outside our borders. I ask why the hell they are not cutting their workforce in Mexico and bringing those jobs back into this country when we need them?

Call it a lack of conscience, a lack of patriotism, a lack of class, or a lack of common sense, this action shows just how short-sighted these executives are. When are business executives going to realize that cutting jobs here at home just reduces demand here at home. Actions such as this help to push our economy further into a death spiral. Meadwestvaco may get a short-term gain on their income statement, but its actions will have a negative long-term impact.

I ask every executive who has made the decision to move American jobs out of this country, “Is this really worth it?” Just imagine if all the manufacturing jobs that have been shipped off to Mexico and China were still in the United States, perhaps we would not be suffering the crisis of demand we have today. All of those workers would still be consumers, but instead we get spiraling unemployment, economic contraction, and now government intervention. I am sure many of the executives who made the decision to outsource jobs are now complaining about the government’s proposed stimulus package. Well fellas, someone has got to pick up the slack, and it obviously is not going to be you!

There can be little doubt that the current economy is difficult! As we wake-up and start our day, many people have lost their jobs (more than 500,000 in January). Some families have lost their homes. Today we are all faced with the daunting task of pitching in to help right the ship that seems to have gone way off course.

Companies have taken to slashing payrolls lately as a short-term measure to control cost. Some of these organizations are cutting workers because of true economic hardships. They have found themselves in the position of needing to reduce their workforce simply to survive, they have no choice. Some businesses have taken to cutting workers not due to what is, but due to what might be. They are cutting out of fear. The fear that if they don’t do something now they will face hardships in the future. Finally they are some organizations who see the current downturn as an opportunity. They don’t need to make cuts to survive; however, the current climate gives them “cover” to get rid of poor performing divisions or locations with lackluster sales. I hope that we are nearing the end of this cycle of reductions, although no one can be sure.

The economy did contract in the fourth quarter, and many are feeling its effects; however it did not stop. We have a $14 trillion dollar economy that slowed 3%, it strikes me that there is still a great deal of commerce going on. Customers are still buying, albeit at a slower pace than in the past, but people are still buying. So before you bemoan our economic plight, it is important to ask yourself these questions about your business.

1) Do you have 100% market share? My guess is like most businesses you don’t, and if you don’t then you have an opportunity to grow your business in a tough environment. Just because the economy has slowed does not mean you should pull in your promotion and selling efforts, and wait until the storm passes. Now is the time for you to work harder to win new customers, and keep old customers. Don’t be defeated before you start!

2) Are you paying attention to cost? Make sure you understand where and why you are spending money in your business. Now is a great time to find deals on needed assets. Because of the economic mood you may find some vendors more apt to negotiate pricing and terms. Just make sure you understand your overall cost structure, and you are getting maximum utilization out of it.

3) What else can you do? Too many people are just waiting around for the next show to drop. If all of us do that, then I guarantee, the shoe will drop. If enough of us start working harder to grow our businesses, and focus on winning share, then perhaps we can start righting this ship together!

Today the U.S. Government will announce their estimate for fourth quarter 2008 GDP growth. Expectations are that the economy retracted at least 5% in the final quarter of last year, perhaps the worst quarter we have had in almost 60 years, certainly the worst in the last 25. So now that the sky has fallen, the world has stopped, and cats and dogs are living together let’s all take a deep breath, and remember exactly what we have.

A couple of months ago I stopped paying attention to the economic news. It got to the point that everywhere I turned all I read about and heard about was so powerfully negative in regards to the economy that I could no longer think clearly about my business. I believe we have now become so focused on how bad things are, that we are likely making them much worse than they need to be. The reality is that the economy goes up, and it goes down, right now it is down, someday soon it will probably be up. There are lot of people who make a lot of money on major fluctuations in our economy, and there are people who will suffer tremendously, but at the end of the day, business is still moving forward, commerce is still happening, and economic activity is still going on. The United States is the world’s largest economy this morning, and it will still be the world’s largest economy at the end of day, we have more than just a fighting chance at success.

The rumors have gotten silly. I stood in a line the other night, and the gentlemen behind me was telling his entourage that Starbucks and bottled water were both going away. Yes, Starbucks closed 300 stores this week, out of the 16,000 they have worldwide. The media plays it like it is the end of the world, but for those of you who are Starbucks addicts I imagine you will still be able to fill up in the morning. For the guy in line behind me who believe folks are not going to pay $4 for a latter, or $1 for a bottle of water, I’d like to point out to him that he just spent $5 on a beer. Starbucks and bottled water are not going away, it is an economic downturn, not an economic meltdown!

For business owners who are trying to manage through this chaos, which has reached a crescendo of ridiculous naivete, I would make three suggestions. The first is simply to pay attention to cash flow, if you keep those cash numbers in the black you will have little to worry about. The second is to keep selling, some people are still buying despite economic conditions, you need to get out and find them. The third is simply to be smart about your spending.

I feel confident saying a year from now our discussion will focus on economic recovery rather than disaster. The media pundits seemed to be the last to admit that the economy was headed down, and they will certainly be the last to admit when things turn. Their goal is to ride this news horse as long as possible, until the next big story comes along. When they begin to turn their attention you’ll know things are on the right track!

We are almost one month into our newest acquisition, and so far things are moving along quite well.  There have been no major surprises, although we did not get a honeymoon from the business of business.  We have already found ourselves battling the trap of working in the business rather than working on the business.

Fortunately for us there have been no major surprises, and we inherited a great group of employees. Revenue this month is a bit light, but has picked up the last couple of weeks, and cash flow looks pretty good. We already hired our first new employee, ironically she use to own another company we acquired last year. Despite all of our stress and worries about what would go on the first month, it has been somewhat uneventful. Today we are battling the weather as a major snow and ice storm makes its way across Dayton.

So far, the hardest part of this process was the decision to do the acquisition. I spent many sleepless nights prior to the end of December worrying about whether this was the right company at the right time. Once that step was taken, we have pretty much just hit the ground running, and not really looking back. There is no telling what the future holds, but there is little doubt we are back where we belong doing what we were trained to do! 

Our new venture has had me pretty tied up over the last week, so I have not blogged at all about how the first week went.  At this point my partner and I are just getting our hands around the business, and digging into what has happened in the past, and what short-term improvements we can make.  Our most important first week lesson is that there is just never going to be enough time in any given day.

I have done my best to plan out what I will try to accomplish each day; however, it seem each day brings a new challenge. The first day, before we even opened our doors, we had our first resignation. A Customer Service/Sales Rep. decided the change in ownership made for a good time to shift her personal career direction. Fortunately, that resignation has not had a tremendous amount of negative consequences, and it opened up another potential opportunity for us. One that could pay nice dividends.

We have not had any big surprises, what we thought we knew about the business has been for the most part true. The only surprise may be, after six months of due-diligence, what we didn’t know. So far none of what we didn’t know has been negative, it is all things that seem to open up new opportunities. The challenge is deciding what opportunities we should take advantage of now, and which we need to save for a rainy day.

Over the years I have been involved in selling businesses and acquiring businesses. The process of doing a deal seems to be pretty standard across, what I have learned this past week, is that the dynamics of each transaction can be wildly different. If you are buying a business you need to mentally prepare yourself for that wild swing in dynamics that will occur the first day you open the doors!

By the way, we met our first payroll last week. One down, many, many, many more to go!  

Last week Rough Air Associates took another major step forward.  Through a holding company owned by Rough Air, my partners and I acquired another small business in Dayton.  Two years ago when we started Rough Air, it was just my wife and I with an idea.  Today we have 25 people operating out of three locations. 

The acquisition process was relatively intense, and sucked up the majority of my time over the last six months. Today the real work starts, by 8:00 a.m. we already had our first resignation. An employee decided she was better off taking another path rather than sticking with the company through the ownership transition.

Throughout the next year I will attempt to blog frequently about our new business, the process of buying the business, and the challenges we are facing. Hopefully, our experience will help you move your business forward!

I ran across this article in USA Today’s Small Business Section, which gives business owners some ideas of what to expect from the economy in the coming year.  The bottom line, be prepared to weather a difficult first half in 2009.  Most forecasters are expecting the first half of 2009 to be the culmination of the longest U.S. recession since The Great Depression.

In our view, an uptick in the U.S. economy in the second half of 2009 is probably not far off the mark. By July we will likely start to feel the effects of any stimulus package the new administration implements early in the year. Although, the job picture may not see any improvement until late in 2009, the housing market should be pretty close to bottoming out early in the year. It is very likely to be a year of mixed signals as the economy begins to regain its footing.

Hopefully by this time next year we will be speaking of the downturn in the historical context, although beware of the bears! The same people who were the last to buy into the idea that the U.S. economy was slowing, will likely be the last people to jump on the growth bandwagon! I believe we will look back on this time as a major inflection point in the U.S. economy, and I believe those who have found themselves in position to capitalize on attractive asset prices, are going to be the winners of this economic crisis.  

Sorry about the lack of post over the past couple of weeks, we are in the midst of a major project that needs some additional “tweaking.” Regardless, everyone here at Rough Air Associates, and Hooper Concepts wishes you a very Merry Christmas, and a Happy New Year!

I received a phone call from a former colleague yesterday, he let me know the company he works for had to let go of some people due to the tough economic environment.  The company has suffered a pretty significant drop in sales in the last year, in the neighborhood of 12%, and had to take the steps to keep their cost down.  This was their second reduction in force of the year.

In the thirty years I have been working I have been fired from one job. I was fired two days before getting married. Although I can’t say whether the manager who let me go was right or wrong, I can say it takes a real special kind of “jerk” to let someone go two days before one of the most important days of their life. This guy could have waited one week until I got back from my honeymoon, but he decided my negative impact on the organization was so severe that he needed to act immediately.

So when my friend called me yesterday to let me know that his company had let go of several people two weeks before Christmas, that thought of poor human judgement crept back into my head. I do not begrudge any employer who has to let an employee go, whether it is because of performance, or due to the economic realities of the business, I understand employers have to make tough decisions. The ones who put those decisions off usually don’t survive. I also understand the difference between right and wrong, and in most circumstances letting people go two weeks before Christmas is simply wrong.

Had this employer waited two more weeks, until after the holidays, they would have spent roughly an additional $10,000 to cover the two weeks of payroll, benefits, and taxes. The company in question is a multi-billion dollar, global organization with sales in excess of $20 billion. I feel confident saying that waiting two weeks would not have put the company under. They just needed to look like they were doing something before the end of the quarter to make the markets and the analyst happy!

The irony is that this is a company that was recently recognized by the government where they are located as being an “ethical employer committed to creating sustainable employment opportunities.” If this is ethical, I would sure hate to see what unethical looks like!

It never surprises me how difficult it is to implement change in any business, no matter how large or how small. The owners of a business may look at an opportunity, and see a huge potential benefit for their company. It never matters how hard you sell it, the employees always seem to be a bit cautious when it comes to any major new initiative. Perhaps that is because too many times big projects fall flat due to a lack of commitment or focus. The more likely reason is because people are always concerned about how change will affect them, and their job!

Although you will see this wariness in any major initiative, it is extremely prevalent for people working in a business that gets sold. When a company gets acquired by another, the first thing that goes through every employee’s mind is, “Will I keep my job?” This is a natural reaction, since every time two large companies get together, the CEO wants to capitalize on all of the cost synergies, which usually means job cuts!

I have witnessed this common concern from both sides of the transaction table, as a seller, and a buyer. Only time can alleviate the fears of employees when a transaction takes place. New owners can talk until they are blue in the face about how they don’t want to destroy the value of the business they just acquired. The majority of the time that value is the employees working in the business, but at the end of the day, the proof will be in the pudding! You should expect a slow transition process, and a slow acceptance process when you buy a new business. You will have to earn the trust of your new employees, that trust is earned through action not words. Buyers should be prepared for this challenge when they take the helm of their new company!

The retail sales data for November was released yesterday, and with another overall drop the media narrative has become one that the economy has gone to hell, and we are all going to be standing in bread lines by Christmas! As I mentioned last month when retail sales were reported, you need to dig deep into the data to truly understand what is going on before drawing any dire economic conclusions.

Retail sales for November were down 1.8%, this was within projections, but still signaled a drop in consumer spending. Much of the mainstream media is playing this drop as a sign of just how dire our economic circumstances seem to be. The data tells a different story. The two biggest areas of decline were automobiles (2.8%) and gasoline (14.7%). These two items make up more than 30% of the total figure.

Gasoline prices have fallen dramatically over the last several months as global demand has declined, much of the drop in sales of gasoline is just a reflection of major price deflation in the price of a barrel of oil. A strengthening dollar also has some impact on this. As credit markets tightened over the last several months it is only natural that auto sales would drop. Combine that with extremely high gas prices over the summer, and consumers were put in the position of not being able to afford to buy or operate those big trucks and SUVs that are the hallmark of the American automobile industry.

There is even some positive news in the retail data. In an economy where every consumer in the country has supposedly snapped their wallet shut, electronics, furniture, food and beverages, sporting goods, clothing, and restaurants all had gains for the first time in the last several months. The gloom and doom narrative is now being driven by the same media and analyst, who 12 to 18 months ago were telling us global growth would keep the U.S. out of recession, and the decline in housing would not ripple to other sectors of the economy. They were behind the curve then, and they are behind the curve now!

It strikes me that when everyone gets on the same page, then that page is just about to turn! That is how economic bubbles are created, people see others making lots of money in a particular sector and everyone jumps in to make a quick buck. Once everyone is in the pool, and the water is being shared by a larger group it gets quite crowded. That is when people get out, the price of entry falls, and the last ones in tend to lose big!

I don’t doubt that we are in a recession, and I don’t doubt that many people are being hit hard by the downturn in the economy. I think unemployment is likely to go up in 2009, and the economy is going to continue to meander through some very rough air. With all of that said, I believe we are closer to the bottom than the top. Things may get worse, but I don’t believe it will be to the same magnitude as they have fallen already! Just the idea that we have reached a point where everyone seems to agree is a pretty good indicator that something is about to change!

I woke this morning to the news that the U.S. Senate failed to pass an automotive loan package last night, paving the way for GM and Chrysler to declare bankruptcy sometime in the near future.  As I was driving to work this morning I heard Mitch McConnell, a Senator from Kentucky, declare that the problems within the automotive industry were not Congress’ fault, and therefore they should be left to die.  Stock markets around the world are taking a nosedive on the news, with U.S. futures pointing to a big drop when markets open later this morning.  When are some of our political leaders going to realize that they have already driven this bus into the ditch, they can either leave the bus there, or they can step up to the plate and do something to help.

The big issue here was not whether these companies needed the money, or whether their downfall would hurt the economy, it was the lack of a big wage concession from the UAW.  My memory is not that great anymore, but as I recall, the guys that are refusing to support this agreement because blue collar manufacturing workers don’t want to take a wage cut, are the same guys who are against caps on CEO pay.  Can they be anymore out of touch? The last time I looked it takes a lot more strong backs, dirty hands, and hard hats to build a car than executives. When is Washington going to start focusing on a bailout for the middle class, and small business?

I have no doubt that many of the problems in the U.S. automotive industry are self-inflicted. For years Ford, GM, and Chrysler have focused their energies on bigger, faster, and less efficient. They allowed their labor cost to get out of control by giving up too much, and asking too little. They fell behind in the war on quality and service, and now they are paying the price. Under normal circumstances any business, large or small, that makes these mistakes is going to lose, it will fall to the competition. These are not normal circumstances!

I live in a town that has been decimated by the decline in the U.S. automotive industry. At one time we had nine Delco plants in Dayton, along with a plant building small SUVs, and diesel engines. The Delco plants are all but gone, 4,000 jobs that have moved to Mexico or China. The Duramax diesel plant keeps cutting its work force as fuel prices go up, and the small SUV plant, one of the few IUE plants within GM, will close in 2009. The small machine shops that supported these plants have been dying off, the distributors that sell them equipment are scrambling for new customers, and communities that benefited from the tax base are facing a severe financial crunch.

If the senators who are so opposed to bailing out the Big Three, based on their capitalist principals, want to see first hand what the impact of their decision will be, I suggest they climb on their private jet, and take the short hop from D.C. to Dayton. They will get a first hand look , at what their actions (or inactions) are doing to the industrial heartland. They can get a bird’s eye view of what happens to a community when one of its pillars falls. They don’t need a crystal ball to see what the impact of their indecision will be, they can come and tour the empty buildings where America once flexed its industrial muscle.

In the past 15 years these guys have given us NAFTA, MFN status for China, and $700 billion for Wall Street. They killed the manufacturing sector of the United States, which they are now disowning, and refusing to pay for the funeral!

This past week I sat in a meeting organized by a group within the local chamber of commerce. This is a small group of business owners that I have met with monthly for the last ten years, our presenter last Friday was a financial analyst from Cincinnati. He painted a pretty bleak picture of the economy, so much so that after listening you almost felt like tossing a chair through the window and jumping out!

The next evening I was at a black tie function having a discussion with another business owner. We were discussing the economy and she told me that she had sat through several banker’s forecast presentations in the last few weeks, and none of them were rosy. We chuckled about the fact that even these economic bulls were not trying to paint a better than actual picture of the economy. The dominate view is that the economy stinks, and it will for several months going forward.

This morning I picked up The New York Times, and ran across this article, about how bad our current economy is, and that it is likely to last awhile. The article pointed out that the current downturn is already longer than the last two, and will continue well into 2009. No one seems to have much positive to say about the current economic environment, it is what it is, a tough economy.

At this point I have stopped paying attention. I am not in denial, I know we are in a recession, and I have no idea when it will end. Along with the volatility in the markets this is today’s big story, and for the most part I have tried to stop reading about it.
I know and understand the conditions we face, I also know other than understanding the current environment, there is not much I can do about the macro economy. As long as I understand the environment, I can position my business to move forward despite the tough conditions. I will follow my strategy and manage my business for the long term.

During 2009 we will focus on our broader strategies, and we will continue to push execution of the basics. We will watch our cost, manage our cash, and fight for new customers. We believe that whether the economy is up or down, at the end of the day it is all up to us. Who knows, 2009 could just be our best year yet!

The economy shed 533,000 jobs in November as unemployment rose to 6.7 percent.  Numbers for September and October were revised downward, with September now showing a drop of 403,000, and October a decline of 320,000.  The U.S. economy has shed 1.85 million jobs this year. Although manufacturing and construction have been hit hard, the financial sector is getting its share of the pain at this point as well. The data also indicates that even though unemployment continues to rise, wages are continuing to rise as well.

I sat through an analyst presentation this morning. The presenter outlined a pretty grim picture for the economy over the next two quarters. His firm’s belief is that the fourth quarter of this year, and the first quarter of 2009 will likely be the low points for the current contraction with slight improvement coming later next year. I think that is a pretty accurate assessment of where we are headed. The next few months may be challenging, but everything is finite, and this downturn is not an exception!

There has certainly not been a lack of major business crisis for people to absorb lately.  Unemployment is rising, as demand for manufactured goods falls.  The housing market has tanked, and many business owners find themselves scrambling to raise capital for their going concern.  The analysts and experts are now convinced we are in the middle of a recession.  With all of these challenges piling one on top of the other we have gotten a first hand look at how our corporate and civic leaders deal with a major problem.

I was considering all of this on my morning walk, and I began to think about the different ways people have attacked these issues.  I began to think about some of the common mistakes I believe leaders make when confronted with a major crisis.  Here are my top three:

1. Denial – Over that last year how many times have we heard someone tell us there was nothing wrong with our economy.  Despite all the data, and overwhelming evidence to the contrary, we had many who insisted the main issue with the economy was a media machine over-hyping the story.  Too many leaders when confronted with a crisis refuse to recognize it.  I think they do this because acknowledging the problem means they have to create a solution, and it means they may be admitting a prior mistake in strategy.  It is difficult for any of us to be objective, especially if it means admitting we were wrong.
2. Inaction – How many times have you taken a problem to your boss, and the boss agrees there is a challenge, but refuses to allow you to do anything about it.  Many managers and leaders when confronted with a major challenge freeze.  They get that “deer in the headlights look,” and can’t seem to move themselves to action.  This may be because they just are not sure what to do, or it may be fear.  Either way they stand back and let a big problem get much worse.
3. Impulsiveness – Some leaders are quick to confront major issues when they arise, but take a ready, fire, aim approach.  They don’t think through the solution, and make the problem worse with their quick fix.  Taking the time to understand the impact of your resolution to the problem, before pulling the trigger, can save a business leader a lot of headaches down the road.

As we think back over the last year we can all point to examples of poor crisis management.  Our hope is that the leaders who have steered us into this crisis, are learning as they go, and can steer us back out in the near future.     

The National Bureau of Economic Research, a non-partisan group charged with pin-pointing the start date of an economic downturn, announced today that the current recession started in December 2007.  The news came as a shock to many investors as U.S. markets dropped more than 400 points by mid-afternoon.  These particular investors are the ones who have been living in a cave in some remote part of the world with no TV or internet access for the past eighteen months. Anyone who is surprised by the current state of our economy is probably not a person you want making investment decisions on your behalf!

We have been discussing the possibility of a recession in the U.S. since September of 2007. I have posted dozens of articles, and some videos, about the potential downturn, and what business owners should be doing to position their business for long term growth. Perpetuating the idea that this is a big surprise, which is causing market turmoil is irresponsible. The real story that needs to be discussed, and brought into the open, is who really benefits from chaos in the equity markets. It is not the average Joe with a 401k trying to make his way to retirement, it is the fund managers, traders, and advisors who make billions in fees when investors are provoked into executing transactions.

The benefactors of market turmoil are setting themselves up to learn a hard lesson. If they continue to drive the ups and downs in equity markets they will find that many “regular Joe’s” will pull their money and look for safer waters. More and more people are going to search for alternative investments or fixed income opportunities. As that happens the purveyors of market chaos may soon find themselves with no money to invest but what they have left of their own!  

For all of you folks into hot rods and polynesian culture, here is a recent story on a Rough Air client, Daddykatz.  Bill Winger, the founder of Daddykatz, has opened a retail shop in Dayton, Ohio, which specializes in unique items focused on those interested in hot rods, tikis, and vintage clothing.  It is great to see one of our clients getting their new venture off the ground!

If you want to learn more about Daddykatz visit their site at www.daddykatzkustomkulture.com.

Economic forecasters are expecting the current recession in the U.S. to last 14-months.  A recession of that duration would be in the same league as recession in the 70’s and 80’s.  Our first negative quarter this year was the third, which indicates this downturn will last into the third quarter of 2009, we believe that it is a pretty realistic projection!

I ran across this article in The New York Times, which is an interview with the acting administrator of the SBA. There is a fair amount of discussion about steps the Small Business Administration is taking to help entrepreneurs continue to find the funds to finance their operations.

We have several clients who have run into problems with their banks. In most cases their lender is not renewing a line-of-credit, or their lender is not raising the borrower’s line as these small businesses continue to grow. Many of these business owners are having one of their best years since starting their business, and now find themselves in the position of worrying about raising capital when they should be worrying about managing growth.

The common denominator with this issue is typically a bank that became heavily involved in subprime and aggressive lending, which is now trying to clean up its balance sheet. These financial organizations have decided to try to rid their asset base of any loans, which may appear slightly risky on the surface. Many times small, growing companies fall into this category.

Although many larger banks don’t seem to be lending, unless the borrower can fully collateralize the entire loan with personal assets, some small local banks and credit unions are great places to raise capital for your business. In many cases these financial institutions did not participate heavily in subprime lending, which means they have money to lend, and their cost-of-funds is pretty reasonable. Translated, now may be the time to develop a relationship with your small local banker or credit union, they may be your best source for new capital.  

There can be little mistake that the folks making the big decisions about who gets saved and who doesn’t are from Wall Street, and not from Main Street. Citigroup, one of the largest banks in the world, and one that made incredibly poor business decisions in regards to lending and investing, is saved because “they cannot be allowed to fail!” On the other hand Ford, Chrysler, and General Motors are told they are dinosaurs and they must make it on their own. I have even seen the case made that bankruptcy would be good for GM!

I understand the need to bailout banks, and keep the credit markets moving. The impact of businesses not being able to get credit would be devastating within our economy. However, it appears to me that our leaders in Washington have too much concern for Wall Street bankers, and not enough concern for the small machine shop around the corner!

The bailout of the financial sector has not resulted in an easier credit environment for small business owners. From what we have seen, the smaller local banks, and credit unions, those that did not participate in the rush to lower credit standards, are the institutions that are still lending. The big financial companies, that the government has stepped in to save, are not using their taxpayer funded bailout dollars to help small business owners. They are using those dollars to invest in China (Bank of America), an Executive spa weekend (AIG), and acquisitions (PNC Bank).

Allowing Ford, Chrysler, or GM to go under has a major impact on all of the Tier 1, 2, and 3 suppliers out there. Any small shop heavily weighted in the automotive sector may find themselves in the back of a long line of creditors seeking payment from the Big Three. How are these businesses supposed to survive, with major banks not lending to them, and their biggest customer not paying them? These organizations are being set-up for failure by political leaders who are turning a blind to Wall Street’s incompetence , and turning their back on Main Street’s suffering.

The Treasury and the Fed need to step up to the plate, and ensure the money is getting into the hands of businesses that need it to survive. If the government continues to treat the manufacturing sector as someone else’s problem, then they risk pushing an economy on the brink, over the edge!

In my discussions this past week with colleagues, business owners, and everyday “Joe the Plumbers” I get a wide divergence in just how serious the economic crisis is, and where it is headed. Some refuse to see any problem at all, or insist on downplaying the issue. They insist those with “good credit” can still get loans, and that the economy is not doing nearly as poor as the media portrays. Some have first-hand knowledge of a small business being refused a new line-of-credit, or a loan being called. They talk about some banks that are refusing to lend.

There is little doubt that the U.S. economy is in a recession. How close you are to the epicenter of the problem will be directly tied to how big the impact will be on you or your business. Those tied to construction will be hit harder than those tied to consumer staples, but we all will feel a little pain. Given that, now is time for all of us to work together to begin the process of moving forward, it is time to put philosophical differences aside, and look out for our mutually tied self-interest.

The government needs to create a new, long-term stimulus package that creates jobs, and creates an environment where businesses and entrepreneurs will take risk and invest. They also need to restrict T.A.R.P moneys to those financial institutions that are continuing to loan. A financial institution that accepts $15 billion in T.A.R.P money, and then invests $7 billion in a Chinese construction company is quite simply a traitor. Some of these institutions burned themselves, and are now burning taxpayers by taking federal funds, and putting their self-interest first, rather than trying to support those businesses and people in the economy that need access to credit. These institutions got us into this mess, they need to step up to the plate, and start the process of getting us out.

Businesses must start taking some risks again. Asset values are at all-time lows, this means that we are facing a “once-in-a-lifetime” opportunity to make long-term investments in undervalued assets. It is time to take advantage of the current climate, and take the first steps. We have allowed our economy to get out of balance once, and tilt to far one direction. We are now paying for that mistake. Let’s not allow ourselves to tilt to far the other direction, and make the reaction to the crisis worse than the crisis itself.

Consumers need to be able to start consuming again. This may be a combination of government stimulus, and a better credit environment, but it needs to happen. With energy prices plummeting we have a real opportunity to put some discretionary cash in the hands of American Consumers. A halving of gas prices over the last few months is like a big tax break to the Average American. We must capitalize on this, and move it forward.

Finally we all need to stop paying close attention to the neurosis on Wall Street. Each time a piece of bad economic data comes out institutional investors, and analysts react like it is some big surprise, that they didn’t realize the economy is in recession, and that we have some hard work ahead of us. I have some news for these folks, the sky can only fall so far before it hits the ground. Their fear has become irrational, and they are hurting the rest of us in the process. We all know there is a problem, let’s focus on the possible solutions!

Our economy did not stop this past September, I assure you many people are still doing business, and there are many opportunities out there for savvy entrepreneurs to tap into. Although we may feel some short-term pain, there will certainly be some long-term gain. Each day that passes we are one day closer to economic recovery. The time to panic is behind us, we must now pick ourselves up, dust ourselves off, and get this thing moving forward again!

There has been a lot of discussion this past week about the federal bailout program, and its ineffectiveness. What was supposed to be a program that got credit markets moving, and encouraged banks to continue to lend, has become a program financial institutions are using to raise capital to buy-up weaker competitors. I have several small business clients, all of which are growing businesses that are profitable, which have been told their operating lines-of-credit will not be renewed this year. In some cases they are being told to find another bank! Some of these banks are the very institutions that have accepted federal bailout funds!

Now the bailout discussion has turned to the automotive industry, and some of the same lawmakers (and administration leaders) that were ready to jump in and bailout the financial industry, feel as though the automotive business should be left to fend for themselves. Ironically these are the same lawmakers that never encouraged U.S. automakers to focus on more fuel efficient vehicles, and convinced Americans that we could all drive monster SUVs, because gas would always be cheap. The same lawmakers that were ready to bail out the failing financial services industry, have failed to monitor the bailout program effectively, now believe it is O.K. if the Big Three fail. They are even claiming the U.S. auto industry is a dinosaur.

GM, Ford, and Chrysler may be dinosaurs, but they are really big dinosaurs. These three companies employ about 700,000 globally, and there are millions more working in large and small businesses that are automotive suppliers. It is a critical piece of our economic stability. Companies will fail, but there is no wisdom in allowing entire industries to collapse.

Our leaders in Washington need to understand, the catastrophe has already occurred, why in the world are we even arguing about whether or not we should clean it up? I am getting the impression these guys have no idea what they are doing!

Never let the facts get in the way of a good story! This seems to be the principle the financial press, and other national media, have used in reporting the fall in retail sales from October. Although I do not disagree with the overriding media narrative that our economy is in a recession, I do believe that the major players are now jumping on every piece of negative data and over playing their hand. The shame of it all, is that they are about twelve months too late.

Last year at this time, many talking heads in the media, the financial experts, were doing their best to convince us the economy was just fine. They pressed the idea that because the housing market was a small piece of the U.S. economy, its decline would not have a broad impact. Many went on TV and said that the growth in developing countries would help keep the U.S. out of a deep recession. These same experts would cite low unemployment, low inflation, and high productivity as the basis for their ideas.

At this point it has been proven that most of these experts were well behind the curve on understanding where the economy was headed, and it is becoming apparent to me that they are behind the curve again. Yesterday they were all abuzz as the government reported retail sales fell 2.8 percent in October. The narrative became the idea that consumers were snapping their wallets shut, and were now officially not spending. Although consumers did slow spending in October, the biggest drop in retail spending came from a 12 percent drop in sales of gasoline. Anyone who has filled up their tank lately can see that gas prices dropped more than 30 percent last month, and they continue to fall. Just like the impact of higher gas prices rippling through the economy, and impacting prices, and the perception of inflation; falling prices are rippling through the economy and making a decline in retail sales appear much worse than it is.

Warren Buffet has said, “When others are greedy be fearful, when others are fearful be greedy.” The media narrative today is doing nothing more than spreading economic fear. Every story seems to indicate that life as we know is going to stop tomorrow, and soon we will be standing in soup lines, and riding the rails!

There is no doubt we are in a tough economy, and it will likely stay this way well into 2009. That is the reality we all face, but a tough economy does not mean economic activity stops, it does not mean people stop spending all together, and we are just inches away from s Great Depression II. It does mean we need to manage our businesses better, keep our cost in check, and work harder to find new opportunities.

My advice, turn off the TV, tune out the financial press, and go to work on your business. We will all be better off in the long run!

President Franklin Roosevelt famously said, “We have nothing to fear, but fear itself!”  Warren Buffett, the Sage of Omaha, has said, “When others are greedy be fearful, when others are fearful be greedy.”  Although the current economic climate can make even the most bullish investors queasy, now is really no time for fear!

Over the last several months asset prices have taken a beating.  Stocks, bonds, real estate, and small businesses have all seen their values plummet.  There is no guarantee that prices won’t continue to fall over the next several months, although for long term investors things appear to be getting pretty attractive.  An article in today’s Financial Times raises that very question, is now a time to buy?  As Buffett says, “If you wait for the robins to sing, it will already be spring!”

No one should have any illusions about the difficult economic environment we will face in 2009.  It will require us all to manage our businesses well, and focus on the long-term.  However, if you have a strong balance sheet, and access to capital, you may be facing a once in a lifetime buying opportunity.  If it is within your power, don’t wait for the robins to sing!

There is a pretty wide chasm between the individual watching his 401k shrink, and the one wondering how he will keep a roof over his family’s head or food on the table. My focus on this blog has often been about the cold, reality of facts and figures that have no human face. Last month 240,000 faces lost their jobs, which brings this year’s total of people losing their paychecks to over 1 million people, a rough equivalent of the population of the region where I live. There is no way to tell how many more will lose their jobs in the next year, we can only hope the job climate gets better!

I am hopeful that we are near the bottom of this downturn, that there is light at the end of the tunnel, and we have more reasons to be optimistic about our near term future. Although an article in today’s New York Times reminds me that no matter how upbeat I am there are some who cannot see any light at the end of the tunnel.

Occasionally it is well worth our time to take a step back, and remember who really gets stung when the economy tanks. Everyone feels the effects of a slow economy, but there is a big divide between cutting back on eating out, and wondering how you are going to pay for groceries.

The U.S. Department of Labor reported this morning that employers cut 240,000 jobs last month, and revised September’s job cuts sharply upward to a loss of 284,000.  The unemployment rate rose to 6.5 percent, and some analyst are expecting it to continue to rise to within the 8 to 9 percent range in 2009.  The economy has lost 1.1 million jobs in 2008, which is on pace to equal the rate of job cuts in 2001.  The continued weakness in the job market is a pretty good indication that the U.S. economy is currently in a recession, and will likely continue to contract into 2009. 

Illinois Senator Barack Obama has been elected the 44th President of the United States.  President-Elect Obama is the first African-American to be elected to the highest office in the the U.S. Government.  The Obama Campaign set the bar for how national political campaigns will be run in the future.  With the combination of a vast grassroots effort and technology, Obama was able to build a new political coalition.  This is an amazing moment in the relatively short history of our democracy.Only in American is this story possible! 

A year ago I posted an article about what I believed were the seven indicators of a looming recession.  Today the U.S. Government announced what many already knew was coming, the U.S. Gross Domestic Product contracted .3 percent during the third quarter of this year.  The economy went into reverse as consumers pulled back at the fastest rate in 28 years.  The question for many analyst has moved from whether or not we are in a recession to how long this downturn will last.  In what was likely a premeditated move the U.S. Federal Reserve cut lending rates by one-half point yesterday.

Over the next few days I expect we will have a plethora of talking heads on TV wringing their hands about the downturn, and what to do next.  I am optimistic that we are already more than halfway through this economic slowdown, I posted an article earlier this week pointing out my logic.  A year ago we were speculating on the rough economic environment ahead, today we are planning for next phase of economic growth.

Yesterday I posted an article about some reasons we can be optimistic in regards to the U.S. economy going forward.  One of the things I mentioned was the bottoming out, or at least nearing the bottom, of asset prices.  It was reported yesterday that new home sales for September rose 2.7 percent, and inventory dropped to 10.4 months versus 11.4 last month.  This data was on top of Friday’s report which indicated existing home sales rose last month as well.

Although these are just two pieces of data in a sea of information that has not been uplifting, they do indicate that the housing market, the primary driver of the current downturn, may be near the bottom.  People are wading in to take advantage of being able to buy undervalued assets at attractive prices.  Hopefully we are now closer to the end of this slowdown than the beginning. 

There are only eight days left until the 2008 presidential election, although according to news reports many people have already participated by taking advantage of early voting in their states.  I have watched this election closely since the primaries started last January.  I watched every debate, both Democratic and Republican, and read about the key issues of the day.  I have stayed in tune to the most recent polling data, and decided to give my readers an objective feel for where things stand at this point.

• The Polls – Senator McCain has not led in a national poll since the third week of September, and has only led two polls since September 12.  During this time things appear to have settled in with Senator Obama hovering around 50 percent, and Senator McCain hovering around 45 percent.  Both campaigns are telling their supporters to disregard the polling data.  Senator McCain is insisting the polls are wrong, and he will pull it out.  Senator Obama is warning against complacency, and reminding everyone he was ahead in New Hampshire before he lost to Hillary Clinton.  The spin from both campaigns should give a pretty clear indicator of where things stand.  The Democrats are working to hold down expectations, meanwhile the Republicans are working to keep their base engaged.
• The Impact of Early Voting – There has been a tremendous surge of early voters in states this year where it is allowed.  Many of these are battlegrounds like Florida, Ohio, and North Carolina.  This bodes well for whomever is in the lead, in this case Senator Obama.  A surge in early voting helps the leader lock in votes, and limits the impact of any last minute gaffes, or negative press reports. 
• The Electoral Map – According to Real Clear Politics, as of today Obama has 255 electoral votes which look solid, and McCain has 137.  Obama has several paths to the magic number of 270, if he just holds his solids and picks up the states leaning his way he will crest 300, that would beat the 270 with 36 to spare.  The states leaning Obama are Colorado, New Mexico, Ohio, New Hampshire, and Virginia.  McCain has not led a poll in Colorado, New Mexico, New Hampshire, or Virginia in the past month.  Of the states leaning his way, Obama could lose New Hampshire and Ohio and still beat 270 with a little room to spare.  On other side McCain’s path to 270 is not quite as clear.  There are seven toss-up states according to RCP with 75 electoral votes.  McCain must win all of these to have a shot, despite being behind in recent polling in three of the seven.  He could win all of the toss-ups, and he will still be about 38 electoral votes below the magic number, that means he has to pull states that are leaning Obama or solid Obama to his side.  This is a real challenge for any campaign, much less one operating in an unfavorable environment.

The bottom line is that if I were running I would much rather be in Obama’s shoes at this point than McCain’s.  It appears that the rest of this campaign is going to be fought on turf won by George W. Bush in 2004, not a good sign for the GOP.  The McCain team cannot afford anything to go wrong, and must have a significant number of things to flip and go their way to pull out a victory.  It is certainly not impossible, but it is a stretch.  The Obama team must guard against complacency, and focus on getting its voters to the polls.  Given the discipline this campaign has shown over the last several months, I get the impression they are taking nothing for granted!  

I was in a board meeting last week, and after the meeting I had a conversation in the parking lot with another member of the same board.  We were having a discussion about the economy, and he was expressing his concern that we are headed for a deep recession.  Although I do agree that the U.S. economy is currently in a recession, and is likely to be there for the next several months, I am starting to see some things that give me hope about our economic future.

1. Asset Values – A report came out late last week that existing home sales had picked up last month.  I rarely put stock in one piece of data, I believe it all has to be taken in context and analyzed, but this news as well as other comments I have heard have me wondering if we have reached the point where asset values are starting to become more attractive.  I have heard from more than one person lately that they believe that stock prices are starting to appear a little undervalued.   There is also some anecdotal evidence that the housing market is reaching that same point.  It appears that people with cash, or with the ability to raise capital are now thinking in terms of wading in to buy undervalued assets.
2. Companies are taking action – Over the last few weeks we have heard quite a bit of news about layoff announcements.  That is not good news for many people, and will have a negative impact on the economy in the short-term.  I would expect the job market to contract by 200,000 jobs in October.  The positive news is not in the layoffs, but in the evidence which points out executives understand they need to reduce cost to stay competitive.  This always results in a fair amount of short-term pain, but it helps drive earnings and cash, which will give businesses more capital to invest by late 2009.
3. Consumers are taking action – This is also not great short-term news, but as consumers tighten their belts and reign in their spending they are positioning themselves for a positive rebound in the future.  As the average American adjusts to the new economic reality they change their buying habits.  They are less likely to buy on credit, and more likely to only buy things they need.  Although this does not bode well for consumer spending in the short-term, when asset values begin rising, and credit loosens, many consumers will have positioned themselves well for the next growth phase.
4. Oil prices – Oil prices are falling primarily because the U.S. dollar has gained some strength, and global demand for oil has weakened.  If demand falls, and supply is relatively consistent, then prices will drop.  The economic slowdown in the U.S. is hurting demand for products and services made in China and India.  The falling demand in China and India is hurting crude prices, which is impacting economic conditions in Russia, and other oil producing conditions.  None of this is great news; however, prices falling at the pump is providing some much needed relief to American consumers.
5. LIBOR – The London Interbank Rate has stabilized in the last week as the bailout efforts around the globe have taken hold.  As credit unfreezes businesses and people with strong balance sheets and credit ratings will be able to take advantage of lower asset prices, and invest.  This is the start of rebuilding what has been torn down!

To many, at this stage of the game, this may seem overly optimistic.  Some may think I am straining to find a silver lining in a very dark cloud.  Perhaps that is true, but more than a year ago I was pointing out the inherent trouble I saw coming in the economy, and what organizations needed to do to manage the rough air.  Today, there appears to be a clear understanding that we have a major economic issue to address, getting everyone to recognize the problem is generally the first, and most important step, in developing a long-term solution! 

This morning I updated the Rough Air Demand Index, and the Rough Air Cost Index.  When looking at the data there are a couple of very striking things.  In regards to demand, the steady decline in new job creation is the first thing I noticed.  The other item I noticed is the continual drop in our index, it has been falling since March, and it does not appear to be ready to reverse course just yet.  The bottom line is that the Rough Air Demand Index indicates that we are currently in a recession.

The Rough Air Cost Index improved slightly last month, primarily due to the impact of lower oil prices.  As demand has steadily fallen, oil prices have receded due to expected declines in global demand for energy.  This is a great example of how lowering demand for oil can help bring prices back to a more reasonable level.  There is nothing like a little competition to keep all of the players honest.

Not many experts would disagree with my layman’s analysis, the economy is not doing well!  We are certainly in a challenging environment, and we are likely facing a recession over the next few quarters.  Small business owners need to ensure they are doing the right things to prepare for an expected economic slowdown.  I recently posted this article with some suggestions on how business owners may be able to manage the current downturn.  No matter what, remember that although we may be in a recession, that does not mean business stops, you will just have to work harder to maintain those margins and grow your business like you want. 

Global stock markets are in absolute turmoil, the Dow Jones is now 5,000 points below its high of more than 14,000 last year.  The volatility is on full display today as the trading range has fluctuated from up 200 to down 230.  The credit markets around the world are barely functioning, businesses are having trouble raising the capital they need to finance new projects.  Some are having trouble raising the money they need to make payroll.  All of this is going on while asset values around the globe are plummeting faster than Newton’s apple from a tree.  It would appear that we are now faced with a much different future than any of us had planned just a few months ago!

Some people are calling this the worst economy since the Great Depression.  Some are saying we are in for an extended slowdown, much like Japan went through in the 1990s.  I do not know how far we will fall, and I do not know how long it will last, but I can tell you what I will focus on in my businesses over the next year as we muddle through this crisis.

1. Expenses – We will be (and are) watching expenses very closely.  We have put together rough plans, which indicate what we may face going forward, and what expenses we can trim if needed.  I have already taken steps to cut discretionary cost, and to ensure our returns are as strong as possible in a difficult environment.  I suggest you take the time to go through your P&L line by line, and decide what you will cut if needed.
2. Cash – We are working to build our cash base.  We want to be able to carry the business for a period if we have to with cash we have built up in the business.  This means holding off  on any capital investments (new equipment), or additional marketing efforts.  Now is a good time to re-institute good cash flow procedures.
3. Sales – When times are tough the temptation is to pull-back, and focus on cost alone.  We are not going to fall into the trap of the dichotomy of the “or.”  I believe we can watch our cost, and push our sales.  We are continuing to challenge our sales team, and push them to bring more new customers in the door.
4. Flexibility – During challenging times some of our better customers may require us to be slightly more flexible in regards to payments, and pricing.  Although I would never give away the store, I do believe we need to listen to our customers and do what we can to support their business today without hurting our business in the future.
5. Opportunities – I know everyone is getting into a duck and cover mode; however, I am in the mode of searching for opportunities.  I am focused on keeping our balance sheet strong so we can continue to search out new acquisitions.  We are pushing forward our efforts to seek out new business opportunities in areas of interest.  I would rather have control of my money than leave it to the will of the global equity markets!

What we are doing may not work for your business in this uncertain climate.  The most important thing you can do is to take the time to determine how you will weather the storm!

The U.S. Federal Reserve joined other central banks around the world in an effort to limit the negative impacts of a global slowdown.  The Feds announced a 1/2 point rate cut to both the fed funds rate and the discount rate.  This is an unprecedented global effort to keep the wheels on our economic wagon, as credit markets continue to move at a very slow drip.  The cost of borrowing continued to soar as the Libor rate jumped to 5.38 percent overnight.

It seems to me that we are now entering uncharted waters.  The slowdown in the credit markets is causing many small and large businesses to temporarily pull back, hopefully this will start to ease as the actions being taken by governments around the world takes effect.  It is important to take the long view with your business at times like this.  Keep a watchful eye on expenses and cash, and be open to potential opportunities that may pop-up along the way.  

The U.S. economy lost 159,000 jobs in September, this is the ninth month in a row that the economy has shaved jobs.  The unemployment rate held steady at 6.1 percent.  During 2008 our economy has shed almost three-quarters of a million jobs, this is the weakest job market since 2001.  All of the data is now pointing to a third quarter with GDP growth going negative, probably in the -.5 percent to -1 percent range.  The big elephant in the room is now the credit crisis, and how the U.S. House votes today on the $700 billion bailout package.  If banks continue to turn a cold shoulder to businesses in regards to new credit requirements, then the weakness we are seeing in today’s job market will seem paltry in comparison to coming months.

In the past few days I have begun to hear more and more stories about small business owners having their credit lines held, converted to longer term debt, or pulled.  The news is full of information about how the credit freeze is impacting both larger business, and smaller business.  The economic data continues to point to a climate in the U.S. that is becoming increasingly difficult.  Whether it is the slowing pace of manufacturing, the increasing pace of unemployment, or consumers who are concerned about the future there is certainly some unease in the air.

It would now appear that the downturn in housing, and the sub-prime problem has come full circle, from Main Street to Wall Street to Main Street.  The problem we have now is the domino effect.  Tighter credit markets force businesses and consumers to pull in the reigns due to lack of capital and discretionary funds.  As credit tightens, it doesn’t just impact those considered high credit risk, it impacts people and businesses with solid credit histories as well.  Higher lending rates force business owners to reconsider capital projects due to higher loan payments.  As the reigns get pulled back demand across the board falls, and things continue to domino until we reach the bottom of the cycle.

When we will reach the bottom no one really knows.  Business owners and investors are bracing themselves for an extended downturn.  The question to ask is what opportunities will present themselves during this downturn, and how can you take advantage of them? 

U.S. workers filing for unemployment benefits hit their highest level since September 2001.  The 517,000 new claims for the week were well above econmist forecast, and are another indicator of our challenging economic environment.  Analyst are projecting that tomorrow’s release of September jobs data will show a job loss of at least 100,000 jobs for last month. 

I have had several questions in the last few days about why Congress is even considering a bailout package for the failing U.S. financial industry. Many will mention to me that this is nothing but regular taxpayers like you and I, paying for the mistakes of some wealthy Wall Street executives. Some will remark that if we save them now, then how will they learn not to repeat this mistake again. Others believe that it just isn’t fair.

If you are one of those struggling to make your mortgage payments, paying for college for your kids, or coping with the rising cost of health care, then you are probably not all that excited about saving some millionaire from New York. The truth is neither am I; however, I believe I have a relatively clear understanding of what is likely to happen if our government just leaves us twisting in the wind.

The risks of not doing anything certainly outweighs the satisfaction of allowing those to inherit the fate which they deserve. Washington policy makers, and Wall Street Executives have gotten us to where we are, we can either address the problem today, or let them pull us all down tomorrow.

Our main challenge is not volatile stock markets, it is credit. If the federal government does not do something here, we risk a freezing of the global credit markets. Overnight lending rates from bank to bank are higher than ever, this can only mean higher interest rates for small business owners and individuals. If credit markets freeze, businesses won’t be able to meet their obligations due to their lines of credit being pulled, people will have a difficult time finding a lender to buy a new home, and in the worst case you may not even be able to use your credit card.

I don’t like the idea of bailing out Wall Street, but I am not a fan of playing Russian Roulette with the future of my business. Our representatives in Washington got us in to the mess, I don’t remember them being so reticent to usher in the regulations which allowed this to happen. These same representatives need to do what is right for everyone, as opposed to what is convenient to their short term political future. They need to get a package passed that will save Main Street, while they bailout Wall Street.

In what is likely to be proven a colossally idiotic move, the U.S. House of Representatives failed to pass the proposed federal bailout today.  Although I suspect (hope) they will vote again sometime in the near future, I am sure the impact over the next day or two will be painful.  I think this is a perfect example of our representatives in Congress being too chicken to act!  I don’t like teeing up $700 billion of taxpayer dollars to bailout Wall Street banks, but I am a practical person; hence, I don’t believe it is in our best interest to just let this play out in the markets.  That has been tried in the past, and it was not overly successful.

Without some sort of intervention, banks will stop loaning to each other, and they will make borrowing very difficult for businesses and individuals.  The government got us into this mess by creating and supporting an environment that allowed banks and investors to take huge risk believing there was no downside.  Now the folks who created the mess don’t have the guts to solve the problem.  Depending on how long this drags out, I would expect to see a couple of regional banks that are already teetering to go over the cliff in the next 24-48 hours.       

It must be Monday, because another large American Financial Institution is no longer independent.  Last week it was Washington Mutual being acquired by JP Morgan Chase in what was described as the biggest bank failure in U.S. history.  Today Wachovia is being acquired by Citigroup, although this is not being described as a bank failure, it sure as heck isn’t a huge success.  When all is said and done, 30 percent of deposits in the U.S. will be controlled by three banks, Chase, Citi, and Bank of America.  This will likely put pressure on some larger regional banks like Fifth Third and National City, to find a suitor or face an extremely difficult future!

This comes on the heels of this weekend’s announcement that policy makers in Washington have come to an agreement on a financial bailout package.  It appears that nobody is all too enthusiastic about the bailout package, although many in DC feel it is necessary to keep the credit markets moving.  Politically the biggest loser here, other than the American People, is the GOP.  I get the sense that the public is not happy about the bailout (count me in that category), and they will be looking for someone to blame.  Since the GOP currently holds the keys to 1600 Pennsylvania Ave. I imagine they will take the brunt of the electorate’s anger. 

The bottom line, it looks to me like this will be another wild and woolly week on Wall Street, and we will all be left scratching our heads wondering what shoe will be dropping next!   

I am watching President Bush give a quick lesson on the meltdown of the U.S. financial markets. More than a year ago I posted an article about the subprime problem, and the potential ripple effects. Although I am firmly in the camp that we need to do something, and that something probably needs to include an effort to keep credit markets moving, and helping those homeowners who have found themselves on the brink, I also am very disappointed in how our leaders have handled this issue.

This is a problem we could have limited. Avoiding it may have been nearly impossible, but limiting the fallout was certainly within our grasp. Last year at this time people who pointed out some of the major challenges we were facing were considered alarmist. Our political leaders worked to convince us that the economy was fundamentally sound, many pundits and analysts indicated that this was a media driven problem, and perhaps we are just a “nation of whiners.” It was not as if people did not point out the problem, but there was a massive PR campaign put forth to convince the American public that everything was just fine. I would have to admit that watching this play out has shifted my perception of our current government, and their ability to effectively govern!

So now when the impact of our inaction is upon us, we are told that this really is an emergency. This was an emergency twelve months ago, and many in Washington refused to admit it. I would like to say better late than never, but even a minor league analyst like myself could see the storm clouds on the horizon last year. Now the president is on TV telling us we have a problem, one of our presidential candidates is parachuting into DC to save the day, and those of us down here on the bottom are scratching our heads asking what the hell just happened.

This is a perfect example of a government so slow to move that it has once again failed to act when needed. Over the last several years we have numerous examples of the failings of our government. Whether it was missing the advance of global terrorism, miscalculating the potential cost of the War in Iraq, reacting slowly to a drowning city , or ignoring troubling economic signs, our government is proving itself to be completely ineffective at preventing issues before they happen. They have reverted to a fire-fighting style of management, and it is just not working! I am not sure our business, the American Enterprise, can take much more of this.

With the projected cost of the proposed Wall Street bailout program being proposed by U.S. Treasury Secretary reaching $1.8 trillion, the question that is now being debated by policy makers in Washington is who we should include in the bailout program. Some say the Fed should stick to only throwing a lifeline to the investment banks and lending institutions that are at risk. Others believe we need to extend that lifeline to the homeowners that find themselves on the brink of being tossed out on the street by those same banks being saved by the Feds.

This program will be big and expensive, of that there is no doubt. The Fed and policy makers in Washington need to do something to keep the credit wheels greased. Hopefully this bailout program will do just that, if banks stop lending to each other that will make it difficult for everyone to find credit. Whether someone wants to buy a car, a house, or a business they will find it challenging to raise the cash they need for big transactions. In that regard the bailout program makes sense, it helps ease some fears about the value of assets on some of the troubled institution’s balance sheets, and makes banks less wary of lending to other banks.

The program falls short though, when it does nothing for the individual homeowners that are at the root cause of this problem. This whole problem was caused by rising default rates on risky loans made by mortgage lenders. The U.S. Government created and supported an environment where lenders were encouraged to write the risky loans, and borrowers were encouraged to apply for them. How many loan officers told the prospective homeowner to take advantage of that low entry rate on an ARM loan, and buy as much house as they could? As these loans began to reset, and defaults started to rise, inventories of unsold homes increased, which started to drive prices down. This is the real core of the problem, and unless we address it we will be facing a prolonged depression in the housing market.

Next year more loans will reset to higher rates than in 2007, the year after even more loans will reset. This could lead to a whole new round of loan defaults, and bad credit conditions. The government’s responsibility does not stop at Wall Street. What does it say about a society that believes bailing out billion dollar financial institutions is a necessity, but allows individuals to fall through the cracks? If we are going to spend trillions of dollars to fix this problem, let’s fix the entire problem. Our government has decided that it is our responsibility to save U.S. financial markets, we should not allow that same government to turn a blind eye to its citizens that may need its help!

U.S. Treasury Secretary, Hank Paulson, and U.S. Federal Reserve Chairman, Ben Bernanke announced today a proposal to move illiquid assets from the troubled balance sheets of U.S. financial institutions to an entity owned by the U.S. government. Translated, instead of bailing out these large institutions like Fannie, Freddie, and AIG one at a time, now they are creating an entity that will bail everybody out at once. The cost of this bailout program could be as much as $1,000,000,000,000 (that is a lot of zeroes)!

It is apparent that Paulson and Bernanke were in a position that they felt as though they had no choice. Handling these issues as they came up was creating significant turmoil in the financial markets. The real fear is that credit would eventually completely lock-up, and it would all grind to a halt, forcing a massive sell-off of hedge funds causing markets globally to go into a free fall in the flight to safety. This is a massive government bailout to keep the financial markets moving.There is no doubt that this is not business as usual. When the government is proposing to create new entities that will cost the taxpayers trillions of dollars, I would guess they are not doing so without good reason. They are doing whatever they can to hold off a financial and economic disaster. Some have said recently that our economy is fundamentally strong. I would say that actions like this are not the actions people take in a fundamentally strong economy. These are frantic moves that are being taken to keep the ship from going down!

I do not disagree with any of the steps Mr. Paulson or Mr. Bernanke have taken in recent days to stave off financial disaster. I think they are using the tools they have to prevent the worst. I do find it interesting though. Our government cannot seem to create a program that helps small businesses and individuals get affordable and reasonable health care. Our leaders have never seemed overly concerned about trying to stem the tide of American manufacturing jobs moving overseas. When an entrepreneur decides to take a risk, and start a new business, if he fails he fails. None of the policy makers in Washington are overly concerned about keeping the guy on main street humming. The case could be made that if Wall Street goes down, then we all go down, but when the government essentially nationalizes $1 trillion in assets, they are not exactly adhering to the real tenets of capitalism!

The biggest irony I see here is that all these folks, whether in the current administration, or a large majority in the financial community, will always complain about government social programs, national health care proposals, or a tax code that they believe redistributes wealth from the rich to the poor. I am sure these folks won’t be complaining now, even though the U.S. government is proposing the creation of a massive welfare program for Wall Street, and the redistribution of debt from financial firms (and their highly paid executives) that took bad risk, to all of us “Regular Joes” that work and pay our taxes! This is the redistribution of wealth in reverse, they are redistributing the bad debt of people who made poor decisions to everybody else. I am not sure how well this will work out in the long-run, but my suspicion is that it cannot be good. I also wonder, of this does not work, where could we possibly go from here!

The U.S. Government announced last night that they had come to an agreement with AIG, the nation’s largest insurer, to provide AIG with a bridge loan of $85 billion to prevent the business from declaring bankruptcy.  Many felt the bailout was necessary because AIG touches many aspects of the financial markets.  A failure of AIG could have resulted in a massive hedge fund sell-off pushing major markets much lower, lowering asset values, and raising the cost to borrow money. All things which could have pushed a teetering economy over the edge.

The Fed’s Board of Governors met yesterday, and decided to keep interest rates steady despite evidence that the economy is continuing to deteriorate. The Fed indicated they still have some concerns about inflation. I agree with both actions by the government yesterday. AIG had to be bailed out, a failure would have been cataclysmic. Holding rates steady makes sense primarily because there are only so many bullets left in the Fed’s rate cut gun. They may want to save those for sometime in the future when they may need the ammo.

There is a bit of irony to the idea that many of our most ardent capitalist who believe we should allow free markets and competition to prevail, are now the ones scrambling with taxpayer dollars to stave off disaster. Despite all the challenges we still have some who believe that the fundamentals are still strong, and we just need to work through the problem. Over the last two weeks those “strong” fundamentals have resulted in the government’s takeover of Fannie and Freddie, the acquisition of Merrill Lynch, the bankruptcy of Lehman Brothers, and the takeover of AIG. My guess is, before we start slapping each other on the back for a job well done, we need to be prepared for what is next. We have a long way to go before this one is cracked! 

What are the fundamentals?  Since so many are trying to tell us lately that the fundamentals are sound, it raises the question about what those fundamentals are.  I would go to the basics, employment, inflation, consumers, business investment, manufacturing strength, etc.  The stock markets can be a leading indicator of the economy’s health, although I always suggest looking at the bigger picture.  So when folks stand in front of the microphone and insist the fundamentals are sound, I wonder what fundamentals they are talking about.

The DOW is 4,000 points below its high of just a few months ago.  Unemployment now sits at 6.1 percent, up from 4.7 percent not that long ago.  The economy has lost more than 600,000 jobs so far this year.  The cost of capital, and the ability to borrow has gotten more difficult for consumers and investors, this has slowed consumer spending, and slowed business investment. Inflation has been all over the map due to rising energy and food cost; however, the price of oil appears to be receding, although not for reasons that would indicate a strong economy.  None of this gives me a warm and fuzzy about the fundamentals of our economy.

People need to stop trying to defend the indefensible, and face up to the challenges before us. If we continue down this path of ignoring the issues, then the failure of Lehman and AIG will be the least of our problems! I wonder what all these folks, who have worked so hard to convince everything is just fine, will tell us then.
 

The big news today is what will happen to AIG, the nation’s largest insurer. AIG sells credit insurance contracts in which an investors pays them to protect the investor from a potential default. AIG was required to post collateral to show that in the event of a default they could pay their obligations. The problem is that in our upside down credit markets the collateral posted was generally not enough to cover the potential debt. If AIG cannot raise enough capital, or sell itself to a healthier institution, then they will need to force the hedge funds which provided the collateral to pony up. Translated, this will result in a massive sell-off of mortgage backed securities pushing prices down further. I am told that these guys touch everyone, not just here at home, but abroad as well. I get the impression the markets are hoping the Feds will step in and do something to keep these guys from failing. The worry is that further declines in asset prices will hit main street pretty hard, giving consumers less spending power, small businesses less borrowing power, and forcing a global slowdown.

Last year (August 2007) I posted an article about subprime fallout and the potential impact on your business. This year I spent a great deal of time following my own advice and trimming any cost out of our business that I could. As I look back over the last thirteen months I am highly disappointed, and now skeptical, of any comments coming from our leaders in Washington. Many experts saw this coming, and yet many were told that the fundamentals are sound, and we need not worry. We were told that global growth would save us, or that the subprime meltdown would only affect the housing sector, everyone else would just float along as if nothing ever happened. When things got worse we were told by some that this was a media driven event, that things were not that bad, and we needed to stop whining. Pointing out the obvious is not whining it is common sense! Burying your head in the sand while Wall Street collapses is denial!

Today was a tough day on Wall Street as the Dow dropped 500 points on continued concerns about the turmoil hammering the U.S. financial sector.  After last minute efforts to hold off the inevitable, Lehman Brothers, the nation’s fourth largest investment firms, announced they would be declaring bankruptcy, and the nation’s largest investment firm, Merrill Lynch, was acquired by Bank of America.  On top of today’s news there are major concerns that AIG, the nation’s largest insurer by assets, is in serious need of a capital infusion. Although Rome burns, many of our leaders insist the fundamentals are fine, and there is no need to worry. If you complain, or point out the real issues, you are being a “whiner” or “not patriotic.”

So as reminder to those who think everything is just fine, the U.S. economy has lost 600,000 jobs this year, the unemployment rate has jumped to over 6 percent, gas prices have risen 36 percent, mortgage defaults are at an all time high, the government is running a $400 billion deficit, and we can’t seem to get through a day without hearing about some bank or financial institution that is in the process of a meltdown. By most accepted metrics everything is not fine, the fundamentals are not sound, and we need to face up to some major challenges.

I don’t know what the answers are, but I do know that ignoring the problems will not make them go away. We cannot turn a blind eye to these issues in hopes they will go away. The credit crisis has been on us for more than a year, job growth has been fading for almost two years, and the housing market has been fading for more than two years. Every time one of these issues rears its ugly head, our leaders do all they can to convince us there is no problem. From what I can see, the only thing they are doing is convincing themselves while the rest of us pay for their mistakes!

This is not a great time to be an independent minded, objective voter who wants to understand the real issues rather than drink the “Kool-Aid” each of our political parties tends to dispense gallons at a time.  This is of course a presidential election year!  Every where you turn there are nasty campaign ads, verbal attacks, and silly political distortions that mean little to the reality ordinary Americans face.  If you attempt to understand the strengths and weaknesses of the candidates you face the potential wrath of highly partisan political hacks who appear to be more interested in distorting the facts than getting to real answers.

This was on full displaylast night on Fox’s Hannity and Colmes as an Obama supporter tried to bring up his views on the current economy and Hannity tried to point out that the economy was fine, and had to mention Senator Obama’s past associations to divert the discussion away from our economic challenges.  The discussion ended up with name calling and threats without much discussion.  This probably makes “good T.V.” and drives up ratings, but it does nothing to help people understand the real issues we face in today’s complex world.

Our political debate has sunk to ridiculous lows.  Instead of issues we are talking about how many houses John McCain owns or whether or not Barack Obama wanted to teach sex-ed to kindergarten kids.  The main topics this week surrounded Gov. Palin, John McCain’s running mate.  Did you hear Senator Obama called her a pig (not true), and she told Congress no on that Bridge to Nowhere (not exactly true), and she wants to ban books in Alaska’s libraries (also not true)?  If I didn’t know better I would think that our politicians don’t actually want to discuss the real issues.  They would rather just keep repeating lies and innuendo so they don’t actually have to come up with any concrete plans that may help us address some of our current problems.

Since none of the political hacks, pundits, or campaigns appear to want to bring up the issues I decided to commit some time this morning to pointing out the real problems we face today.

1)  So far this year 11 financial institutions in the U.S. have failed.  This does not include the government backed purchase of Bear Stearns, the takeover of Fannie and Freddie, the potential collapse of Lehman, and Washington Mutual.  A seizing of the credit markets is putting the squeeze on small business owners, and consumers.  All indications are that we are closer to the start of this problem than the end of it.  Mortgage resets in 2009 and 2010 will be much greater than 2007 and 2008.  What do each of our presidential candidates intend to do to help fix this problem, and how much is it going to cost the American taxpayer?

2)  Under the Clinton Administration gas prices rose an average of 3.8 percent annually.  Under the current administration gas prices have risen an average of 21.7 percent annually.  Nobody, other than T. Boone Pickens and Paris Hilton,  appears to be advancing a real energy policy that gets us off our addiction to oil, and leads to energy independence.  “Drill baby drill” is not a solution, it is a slogan!  We cannot ignore this problem forever, future generations are depending on us to develop solutions today.

3)  The U.S. economy has generated 7.3 million jobs so far this decade.  Through this same period in the 1990s the economy had generated 17 million jobs, 15 million in the 1980s, and 16 million in the 1970s.  The facts are, despite continued population growth, the first decade of this century is likely to be the worst for new job growth since prior to World War II.  If we don’t generate jobs, we don’t generate consumers.  We have a consumer driven economy, if we don’t address this issue, we will face years of sluggish economic performance.  Also, don’t be fooled by the strong GDP growth last quarter.  That was one quarter which was boosted by government stimulus checks, most economist expect the third and fourth quarters of this year to be much less robust.

4)  The last administration left office with a budget surplus of $200 billion, our deficit this year will be $438 billion.  This is a shift of $600 billion dollars in just under eight years.  We cannot continue to raise the cost of government while at the same time lowering the price.  We have gotten into this cycle of preaching smaller government and lower taxes.  It seems our leaders have no problems lowering taxes, but they can’t seem to get that smaller government thing down!

5)  The Dow Jones Industrial Average now sits just over 11,000.  Right now it is only 400 points higher than when the current administration took office.  The markets were hammered by 9-11, corporate accounting scandals, the credit crunch, and rising fuel prices.  To some this may not seem important, but if you worked your whole career, put money aside in your 401k, and were looking forward to a comfortable retirement you may be in for a surprise.  What are these guys going to do to help get things moving forward, instead of standing still?

6)  I do not remember a time, in my lifetime, when our electorate appeared more divided.  We have folks like Rush Limbaugh and Sean Hannity going on the air every day convincing millions of listeners that Democrats don’t love their country, and are borderline socialist.  They appear to be convinced they have all the right answers.  Every night you can tune into MSNBC or CNN and hear Democratic operatives try to convince you that every member of the GOP is only concerned about pandering to oil companies, taking candy from little kids and money from old ladies.  At some point we need to take a step back, and consider the long-term ramifications of this behavior.  The more we work to divide ourselves the harder it will be to unite in times of crisis or peril.

My years as an executive, leader, and student have taught me that the key to success is usually balance.  My Dad would always tell me to beware of zealots or fanatics, they become so convinced of their righteousness that they have a hard time seeing the forest for the trees.  So far this election has been about the trivial and ridiculous, a repeat of the past few election cycles.  My hope is that just maybe, this message will get through and Senators Obama and McCain will realize they have the inherent responsibility to raise the level of discourse and help this country come together to determine how to solve the real issues we face.     

The Congressional Budget Office (CBO) announced yesterday that the U.S. Government will likely run a deficit of $438 billion this year.  That should run the current national debt tab to a mere $10 trillion by the time our next president takes office.  I am not sure it makes a whole lot of sense for our government to commit to spending $1 billion of “our” money in Georgia (the country, not the state), just to get under Putin’s skin while we continue to saddle coming generations with a massive debt load.

There is a lot of talk during this election cycle about getting rid of waste in Washington, and changing the way Washington works.  For the last 20+ years we have been told that we need to make government smaller, and keep taxes low.  I like the keep taxes low part, I would like to keep more of what I earn.  It does appear to me however, that we continue to miss this make government smaller part.  I am not sure the best strategy for running a business is to constantly commit to lowering the price while at the same time constantly keep running up the operating expense.  Most businesses that I know which have done that end up failing, but oh well, what’s another $438 billion between friends!

The Organization of Petroleum Exporting Countries (OPEC) announced yesterday that they plan to cut total production by about 500,000 barrels per day.  They cited concerns about falling oil prices, which hit a five month low this week, and rising crude inventories.  Gas prices here in Dayton have gone up about 20 cents in the last day, so we can likely expect the national average to rise from its current level of $3.65 per gallon this week.

I was talking to someone recently that mentioned he wanted to buy a new, large pick-up.  He said he believed Congress would eventually open up offshore drilling and ANWR and that would bring gas prices back down to the $2 per gallon range.  It is a shame that some folks are buying into this notion.  The reality is gas prices, which have been stable for several weeks, are likely to continue the upward trend.  If you were the CEO of Exxon, BP, or Shell, would you want prices to come down?  Of course not.  Like any business owner or executive your strategy would be to price your product at the absolutely highest level you can, and still get customers to consume it.  There is no motivation for oil producing countries or oil companies to work to drive prices lower, that comes from competition and right now they are just about the only game in town! 

I ran across an article this morning on CNBC which indicates that the options we have left to stimulate the economy and avoid a recession are pretty limited.  We have a lot of chips on the table, a housing package, a stimulus package, bank bailouts, and Fed rate reductions.  None of which seem to be having a tremendous impact on overall economic growth.

Last year, when I first started blogging about business and the economy, I pointed out my concerns about the overall impact of a downturn in housing and a declining job market.  I was not a lone voice in the woods, as many analysts and pundits pointed out many of the same issues.  On the other side, there were “bulls” who spent a tremendous amount of time trying to paint a rosy picture of economic conditions.  It appeared to me that some were more concerned about making the current administration look good rather than taking an objective view of what was going on around them.

Earlier this year President Bush asserted that the economy was not headed for a recession.  He felt the stimulus package and the Fed’s rate cuts would be enough fuel to prevent our economic engine from slipping into a recession.  In that same news conference he was surprised to learn that some folks were expecting to pay $4.00 per gallon for gasoline during the summer driving season, we all know how well that worked out.  This summer we even had a senior economic and campaign advisor to one of our presidential candidates assert that the problem with the economy was that the American people were in a “mental recession.”  He indicated that our economic woes were a result of the media’s obsession with bad news, and that we had become a nation of “whiners.”  This reminded me of President Carters “Malaise Speech” in the late 1970’s when he insisted that our challenges were the result of a malaise within the public mood!  Great leaders don’t ignore problems in hope that they will go away, great leaders get us all to face up to the challenges involved with moving things forward.

As a reminder, we are not in a mental recession.  Our overall mood may not be great, but that is more likely a reflection of the challenges we face rather than media influence.  One does not need to look beyond some key measures to figure this out.  Last year at this time we were paying $2.80 per gallon for gas, today it is closer to $3.60.  This year the economy has lost over 600,000 jobs, the unemployment rate has gone from last year’s low of 4.5 percent to 6.1 percent, and other than a second quarter GDP bumped by a stimulus package, economic growth has been weak.  The housing market continues to suffer, consumer confidence is weak, and the Dow is almost 3,000 points below its all-time high.

For much of the last 12 months many of our leaders have spent considerable time and energy trying to defend the indefensible.  It is time for Washington to stop playing this game.  Had we addressed these challenges up front, when they first came to light, rather than trying to “spin” them away, we could be well on our way to the next cycle of economic growth.  Instead, we are now facing the second dip in a double-dip slowdown, and our options are limited.  Thanks for the great effort guys! 

This year for the first time since I started voting, I am going into this election as an undecided voter.  I have followed both the Democratic and Republican Conventions, and I have made a concerted effort to understand each candidate’s policy positions (each has some things I like, and some things I don’t).  I have listened to the speakers at each convention rant about the other party, and the other candidate.  It seems to me that everything they say and do is designed to sway our votes based on fear of the other side. 

So I have tried to weed my way through the big speeches, hoopla, and spin to determine what is true, what is false, and what I find ridiculous.  Although I believe both parties display a tremendous amount of hypocrisy in their stated positions,  I was especially struck by what I call the “audacity of hype” that came from the GOP in St. Paul last week.  I was also struck by how some of my Republican colleagues were drinking the “Kool-Aid” as though the GOP party platform and leadership has absolutely nothing to do with the sorry state of affairs we find ourselves in today.  Given my support of Republican candidates, both national and local, over the last several years, I feel it is my duty to point out why I can longer be considered a guaranteed vote in their column.  So here is some of the more audacious hype I find coming out of the GOP camp:

1) Governor Palin was a great pick – As a V.P. candidate Gov. Palin has certainly placated the hard right of the party, and she has helped energize the base, but as an executive management decision I find this one borderline silly.  I think this is a classic case of elevating a talented executive too quickly for the wrong reasons.  She is being set-up for failure.  The argument is that she has as much experience as the guy heading the other party’s ticket.  This sounds suspiciously like “we are no worse than the competition.”  I can’t say I buy all the rumors that are being circulated about Gov. Palin, but I am also not sure we should be electing our leaders based on the lowest common denominator!

2) The GOP is the real party of change – I could buy this if the party was bringing something to the table that was new, but it is not.  The GOP has had control of the White House for the last eight years, had control of the House of Representatives from 1994 – 2006, and held the Senate from 2002 – 2006.  The Senate was split 50-50 for the first two years of the Bush Administration.  So the party that has basically had full control of Washington for the last eight years is now trying to sell the American people on the idea that since we are worse off today than we were four years ago, we should put them back in power to continue to execute the same agenda, which does not seem to be working too well.  The amazing thing is that so many people actually buy it!  So let’s apply the same solutions to the same problems, and hope it comes out different.  This from the folks who while under their watch gas prices have risen 165 percent, the U.S. government’s public debt has risen $4 trillion, annual government expenditures have increased 50 percent, and new job growth will have the worst decade since the 1950’s.  No wonder the incumbent party is not running on their record, but running away from it.  Their job performance has been at best, weak!

3)  The solution to our energy problem is simply to drill more – I was having a conversation with a colleague recently and he mentioned that he would like to buy a new truck.  He said he was hoping to get a large pick-up with a V8 engine.  His belief is that the GOP will win the White House, open up offshore drilling and ANWR, and gas prices will fall back down to $2.00 per gallon.  This is of course the problem, too many people actually believe this will happen.  The speculation from the drill more solution is that more supply will push prices down.  The flaw with this logic is that if we move ahead with more drilling today we will not impact supply for about ten years.  The overall price impact is negligible.  For instance, the DOE estimates that if ANWR were opened to drilling the impact on the price at the pump would be a few pennies in 2020, this assumes other oil producing countries will not reduce their supply to keep the price up.  This is one of those things that may garner a lot of votes, but it will not solve the problem.  Even Texas Oilman T. Boone Pickens thinks that we need a new approach to our energy problem!

I have decided that if the majority of the American people buy into these “sales pitches,” then we will get what we deserve, which is four more years of what we already have.  My hope is that more people will actually try to become informed voters this year, understand the issues, understand the candidate’s positions, and go into the voting booth with the knowledge they need to make their decision, whatever that may be.  My fear is that Republicans and Democrats alike will simply repeat the talking points that come from their party leaders and will pull the lever for their respective candidate based on party loyalty, misconceptions, and fear! 

I can’t wait until this election cycle is over! 

It has been a year since the credit crisis became news.  Last year at this time many analysts, and defenders of the status quo were telling us that the housing downturn and resulting credit crunch were merely the result of irresponsible borrowers and greedy lenders. We were told that it was a minor problem that would not affect the broader economy, and more likely than not, the biggest problem was the media’s obsession with the crisis.

So here we are, many months later. We have seen some regional banks fail, and we have seen J.P. Morgan Chase and the Feds work together to save the mighty Bear Stearns. This weekend the news broke that the government was taking control of Fannie Mae and Freddie Mac in what could be the largest bank bailout in history. Imagine if our government had owned up to this problem a year ago, and tried to do something about then. Imagine if, instead of making excuses, they worked on solutions. If they put politics aside for a time, and worked together to prevent the worst housing crisis this country has faced in generations. Instead of working on the problem, many of our leaders worked hard to convince us there was no problem!

We are facing some major economic challenges. A declining jobs market, a manufacturing base decimated by outsourcing, and wealth falling with home values. Why is it so many in our government find it so easy to give billions in aid to other countries, and decry any effort to push for help at home. Perhaps some of these leaders will wake up and realize we can’t help anyone else if we fail to help ourselves!

Home foreclosures rose in the second quarter at the fastest rate since the Mortgage Banker’s Association began measuring 29 years ago.  New foreclosures rose to 1.19 percent with the inventory of homes in foreclosure hitting 2.75 percent.  The share of home loans with more than one payment overdue also rose.  Falling home prices, rising defaults, and a bad employment picture are not creating an environment for strong economic growth the remainder of 2008!

U.S. employers cut payrolls again in August for the eighth month in a row, and the unemployment rate skyrocketed to a five year high.  The economy lost 81,000 jobs last month, and unemployment rose from 5.7 percent to 6.1 percent.  Both measures were worse than analyst’s expectations.  It appears that the U.S. economy avoided a recession in the first half of 2008, but we may not be so fortunate in the second half of the year.  The Rough Air Demand Index released last week indicates we may be headed for the second dip in the current cycle, the weak labor market has a great deal to do with it.

So far this year the U.S. economy has shed 500,000 jobs, that is roughly the population of the cities of Boston, Seattle, or Milwaukee.  When discussing these numbers we often lose sight of what they mean, not the negative impact on the economy, but what they mean to individuals.  I spoke to someone last night who is one of these 500,000.  The truck engine plant he has worked for the last several years has been cutting back and he is now one of the unemployed.  For many of these folks, like this guy, that means no more money coming in, no health insurance, and more times than not having to take a job paying less than what they were earning before.  For those who want to push the agenda that this is a media driven downturn, and we are nation of whiners I suggest they take the time to talk to a few of these 500,000.  Perhaps they will discover that for someone who has lost their job this downturn is very real!       

The last few days have seen a tremendous amount of news which have pushed our focus on the economy to the bottom of the stack. Last week the Democratic Party nominated the first African-American to head a major party ticket, this week the GOP has nominated only the second woman to serve on a national ticket, all this while Gustav, Hanna, Ike and now Josephine are bearing down on the U.S.  Needless to say it has been a difficult week to keep our eye on the ball.

So in an effort to review some of the challenges we still need to resolve, I would like to pass along some economic news.  The Fed released their beige book yesterday and it shows that consumer spending is slowing across the country.  The report shows economic activity has weakened across the country as payrolls have continued to shrink.  Although the ADP payroll released today does not seem to indicate that we are in a recession, it does show the economy is still in a rough patch.  Even the Euro Zone is showing a pullback.

The bottom line is that despite strong GDP growth in the second quarter of this year the U.S. economy still has a ways to go before it is pronounced healthy again! 

We are now right in the middle of the Democratic and Republican conventions, which help define each party in this historic election year. All the signs point to a challenging year for the GOP. The country is faced with a difficult economy, rising energy prices, and an overall mood of discontent. No matter how one tries to spin this, the party in power usually takes the brunt of an unhappy electorate’s mood.

Perhaps I am oversimplifying the problem facing the GOP, but it seems to me they have a marketing message issue. I have seen this repeatedly with small business owners who insist on pointing their business one direction when the customer is looking for something else. I ran across this poll today in The New York Times, it is apparent that the leaders of the Republican party currently are not aligned with the public’s mood. It could just be this poll, or how the questions were asked, but there appears to be a real disconnect on things like the state of the economy, health care, and other issues. It bears asking the question how will the GOP craft a message that can resonate with a sour public in 2008?

Like most small business owners over the last decade I have been challenged with managing rising health care costs. My typical approach has been the same as many others, I reduce the company’s contributions, I reduce the benefits package, or I do both. For the business we own now our plan is essentially an HSA (health savings account) style plan. I can’t say I like this plan, and our employees are not overly fond of it either, but it does give everyone some coverage that the business can afford.

Many people do not understand what a challenging issue this is for small business owners. Many new companies choose to operate without coverage, which in itself can be risky, but the business owner may have no other choice. I ran across this article this morning which gives some advice on how to shop around for health insurance for your business. This is a problem which is not going away anytime soon!

The Rough Air Demand Index for last month fell back to a strong negative despite a surprisingly strong GDP number.  The two main issues holding back demand were a big drop in private domestic investment, and a weak jobs market.  The index was boosted slightly by the GDP, which were pushed up due to the stimulus rebates getting into the hands of taxpayers, the challenge is that is a one-time hit, and will not have a big impact on growth going forward.

Meanwhile the Rough Air Cost Index took a step backward as energy cost continued to put pressure on overall inflation numbers.  This summer’s oil prices spiked in early July over $140 per barrel; however, prices have come back down over the last several weeks so we expect next month’s Cost Index to improve slightly. 

The U.S. Government released  its data for second quarter growth, and it came in better than expected.  The economy grew at a pace of 3.3 percent during the second quarter, stronger than the expected 2.7 percent.  The growth is being attributed to stronger consumer spending, which was spurred by the stimulus rebate checks sent to taxpayers.  This is good news for a beleaguered economy that has been suffering under the weight of a housing downturn and credit crunch, although analyst are not expecting third quarter growth to be as robust as the second.

We have seen recent data that suggest we are nearing the bottom in the housing market; however, there are some other things that have me a bit concerned that we may be looking at a “double-dip” downturn.  The first is the job market, the U.S. economy has lost 422,000 jobs so far this year.  I don’t believe we have seen the full economic impact of these job losses yet.  The second is a dollar which is now getting stronger, a stronger dollar may mean a pull-back in exports.  The third is what I am hearing from business owners today, and that is that they are feeling some effects from an economic slowdown.  Perhaps these are the remnants of the slowdown caused by the downturn in housing; however the stimulus in the second quarter was a temporary injection into the economy.  It may not create a sustaining effect! 

Prepare for oil prices to rise over the next few days as Tropical Storm Gustav (likely to be a hurricane by this weekend) makes its way into the Gulf of Mexico.  The storm appears to have a perilous path, and is expected to strengthen as its gets out over the warm waters of the Gulf.  If it heads into the Gulf I would expect oil prices to temporarily spike over the next few days.

Orders for durable goods rose unexpectedly in July, boosted by increases in business investment and aircraft orders.  This is also good news for an economy which is searching to stimulation!

Home prices are still falling, but it appears that lower prices are starting to attract buyers back into the market.  This has many analyst pondering the possibility that we may be nearing the end of the housing slump.  This would be great news for an economy that has been in a stalled mode for the last several months.

I ran across this article in The New York Times about the biggest issues facing small business today.  Healthcare cost are at the top of most small business owner’s concerns, and the rising cost of doing business, this includes healthcare, energy, and inflation.  I know for our two businesses healthcare cost are a primary concern.  Like most entrepreneurs we have either had to pursue a path of reducing benefits, increasing employee contributions, and/or taking the hits from increased cost.  When you add in the rising cost of energy, the bottom line of any small business can get squeezed.

None of these issues are going to go away soon, and I doubt any of these cost will stabilize.  Business owners need to prepare themselves to continue to deal with these issues, work on efficiency and cost in their operations, and focus on reducing the impact of rising cost in these targeted areas. 

I was watching the local news yesterday morning, and they were celebrating the fact that gas prices had fallen nationally to $3.70 per gallon from the high over $4.00 per gallon this past summer.  I had to scratch my head wondering just how great this news actually is!

Current gas prices are 34 percent above where they were at this time last year, that is just under $1.00 per gallon more.  This hardly seems like something to celebrate given the impact higher energy cost has on all areas of our economy.  It is true prices at the pump are falling.  This is being driven by two major economic shifts. The first is slackening global demand.  Expectations are that demand for energy around the globe will soften over the next few months as the economic slowdown that started here in the U.S. starts to impact other economies.  Since many global investors believe the U.S. is further along in this economic cycle there is an expectation that the economy here at home will begin growing before economies overseas, this is causing the U.S. dollar to strengthen.  The combination is helping to push oil prices down.

If you are expecting these factors to force gas prices down to 2007 levels below $3.00 per gallon anytime soon, I think you might be disappointed.  It appears to me we have tested the highs for the time being, and other than temporary spikes, we are probably going to see prices stabilize in the $3.00 – $4.00 range.  The reality as soon as global demand picks up again prices will begin to accelerate, and we will start testing new highs!

Existing home sales rose in July more than expected on buyers taking advantage of good deals in markets that have been hit hardest.  The downside was that inventories of unsold homes rose to an all-time high indicating the housing slump is still far from over.  The sales increase is a good sign showing that buyers are ready to put a toe back into the market, the inventories though must start to come down before the housing market will be out of its long slump.

My oldest daughter went off to college last week, so we spent the last several days driving across the country to help her get set-up in a new environment a long way from home.  Despite the emotional turmoil of coming to the realization that I am old enough to have a kid in college, I did have time to think on the long drive from the Midwest to the southwest.

As we were driving across Northern Texas we came across a huge wind farm.  There were acres and acres of windmills spanning the highway spinning slowly in an effort to generate power for area customers.  The site of the windmills had me wondering why we don’t see more of these.  Most of us recognize the challenges we face with rising energy prices, and energy security.  Both of our political parties are trying to propose solutions that help us move towards energy independence, whether it is conservation or additional drilling, it is one the big issues on the table today. 

As I looked at the windmills I was asking myself what am I missing?  Why isn’t our government or industry pushing the envelope in the effort to expand alternative energy sources.  Why is it that anyone who pushes this agenda is immediately pushed to the fringes of this debate?  We know we have a challenge, we have potential solutions, let’s get it done.     

Last week the credit crisis that has been plaguing financial markets around the world celebrated its first birthday.  I recall writing about this crisis when it first came to the public’s attention last year, and warning my clients about the potential fallout in the broader economy.  I also remember listening to many of our leaders from Washington tell us that this was a problem that was being overblown by the media, and many were insisting that we were just talking ourselves into a downturn.

So now we have seen three quarters of relatively weak economic growth, a housing market which continues to tumble, and a job market that has lost more than 700,000 jobs this year.  These factors are not the result of pessimism or an overzealous media searching for a story.  This is what happens when an economic cycle fades.  My major disappointment has been the long delay in recognizing the problem by many of those in power.  They seem to be operating under the premise that if you ignore the problem it will go away.  That strikes me as a recipe for disaster! 

The government reported yesterday that prices at the wholesale level rose at the fastest pace in 27 years. Prices were up 1.2 percent in July pushed higher mainly by the rising cost of energy. Although this is not great news, and puts the U.S. Federal Reserve in a difficult position, I would not read too much into the July numbers. Energy was the big factor here, and oil prices skyrocketed in July hitting almost $150 per barrel. Prices are now below $114 per barrel, so I am betting that we will see the PPI soften considerably in August.

There is certainly no shortage of major news this week for Americans to follow. It appears Russia is determined to rebuild the old Soviet Empire, Michael Phelps is on the verge of breaking an Olympic Gold Medal record, and the inundation of political ads is beginning as the real race for the White House heats up. The plethora of news may have distracted some of us from what is going on in the world of business and economics, so I’ll try to help everyone catch up.

Oil prices continue to fall as economies around the world appear to slow, and the U.S. dollar heads for its fifth week in a row of gains. There is some feeling that the U.S. is at the end of a slowdown while many of the other major economies in the world are at the beginning of a slowdown. There is speculation the the EU is headed for its first ever recession.

Although we have had some bad news on this side of the pond this week like a huge increase in foreclosure filings, we have also had some good news. Consumer confidence picked-up a bit in early August as oil prices fell. The CPI for last month showed inflation at its highest level in many years, but there is speculation that we may have reached the top. The bottom line is that it appears for the time being that things have stabilized, let’s hope we are on the verge of another stretch of economic growth.

Alan Greenspan said in an interview yesterday with The Wall Street Journal that he believes home prices will bottom out in the first half of 2009.  He indicated that there could still be some price deterioration after that, but he suspects that we are approaching the bottom of the housing market.  A turn around in housing would be significant, because it may signify the overall U.S. economy is at the beginning of another growth run.  Although there are some areas of the country that may continue to suffer, this would include areas where home prices appreciated rapidly, and areas that are being hit by declines in manufacturing segments.

The problem many analysts see now is a slowdown in global growth.  Japan reported yesterday that its economy contracted 2.5 percent in the second quarter of this year, and the EU is expecting its economy to slow while prices continue to rise.  Almost a year ago when I was travelling overseas I posted an article about my concerns that a slowdown in the U.S. would ripple through other parts of the world.  At the time many “experts” were telling us a U.S. downturn would be avoided because growth in developing countries would offset domestic weakness.  Evidence now appears to be running counter to that argument as the slowdown in the U.S. seems to be impacting other parts of the globe. 

Over the last few weeks crude prices have dropped over $30 per barrel.  This has prompted many analyst to speculate on why prices have dropped, and where they will go from here.  Policy makers in Washington have been pressing a lifting of the ban on offshore drilling in the U.S., which will open up more land and sea for oil companies, and potentially tap into new reserves.  Some have said this is why prices are falling, but prices are based on what will happen over the next few months, not years.  It will take some time to garner any benefit from additional drilling, it is not as if Exxon has a drilling platform in the Gulf of Mexico just waiting for a go ahead from the U.S. Congress.  The bottom line is the supply side of the equation has not changed over the last few weeks, so what has.

The major shift appears to be coming on the demand side, not necessarily due to some major conservation effort, but due to a slowdown in global economic activity.  It was announced yesterday that demand for oil in the U.S. this year has dropped by roughly 800,000 barrels per day.  This is the largest decline in 26 years!  The International Energy Agency announced yesterday that it is lowering its forecast for crude demand in 30 developed countries, mainly in Europe and North America.  At the same time that demand for crude appears to be easing, the dollar appears to be gaining strength.  It would seem that the combination of the two is pushing prices down.

Falling oil prices are good news for U.S. consumers at a time when they are getting squeezed from many different sides; however, the retail price for a gallon of gas is still almost 30 percent greater than it was last year at this time.  This is having an effect on consumer spending, and likely will have an effect until the shock of higher energy prices wears off the economy, consumers adjust, credit eases, and we begin moving forward again.

There is little doubt that we are currently in an environment where it is difficult for entrepreneurs to raise money.  The credit crunch has evolved in the last 12 months, and it has forced many financial institutions to focus on cleaning up their balance sheets.  Sometimes this results in lenders trying to get rid of some of their higher risk loans, I have even heard stories of business owners getting a visit from their bank, and being told they need to find a new banker.  Some of my local business broker contacts have told me the banks are being much more stringent when it comes to lending money, they are having a difficult time getting deals done.

Although it may be difficult to raise money for your business it is not impossible.  I suggest staying away from the larger national and regional financial institutions, and working with the smaller local banks, and perhaps even credit unions.  Many of these organizations don’t have a large subprime exposure, are more aggressive lenders, and may have a lower cost of funds.  They may be more open to looking at your opportunity, and helping you raise the needed capital.

I ran across two articles in Entrepreneur magazine in regards to raising money for your business.  One focuses on borrowing from smaller local banks, and the other on CAP loan programs.  Both give some good insight on how you might be able to move your opportunity forward. 

I grew up during the Cold War. For almost the first thirty years of my life there were two superpowers in the world staring each other down with the strange curiosity of MAD (mutual assured destruction). Although I never lived in fear, there was always the concern that at some point a leader of one of these two great powers would do something really stupid. Given this experience it is with considerable interest I watch Russia battle with a former Soviet satellite (and U.S. ally), and I can’t help but think, this cannot lead anywhere good!

I have watched the news and I have listened to what the spokesman and pundits have espoused, and I must say I just don’t believe it. There are always two sides to every story, perhaps Georgia was acting too aggressively when it attempted to take South Ossentia back by force, or perhaps Russia just overreacted to Georgia trying to defend its borders. It strikes me that there is likely much more at stake than a small piece of land in between Asia and Europe.

This would not be the first time a semi-autocratic government invaded another weaker country using the cover of a mild provocation to gain resources or territory. There are many who believe that the United States invaded Iraq using manufactured evidence simply to gain control of Iraqi oil, and subsequently lied about it. It strikes me then that it cannot be all that hard to fathom that the Russian government has leveraged a slight provocation to gain control of the Caspian pipeline, emphasize that NATO stay out of their region, and show the world that Russia is a country that will not be ignored. The experience of living through the Cold War, and being a witness to what nations will do under the cover of “self-defense,” tells me that my supposition may not be too far off base!

In recent weeks the average price of a gallon of gasoline in the U.S. has receded. Two weeks ago Americans were paying an average of just over $4 per gallon, and this week that average is $3.88 per gallon. Some analysts and policy makers will point to these numbers and say that the drop is due to the push for more offshore drilling, they may be right. However, one reality is that global economic growth is slowing, there is talk of the U.K slipping into a recession, and growth in China, although still strong, is slowing. If speculators believe global growth is slowing, then demand for crude will fall. It is the elegant simplicity of a supply and demand issue.

Last year at this time Americans were paying an average of $2.84 per gallon. There are some who tell me that they do not believe higher gas prices have a significant impact on the economy. Perhaps they are right, but there is certainly ample evidence that consumers are feeling the pain of increases at the pump. U.S. auto manufacturers that had staked their future on large SUVs and horsepower are now retooling to build more fuel efficient vehicles. Retailers are feeling the pinch, even speciality retailers in typically “recession proof” markets. Stores that cater to teens have seen sales drop, they believe it is because teens don’t want to cough up the cash for gas to head to the mall. Even Amtrak is feeling the effects, as ridership has increased more than 13 percent. It appears more people are looking for alternatives for those inter-city commutes.

Our economy contains a sophisticated web of interconnections. It is difficult to have a major disruption in one segment of the U.S. economy, and not feel it somewhere else. Because of globalization, the rippling fingers of economic trouble here at home seem to be able to reach far and wide across the globe. We have had a front row seat to this effect as the credit crisis has bloomed, housing has tanked, and oil prices have spiked.

At this time last year we were recommending to our clients to be prepared for an economic slowdown. We had myriad posts with suggestions on how to conserve cash, and position your business for the next period of economic growth. Business owners should never allow themselves to be lulled into a “false sense of security.” Keep an eye towards the horizon, there is always the potential for some rough air ahead!

In 2003 after more than eighteen months of negotiating we received an offer on our family business that would have been very difficult to refuse. Although our decision to sell was not a unanimous family decision, it was for the most part supported by everyone. Keep in mind we were not trying to sell our company, we had been approached by a large global manufacturer who was very interested in the leadership position we had established in our niche of ultrasonic sensing. The decision to sell was not easy, but in the long run it was the right thing to do.

I was running the business when we sold, at the time I was 40-years-old. Part of the deal for selling the business was that I had to sign a “pay-to-stay” agreement to help the business through the transition and integration phase. Many of my close friends and advisers told me I would never last in a large corporate environment. When I made the decision to step-down, and pursue a new start-up opportunity my assistant told me she knew long ago I was going to leave. I asked her how she knew that, and her response was she figured it out as soon as the new owners started telling me “what to do.” It just goes to show you that those closest to you probably know you better than you know yourself!

I don’t regret selling our family business, and I certainly don’t regret working for the large multi-national that we sold to. I miss the people, and the international travel, but I am enjoying the challenge of trying to build another business, only this one is from scratch. I ran across this article in today’s New York Times, which discusses things you should consider before selling for life after the sale. Here are my suggestions:

1) Know your plan – Before you sign that asset purchase agreement make sure you know what you want to do next. Even if its sitting on the beach, or just hanging out with your kids for awhile. It is important to visualize your next steps, and where you want go. When we sold my goal was to stay five years, and then pursue another opportunity. I even had a rough plan for what I would do once I left, which is what I am doing today. Not mapping out a plan can result in a long period of lingering, and may lead to some pretty irrational decisions.

2) Understand your timing – If you are going to stick around, make sure you have a rough idea of how long you want to be part of the new organization, and how long the proceeds from the sale will carry you. It is not that you will be right about either of these, but at least you will have a rough feel for when the endgame for your participation will take place.

3) Be open minded – The new owners are not going to run the business the same way you did. You will likely not have as much say in what goes on, and you will no longer be the “king-of-the-hill.” Once you trade that interest for a large check you give up your control, I believe it is not a bad thing, it just the reality. Too many entrepreneurs sell their business and expect things to stay the same. If you are going to succeed in the new organization you must be prepared to make the necessary adjustments to fit-in.

4) Know your need for control – I want to be in-charge, and not have anyone tell me what I am “supposed” to do. Before selling and making a long-term commitment to working for the new owners, understand your need for control. If you don’t want to be in a position of having to implement decisions made by others, rather than being the decision maker, then cutting the ties when you sell the business is probably the best approach for you.

5) Look to the future – More than once since we sold our business I have looked back with a little regret, but that never last long. I have had the great fortune of spending some incredible time with my family, making new friends as we struggle to build our new business, and focusing on the things in life I am passionate about. Once you cash that check stay focused on the idea that you have just created an incredible new future, no matter what direction you head!

Pending home sales picked up slightly in June, although still well below levels a year earlier.  The rise of 5.3 percent over May beat analyst’s expectations, and was the best performance for the measure since October.  The uptick does raise the question about whether or not the housing market has finally bottomed.  Only time will tell, but we will take all the positive economic news we can get.

I am not a staunch environmentalist, so I can’t say I am totally opposed to allowing U.S. companies to drill for more oil in the waters off California, Florida, or Alaska. I am not really in tune to what the environmental impact may be, perhaps if I owned property on a beach in California I would be more concerned. I am concerned about people floating new drilling as the panacea for solving our energy problems. It seems some would have us believe that if Congress lifted its ban on offshore drilling today, that tomorrow the price of gasoline would fall back down to less than $2 per gallon, U.S. automotive factories would boom, and our economy would turn on a dime.

The reality is if the ban on offshore drilling were lifted today, we would likely not see any major impact on price or production until 2030. The Department of Energy estimates that a lift on the ban in ANWR today would not result in meaningful oil production until 2018, and peak production in 2028. Logic seems to dictate that the challenges of finding where to drill, setting up rigs, and getting each site up to capacity is not something that will happen quickly. That is not to say it will not have an impact on the supply side of our energy problem, but that impact is so far into the future that one has to question its true relevance in today’s debate.

This is not a problem we are going to fix by simply adding more oil to the equation. If we allow ourselves to be convinced that to solve our energy problems we just need to produce more oil, then we probably the deserve the issues we create. Many are comfortable with this solution because it does not require any change on their part, there is no sacrifice or adjustment, it allows them to ignore the problem. Perhaps if you ignore it, then the problem does not exist. If we continue to delay coming up with a comprehensive energy plan that includes a long-term solution, then we will just keep digging ourselves into a deeper hole.

Fortunately we are starting to see people offer alternative solutions, automobile companies are trying to move quickly to more fuel efficient vehicles as many Americans adjust to the reality of $4 per gallon gasoline, and our leaders are beginning to have a debate about solving the problem. All of this does not solve the problem today, but it does get us on the right track. Don’t be fooled by those who want you to believe that we can solve our energy problems without impacting how we live our lives today. If we go down that path, our economic woes will deepen, our dependence on foreign oil will grow, and in ten to twenty years our kids will be dealing with an issue we should have corrected long ago.  

The U.S. Federal Reserve left interest rates unchanged today, and indicated they are in no hurry to raise borrowing cost in the near term. The Fed’s comments, and their nearly unanimous decision spelled good news for stocks, as the markets rallied.

The stagnant growth in the economy has kept the Fed from trying to raise rates despite some indications of inflation from higher energy costs.  

Several days ago I was meeting with another business consultant, and our conversation ventured off into a comparison of how we work with clients and our approach. I will temper my opinion by pointing out that this consultant is with a large firm focused on business consulting rather than a small shop like mine.

He was explaining their approach to clients. They have an established model they follow. Their belief is that if each client implements this model then they will be successful. Follow the model incorrectly, and your organization will likely fail.

I thought about this for awhile, and it took me back to my days at Harvard Business School. I remember the story of a student who was looking to solve a particular business issue. He asked the professor if there was any book that could solve his problem. The professor promptly replied that this individual had not learned anything during his HBS experience. There are no cookie cutter solutions within the pages of textbooks, there is no owner’s manual for entrepreneurship. Every business is different, and the solutions each requires are different as well.

Although it is true that certain business tools can be used across the board, it is also true that each entity uses them differently. Income statements are a perfect example, although most use the same general rules, how the P&L is set up is usually a reflection of the owner’s needs. Every organization is a little different, and the rules that govern each are different as well. It would be nice if one model, or one solution fit everyone. If there was a one size fits all handbook for business, that if applied would guarantee success for your entity, I would guess more people would buy the handbook, and start their business rather than pursue a different career path.

The reality is every business is unique, and the solutions that drive that business are unique as well. A solution that works well for one may fall flat somewhere else. It is important to open yourself up to all potential business ideas, maybe someday the ultimate solution will exist. For now I suggest learning as much as you can, figuring what things work for you, and following your own path. Entrepreneurship like life works differently for everyone. Take the time to find out what works for you!

I was flying out west yesterday, I am taking a little time off with my wife and daughter in Park City, Utah. I happened to pick up a copy of the latest Motor Trend magazine in the airport gift shop. I am not in the market for another car, I believe my wife might protest that one. However, I am a car guy. I have always had a love affair with automobiles so I could not resist Motor Trend’s review of the ‘09 and ‘10 models.

Five years ago it seemed the automobile industry was all about horsepower. Every manufacturer was striving to get more and more power in a smaller package. Fuel mileage was not something the majority of us gave much thought to. I was struck as I browsed through this magazine at the number of ads, articles, and new vehicles touting fuel efficiency. This is a direct reflection of $4 per gallon gasoline, but I could not help but think that the automobile industry was now reaching a strategic inflection point. Buyers are turning away from the large SUVs for more fuel efficient vehicles, and manufacturers will need to follow suit.

I have mentioned here before that when it comes to high oil prices we are simply facing a supply and demand issue. If we can push down demand by reducing consumption, and increase supply by finding new sources and alternatives then we will impact oil prices. Some believe the only thing we need to do is drill more, and the problem will be solved. That only solves half the problem. We are dealing with a finite resource, we must learn to make it last longer by using it in a more efficient manner. The problem calls for a balanced solution, not a one-sided political slight-of-hand.

The New York Times has an article today about drilling in the U.S. today, and how over the last several years we are drilling more for natural gas, and less for oil. U.S. oil production has actually dropped since 2000, although natural gas production has risen dramatically. It highlights the problems of a one-sided approach, we must view this problem not through a political lens, but through a economic one. Increasing U.S. oil production will help, but it will not solve the problem. A major shift in consumer behavior to more efficient uses of energy combined with domestic supplies will help stabilize the price of oil!

The U.S. Department of Labor reported this morning that the economy lost 51,000 jobs in July. The decline in housing, the credit crunch, and the rise in energy prices have continued to weigh on employers and consumers alike. Job market prospects in the U.S. have declined this year as the economy has shed almost 500,000 jobs since January. Despite the job losses the economy grew 1.9 percent in the second quarter, although the fourth quarter of last year was revised to a contraction of .2 percent and the first quarter was revised downward to .9 percent.The data indicates that the economy may have avoided a full-fledged recession, but growth may be sluggish for the near term.

I remember having a conversation with someone recently about the impact of higher gas prices on the Average American. My colleague believed that higher prices at the pump were having little or no impact on the economy and individual habits. I believe that consumers have changed their habits as $4.00 per gallon gasoline has taken a bite out of their discretionary spending.

An article in today’s USA Today highlights how much less Americans are driving this year. As a society we drove 9.6 billion fewer miles in May of this year versus May of last year. More people are looking to mass transit as a way of taking some sting out of higher energy cost. I can see evidence of this on my short drive to work through our small city.

It is important for us all to remember that fundamental economic shifts, such as rising prices or falling asset values, have a major impact on consumer behavior. Trying to wish that way will not make it so.

Several months ago I posted an article here about the credit crunch, and its eventual impact on business lending.  I have seen the problem firsthand with clients that banks consider to be in highrisk industries. I ran across this article in The New York Times, which seems to reinforce this issue; however, I am not sure how big an issue it really is.

I do believe banks are being stingy when it comes to lending, but I don’t believe lending has dried up. Companies or individuals with a strong balance sheet filled with solid investments, and some liquidity will still be able to raise capital from their local lender. If you can demonstrate that your opportunity is solid, with limited risk then your ability to borrow will increase.

One of your major challenges will be the overall health of your bank. If your bank was a big subprime lender, and has been taking some major writedowns, now may be the time to go shopping for a new financial institution. These lenders have seen an increase in the cost of funds, due to their own balance sheets, and are struggling with their own liquidity issues. Now may be a good time for business owners to start reassessing some of those business relationships.

The Rough Air Cost Index indicates that the overall economy is beginning to feel some inflationary pressures due to rising oil prices. With cost rising across the spectrum the U.S. Federal Reserve’s number one weapon in the fight against a slowing economy, interest rate cuts, is rendered neutral.

The Rough Air Demand Index indicates that overall demand continues to be soft. A tightening job market, a weak housing market, and nervous consumers are putting significant pressure on overall economic growth. Expectations are that economic growth will be slow for the remainder of 2008.

The National Association of Realtors reported that existing home sales fell 2.6 percent last month, well above the expected 1 percent drop.  The labor department reported yesterday that jobless claims rose again last week to over 400,000.  Although both pieces of data are only a snapshot in time, they continue to point toward an economy that is still in a sluggish mode.

I was watching CNBC this morning and Larry Kudlow was continuing to push his view that the slowdown in the economy is not a real slowdown, and is simply a mental recession brought on by a mainstream media that needs news.  Does the media highlight bad news?  Sure, that is how they sell newspapers.  Although it strikes me that Kudlow is pushing this idea because of his political leanings, and not because he has a plethora of solid data to back it up.

I talk to a lot of people and although some of our clients are doing great, some are not.  I know credit is tight because my friends in the banking world are telling me credit is tight.  If you are a small business owner looking to finance a deal, you better have something to bring to the table, the banks are being stingy with money.  The housing market is down, the job market is soft, and people are in a sour mood.  I believe if you accept the reality of what is going on around you, and commit to working through the problem, then you can move forward.  The longer you pretend the problem does not exist, the worse it will become!

Some of life’s most difficult decisions revolve around what to do in your professional endeavors.  Some people never figure this out, and some know all along.  I have been considering this question quite a bit lately.  It is not an answer which will come easily to anyone.

When deciding to be an employer or an employee you must decide between the perceived security of employment, versus the challenge of entrepreneurship.  Every town is full of stories of successful entrepreneurs who took a chance and made it big.  There are even more stories of entrepreneurs who risked it all, and lost it all.  The problem is there are no guarantees no matter which way you go.

There is also no right answer to this question, there is only what is right for you.  If you are one of those who must have control, needs to make the decisions, and wants to determine what to do when, then business ownership may be the right path.  If you need the perceived security of a continuous paycheck, and can’t live with the downside, then owning your own enterprise may not be the answer.

Before you jump, do your best to know yourself.  What is more important, independence or security?  If your comfort zone is being a team member of a large organization, or having the final say.  Make sure you ask yourself these questions before you take the leap.

My Dad was a successful corporate guy, he spent his career in banking.  I believe he had a satisfying career, and he is living a comfortable retirement.  My Father-in-Law was a successful business owner.  He made a decision early in his life that he wanted to do his own thing,  he wanted to be the guy with his name on the door.  Only you will know what is right for you.  Take the time to figure out before you jump in head first into something which does not fit, and becomes a lifetime of career regrets!   

The U.S. Federal Reserve released its beige book yesterday, a round-up of of reports from the 12 regional Fed banks.  The data suggest the Fed will be holding interest rates steady for some time as signs of inflation and sluggishness both exist.  The overall outlook suggest economic growth will be slight in the coming months.

The U.S. House of Representatives passed a mortgage rescue plan for about 400,000 homeowners along side a bailout plan for Fannie Mae and Freddie Mac.  Policy makers are hoping to stem the tide of foreclosures, and provide some support for the nation’s two largest mortgage holders so they can revitalize a stalled housing market.

Both stories highlight the major challenges facing business owners in the U.S.  Rising prices are putting many employers in the position of having to raise wages, although slow growth is holding down profits.  This is the environment we will face going forward! 

I ran across a couple of articles over the weekend that prompted me to revisit the challenges of the economy as they stand today, and how we got here.  The first article from The New York Times reviewed the bailout of Fannie Mae and Freddie Mac, and why they are too big for the government to just let them fail.  The second article, from The Wall Street Journal, asked why the current financial crisis gripping Wall Street has not been met with outrage from ordinary citizens.  The article points out that the government seems to be all too ready to bail out large organizations (and their executives), but falls short when finding ways to support ordinary Americans.

As I digested these articles I began to wonder, “How exactly did we get to this point?”  Here are my thoughts:

1. Change in banking laws – Beginning in the 1980s banking laws began to shift. The shifts allowed more financial institutions to act like banks, and provide regular bank services, like checking accounts, debit cards, and loans.  These laws also provided financial institutions more flexibility when writing loans.  The combination of more competition and greater flexibility led to aggressive lending practices.  Easier to find credit drove consumption, specifically in housing.  Over the last decade more Americans have been able to buy their own home.  This created a false bubble in housing which began to deflate as mortgage defaults continued to rise.  Rising default rates caused some financial institutions to become more risk adverse in their lending.  When credit tightened, housing tanked, and subsequently consumer spending stalled.
2. Globalization – The trend toward globalization and open trade agreements allowed many large organizations to take advantage of low cost labor for everything from manufacturing toys to handling customer support.  This shifting of jobs from the U.S. to lower cost labor environments has left new job growth moving at a pretty slow pace.  As we create fewer new jobs, we create fewer consumers which also impacts consumer spending.
3. No energy policy – The problem with high oil prices is an issue of supply and demand.  For the last several years our dependence on foreign oil has continued to grow.  As global supplies have tightened prices have risen.  We have to address both sides of this equation to fix the problem.  We have to increase U.S. oil production to help supply, and explore alternative energy options to lower demand.  A two pronged attack can have a major impact on oil prices.
4. Inability to recognize the problem – I remember in August last year reading articles touting the idea that any downturn in the U.S. economy would be minimal.  Many suggested the problem with the economy was the news media, and not fundamentals.  How folks feel about the economy generally lines up with their political affiliation.  If your party is in power then the economy is great, if your power is out of party then the economy is a wreck.  This mentality cause many of our leaders to be hesitant when recognizing challenges in the economy.  They tend to play up the good news, and play down bad news in hopes that setting the narrative in a positive light will make all of the challenges go away.  This results in an inability to recognize and accept the challenge!

The end result of all of this is that consumer spending gets impacted from four sides.  Lower asset values impacts consumer confidence, and tighter credit conditions give consumers less money for discretionary purchases.  Slower job growth also impacts consumer confidence, and causes many to go into a pullback mode.  Finally higher gas prices eat away at the consumer’s discretionary cash.  As consumers lose faith, and spend less the entire system begins to slow down, the ripple effect takes over and what was an isolated problem becomes a macro-economic issue!

The Financial Times ran a story this morning about the possibility of a double dip downturn in the U.S. economy. Some analysts are speculating that the stronger than expected first half will be followed by another pullback in the economy. The threat of a weak housing market, and higher energy prices are forcing consumers to keep money in their pocket rather than spending it on discretionary items. This may mean the U.S. economy is months away from a recovery.

I meet with many business owners, and I get very mixed signals about how they view the current environment. Some will tell me business has never been better, and they are thriving. Some will tell me they are feeling the real pain of challenging conditions. When I managed our family business through the last recession, our saving grace was our effort to structure our business for the reality of a soft economy. Business owners who take the time to push cost down in the rough air will emerge stronger when the economy eventually turns. Take the time to review your discretionary spending, and eliminate those things you really don’t need. Making that effort now will pay off in the long run!

I have always practiced the “Golden Rule” in business. I believe you should treat everyone you do business with in the same manner you wish to be treated. On occasion this can be a challenge, because you may get that phone call just when you are heading out the door, or perhaps you have to attend that event and mingle even if you don’t feel up to it. Murphy’s Law seems to dictate that a business slight will come back to haunt you.

I ran across this article in today’s Wall Street Journal and I wondered, if August Busch III had a chance to do it all over again would he make a better effort to leave the Modelo executives with a better first impression? Many times in my career I have made the effort to reinforce a positive impression of me and my organization. Whether that is something as simple as showing up on time for meetings (because I believe other’s value their time as much as I do), showing my appreciation when someone has done something for me, or treating everyone as though they are not an interruption, but an opportunity. I have always believed that the path to success is paved with small sacrifices that add up to big achievements. Never fall into the trap of assuming someone doesn’t matter, because you never know when they will.

An article in today’s Financial Times indicates traders are betting that the credit crunch will last until 2010. This is not good news for small business owners trying to secure loans for big projects, or homeowners trying to finance the purchase of a new home. It appears that we will have another 18 – 24 months of a difficult credit environment indicating that a quick return to strong growth in the U.S. is unlikely.

Last year when the subprime crisis was first coming to the attention of the mainstream media in the United States many analysts were touting the view that the U.S. would avoid a sharp downturn because of growth around the world. Their logic reflected the view that due to globalization even if growth prospects slowed in the U.S., strong growth in other parts of the world would offset declines in the U.S.We suggested that a slowdown in the U.S., the largest consumer on the planet, would likely cause the rest of the globe to slow. The Financial Times has an article about the decline of growth prospects in Europe as oil prices and inflation rise, and European exports fall. This article seems to reinforce the idea that a slowdown in the U.S. will not be contained within our borders. Our economic problems will be felt around the world.

Larry Kudlow from CNBC was praising President Bush’s call to end the ban on U.S. offshore drilling, and attributed yesterday’s large drop in crude prices to the president’s efforts.  Although the president’s comments likely do have some impact, one could make the case that the price drop was due to speculation that demand would drop because of a weak economy.

I believe yesterday’s drop in crude prices is a great example of the supply and demand issue we have in regards to oil. Although I agree that we need to continue to look for new sources of oil, and reduce our trade imbalance by importing less crude, I also believe that we need to work on the demand side of the issue. Imagine the impact of President Bush’s statement if he would have called for aggressive development of new technologies that would lower our demand for fossil fuels while he was calling for greater supply. As I have mentioned here before this is a supply and demand issue. If we can increase the perceived supply, and reduce the demand, prices will fall. Until that happens we will continue to suffer high prices at the pump.

The U.S. government released today its measure of last month’s average prices consumers are being charge for goods and services. Prices increased 1.1 percent in June, the highest increase in the last 26 years. The CPI (Consumer Price Index) was driven higher by rising energy and food cost, the core measure excluding food and energy was a bit more tame. The overall increase was higher than economist expectations, and highlights the challenge before the U.S. Federal Reserve as they face an economy with stagnant growth and accelerating rates of inflation.

I spent the morning watching U.S. Federal Reserve Chairman Ben Bernanke testify before congress about the current state of our economy, and some of the challenges we face.  He discussed the issues we all know about, rising energy prices, rising food prices, declining asset values (homes and stocks), and a weak labor market.  These are all things we have discussed on this blog, and are the primary headwinds blowing against our economic growth.

Some people have expressed their belief to me that the downturn in the U.S. economy is more about media hype than it is about real economic issues. Although I do not doubt that the mainstream media tends to overplay their hand when it comes to bad news, it seems to me that the key metrics do indicate we are in a tough economic environment. The realities we face are gas prices over $4 per gallon, almost double 1996 levels, an economy that has lost 371,000 jobs this year, home prices and home sales which continue to fall, and bankers that are reluctant to lend money. None of these add up to strong economic growth, and none are the creation of a “bad news” obsessed media. They are the stark realities we face.

I do not envy the position many of our leaders are in today. They are facing a tough economy with many Americans worried about what the future holds. Our leaders need to help quell economic fears, provide hope, and paint an optimistic portrait of the future. They must think outside the box to develop creative solutions to some of the day’s most difficult problems. They must do this while convincing their constituents that there is no need to worry, over time these challenges will work themselves out.

The problem is that many of our proposed solutions do not yield immediate results. The beneficiaries of the solution may not see the effects of the results for many years to come. Some of our solutions are even simply restated versions of old political positions and could do more harm than good.

This is the challenge of our day, and we will all need to work together to tackle these issues and keep things moving forward!  

The big story of the day is the news which broke over the weekend about the federal government’s plan to aid Freddie Mac and Fannie Mae, the government chartered entities that back or hold about half of the nation’s mortgages.  There are some mixed emotions out there about how far the government should go in any bailout effort, but after last week’s share price drubbing it is clear that Fannie and Freddie will need some support raising capital.

IndyMac, a California based regional bank, is the other big financial news today, as the FDIC (Federal Deposit Insurance Corporation) takes over control.  The FDIC is taking control of IndyMac due to the fact that it is believed the bank could no longer meet its depositor’s demands.  The speculation now is not if another small regional will fail, but who that will be, and when.  It would appear that the crisis facing U.S. financial institutions may get a little worse before it gets better! 

Oil prices are at $146 this morning after a significant jump yesterday due to some potential supply concerns.  High gas prices are continuing to put pressure on consumers as the national average hover near record highs at $4.10 per gallon.  There does not appear any short-term relief for higher gas prices in the works.  I am expecting to pay $5.00 per gallon at the pump sometime in the next few months, we are almost there.

I did get some more promising news yesterday when one of my financial advisers indicated there is some feeling that the housing market is near the bottom.  There is some speculation that the market would have bottomed already if not for higher oil prices, which are making the problem worse.  A recovery in housing, even if its small, would go a long way to keeping the economy on track.

In the “I can’t believe you just said that category,” former Senator Phil Gramm, an adviser for Senator McCain’s campaign suggested yesterday that the U.S. is in a mental recession, and we have become a nation of whiners.  In a nutshell he is saying the slowdown is all in our heads!  Senator McCain strongly disagreed with the remarks by Senator Gramm.

I think these comments highlight one of the primary issues we have with the U.S. economy, the inability of many of our leaders to fully recognize a problem when it exists.  These beliefs tend to carry through to supporters, and then any effort to resolve the problem becomes ineffective.  The U.S. economy has generated fewer new jobs this decade since any decade in the last 50 years.  Oil prices are hitting new records every day, and consumers are spending more to fuel their gas tanks giving them less for other discretionary purchases.  The housing market is hurting, and banks are getting pretty stingy with credit.  Even high net-worth individuals are feeling the pinch as their portfolios stall.  All of this economic pain is not a figment of our imagination, these are real problems, and it is time our leaders attacked them head-on with viable solutions.

Here is some positive news for the day. Retailers are showing some solid sales growth in June, primarily due to the tax rebate checks which have started to hit.  Analysts are expecting same store sales to rise 3.8 percent in June, but many are concerned that it is a one-time hit.  Hopefully a slight boost in the retail sector over the summer will give the economy some much needed inertia.

CNBC published its rankings today for the best states in which to do business.  They have some sub-categories such as best workforce, access to capital, cost of living, and education.  This may not necessarily be critical information you need for your business, but it is interesting.

I received an email this morning in regards to whether or not the U.S. Government should approve a proposal to drill for oil in the Arctic National Wildlife Refuge. The email was a pro-drilling statement, and was supporting its position using the logic that ANWR is a relatively small and desolate place, and that not drilling there is a conspiracy by some of our political leaders to push oil prices to $5 per gallon. I assume the logic is that certain parts of our government and environmental groups want to drive gas prices so high that it motivates the rest of us to be more energy efficient.

I don’t subscribe to the conspiracy theory in regards to oil prices, I believe it is quite a simply an issue of perceived supply, and rapidly increasing demand. This morning’s email motivated me to do my own research and here is what I found:

 1) According to the Energy Information Administration the U.S. petroleum consumption is 21,000,000 barrels per day, of that we import 12.3 million barrels per day. This means about 58 percent of our petroleum consumption is imported. The U.S. exports about 1.3 million barrels every day. Global consumption is 84 million barrels per day, and global production is 83 million barrels per day. Saudi Arabia is the number one producer, and the U.S. is the number one consumer.

2) According to the EIA’s May 2008 analysis, opening up ANWR could result in an additional 780,000 barrels of U.S. production per day. If all of this was used for U.S. consumption, based on today’s numbers it would decrease our dependency on foreign oil from 58 percent to 54 percent. If the legislation were approved today drilling would not start until 2018 with peak production in 2028. 

3) According to the EIA analysis it would reduce the price per barrel by 75 cents in 2006 dollars. At the time a barrel was $66, which equals a price reduction of about 1.1 percent. In today’s numbers that would drop a barrel of oil by about $1.40. If the drop in oil prices made its way to the pump, then a gallon of gas would drop from $3.99 per gallon to $3.96 per gallon.

4) According to the EIA we use 9.2 million barrels per day for motor gasoline. The current U.S. average mpg is 24. The 2004 fleet average requirement for automobile manufacturers is 27 mpg going to 35 mpg in 2020. Raising the standard does not mean consumers will follow, if consumers do follow and the average mpg rises to 35 then we would reduce consumption by about 1.3 million barrels per day.

The bottom line is the ANWR question gives ammunition to both sides. It does reduce our oil dependency, but the overall impact is very small. This entire argument is being used by politicians as a wedge issue. It allows our leaders to get their supporters all riled up about something, which if folks actually understood the entire issue they would likely believe it is not something to get overly excited about. 

The real question is why are we focusing on this particular issue rather than trying to address the larger problem we face in regards to energy? We are applying band-aids to problems that need sweeping solutions. As long as we let folks convince us that the real reason oil prices are so high is that we are not drilling in ANWR, or that drilling in ANWR is the equivalent of an environmental disaster, then we will never get to the crux of solving the problem.

I have said it before, this is a supply and demand issue. Oil prices have been driven up by global growth, and a perception of dwindling supply. Until consumer behavior shifts, and energy demand stabilizes we will continue to have to deal with rising prices. Drill in ANWR or don’t drill in ANWR, the overall impact is minimal. Perhaps instead of trying to shift the conversation, and have an argument about nothing, we should focus our energy on a real long-term solution.         

I ran across an article in this morning’s New York Times about owners of large vehicles now paying $100 or more to fill their gas tanks. With gas prices just over $4 per gallon nationally any vehicle with a tank bigger than 25 gallons has crested the century mark when it comes to filling it up. This past spring I traded in my large GMC SUV for a smaller, more fuel-efficient Ford crossover precisely because of rising fuel prices.

There are some who believe that what we are seeing today is a price bubble in regards to oil. Some may think oil companies or station owners are simply pushing prices up on a much needed commodity because they can, a form of price gouging. I don’t agree. The laws of supply and demand, although not written in stone, are pretty basic. If the perceived supply is declining, and the demand is rising, then prices will likely rise. Although we have had extended periods of time when oil prices have receded over the last 50 years, in general the price we pay at the pump has steadily risen. The rapid increase we have seen over the last few years has been propelled by growing demand in China, India, and Russia. To keep pace explorers have worked to tap new sources of oil, in many cases those sources come from oil which is more expensive to pull out of the ground, or refine into gasoline. The combination of all of these factors is pushing prices up.

It would appear that we may be nearing an inflection point in regards to the oil economy. That point is where consumers begin to alter their behavior to adjust to the reality of higher energy cost. Although none of this happens overnight, as it does shift, demand will stabilize along with prices. This is probably the most effective remedy for higher energy cost, but it is years away. Many folks will not want to accept the challenge of higher energy cost as a natural outgrowth of globalization, they will cry foul, and complain about something they cannot change or control, the price of a barrel of oil. They will be dragged into the next phase of the global economy kicking and screaming. I imagine that is how major societal shifts are alway treated, and while some of us have moved on to the acceptance phase, many are still in the anger phase of accepting the new reality.

Just as a side note, for the short term the impact of higher energy cost on our economy is real. If every family pays an additional $1,000 per year for gasoline then that is roughly $10 billion of discretionary spending which gets appropriated to another part of the economy. This spending shift does not create new jobs or additional wealth here at home, it only adds to the wealth of the world’s oil producing nations. Although on an individual family scale to some it may appear relatively minor, when you add it all up the cost is significant, and the impact is real. Higher energy cost are impacting businesses and individuals alike, and may do so for some time.

More than one hundred years ago I am sure there were many suppliers of buggy whips in the United States. I would bet that most families were pretty well adjusted to the major mode of transportation at that time, the horse and buggy. Then Henry Ford had the audacity to dream of building a car for the masses, one that every family could seemingly afford. Over time society evolved, the infrastructure to support gas powered automobiles was developed, and the buggy whip business fell by the way. We are not the most graceful, but we always seem to find our way. I wonder what “buggy whips” our grandchildren will be talking about 100 years from now!

Over the last several months I have had more than one discussion with my friends and colleagues about the economy and its overall impact on small business owners, and individuals. The problem with this discussion is that many times, because of political leanings, some people don’t like what the sum of the economic data seems to add up to. They base their view of the economy on emotion rather than solid data.

I had one of these discussions recently, and it motivated me to think about my approach further. Am I too objective about the information I look at everyday, or not objective enough? Am I just spouting someone else’s political talking points, or am I a free thinking individual who is giving you the facts as I understand them with my best interpretation. I hope for both of these points that it is the latter; however, one can never be fully objective about oneself.

As I was thinking through my overall approach, and looking at what I have written in the past I began to consider some basic beliefs that have guided my perceptions of the data, my business practices, and my writing.

1) No matter what the data says, and no matter the conditions, hard work and optimism will always trump adversity.

2) Optimism does not mean ignoring the reality of our challenges. A true optimist works to understand the obstacles, and face them head on knowing success is up to them alone.

3) Our reality today is that we face a challenging economic environment.

4) Higher gas prices, tougher credit conditions, and a weak job market impact both businesses and individuals. Some will be hit hard by these challenges, and some may barely notice.

5) Globalization is a fact of life, the globe gets smaller everyday. Free trade is an outgrowth of globalization, for every manufacturing job created in a low cost country, there may be another lost someplace else.

6) No one really wants to pay higher taxes.

7) Estate taxes, and estate tax planning is a major issue for family business owners. Most people do not want to leverage their business just to pay their tax bill.

There is a cost to government regulation, but many times there is also a benefit. Achieving balance between the two is key.

9) Debt should be used constructively, but over-reliance on debt can seriously hinder individual or business performance.

10) Too many people are afraid to try new solutions to old problems, these people are usually passed by those brave enough to try.

This list is not all encompassing, it is kind of a Saturday morning, off the top of my head list. In most things I believe balance is the key, push too hard in one direction or another and you are likely to fall. Maintain your balance and your focus on the big picture, and you and your business will succeed.

Last year I posted two articles in regards to the private equity boom, and its potential issues. Today The Wall Street Journal has an article discussing the potential hazards of the leveraged buyout boom on the economy. Over the last several years many companies have been acquired using the leveraged buyout model, Chrysler, Hertz, Avaya etc. For the majority of these acquisitions the PE firm uses a small amount of cash combined with financing from several sources to make large acquisitions.

Over the last several months credit cycles have tightened. We have seen this in our business, and with our customers. As it becomes harder to raise large amounts of credit, the interest payments on debt increase, and the economy slows I cannot help but wonder what the immediate impact will be on some of these large, highly-leveraged acquisitions. Since some of these organizations are major players in large markets the economic impact could be significant. Is this a potential bubble that will burst?

The U.S. Department of Labor reported today that the economy lost 62,000 jobs last month, and the unemployment rate remained at 5.5 percent. Both data points were near expectations, and point to the challenges currently facing our economy. We are in a period of limited growth, but higher inflation. Better known as stagflation! The economy has lost over 430,000 jobs so far this year.

Since 2000 the U.S. economy has lost nearly 3 million manufacturing jobs. The economy has generated roughly 7.5 million new jobs so far this decade. That is 10 million fewer new jobs than the same time frame in the 1990s, 7 million fewer than the 1980s, 5.5 million fewer than the 1970s, and 6 million fewer than the 1960s. This decade is shaping up to be the worst decade for new job growth in 50 years.

Here are some other interesting metrics about where we stand today:

1) The Dow Jones Industrial Average opened this decade at 11,501, it closed June 30 of this year at 11,350. The average grew 3 fold in the same time frame in the 1990s, and 2.5 times in the 1980s. It nudged up in the 1960s and 1970s, and grew roughly 2.7 times in the 1950s. This decade is also shaping up to be the worst for investors in the last 50 years!

2) At the beginning of this decade the average price for a barrel of crude oil was $27, oil crested over $145 per barrel today. So the price of a barrel of oil has grown 5.4 times since 2000. During this time frame in the 1990s and 1980s crude prices fell. You have to go back to the 1970s to see a similar acceleration of crude prices.

3) The growth in Gross Domestic Product so far this decade has been similar to the last few decades. GDP has grown 47 percent since 2000, during the 1990s it grew 51 percent, 46 percent during the 1980s, 123 percent in the 1970s, 71 percent in the 1960s, and 50 percent in the 1950s. Although this is only the second best decade for GDP growth in the last fifty years, the size of the economy is considerably larger today making it much harder to gain those large percentage gains in GDP.

The bottom line is that the last seven and a half years have not been our best in terms of economic performance. Granted the U.S. has had some significant shocks since 2000. We started the decade with the dot com bust, then came the attacks of 9/11. We had the discovery of major accounting issues at large corporations, two wars in Iraq and Afghanistan, and the subprime meltdown. Given all of these major issues, it is surprising that we have not done worse. Perhaps that points to the resiliency of our system.

It certainly is not all gloom and doom. Many businesses have thrived over the last several years, and will continue to do so. Although things may not be as strong as we would like, there are still myriad opportunities for growth. The challenge for every business owner is to tap into those opportunities, and continue to move their business forward!

I ran across an article in today’s New York Times which points out that the weak job market may last through 2009. This, as well as a conversation I had with a client recently, has me pondering the current downturn in the broader economy, and how long I expect it to last. Most business owners I work with are in the process of figuring out what to expect, and how to handle it.

In considering how long this could last I did some research on the average American household. The average household makes just over $40,000 per year, and has total expenses just under $40,000. These expenses include taxes, mortgage, health-care, and food, essentially everything. With each household carrying an average of $10,000 in revolving debt, it will take about two years to pay down this debt to get it to a point where enough credit has freed up in the system for folks to start spending again. Since consumer spending is a big driver of our economy, it might be reasonable to expect another 18 – 24 months of weak growth before things turn.

For an individual business owner, if the economy is only going to grow 1 percent annually, then depending on your marketplace, you may want to structure your business for a slower growth environment. The smart money says plan for slower growth, but also plan that overall expenses may outpace the growth rate for a short-time. If that is the case, I would suggest doing the following:

1) Keep a lid on cost – You need to stay on top of discretionary spending, and keep a close watch on all expenses. This means watching overtime, travel expenses, and other items that may need to be delayed for awhile. Just because the economy is yielding limited growth does not mean you need to be satisfied with limited profits.

2) Watch the competition – You will have competitors trying to encroach on your customers and territory. They will be looking for ways of sustaining their business during the slowdown. You will also see some of the weaker competitors fall by the wayside. If your business has little debt, now may be the time to look for acquisition opportunities in your market that can drive synergies for your business.

3) Don’t stop selling – When the economy turns many salespeople adopt an attitude of “why try.” Holding down cost does not mean you ignore the customer. Now is the time you need to really hug your best customers, and stay close. Use some creative techniques to keep cost down, and customer interaction high. Now may be the time to turn to more electronic marketing techniques.

4) Stay abreast of conditions – Fortunately the economy typically does not turn on a dime. It takes time for the world’s largest economy to swing one direction or another. Make sure you understand where things are, and your business is prepared for an eventual recovery.

Always remember, an economic slowdown does not mean the economy has stopped, it just means we all have to work harder to move our businesses forward. The best bet for your business is to position for today’s environment, and prepare for tomorrow’s growth.

The first time I meet with a prospective client I always ask, “What is his or her value proposition?” I want to know what it is that differentiates this client’s business from the competition. If I were a customer why would I do business with this firm?

Many times I get a similar response. Most business owners will tell me that their business offers better service, or has a better quality product than the competition. Many times they will say that their business is simply better! This forces me to remind them that this is pretty much the same thing all of their competitors are saying. It does not tell prospective customers why they should do business with you, it simply indicates you are just as good as the competition. This makes your value proposition, “Do business with me, I am no worse than my competitors.”

For me the value proposition is that one thing that tells my customers, shareholders, and employees what it is our business does better than anyone else. A great value proposition becomes the underlying theme for the broader business strategy. Some people will mistake these as mere slogans, but when you dig deeper you realize it is more than a simple slogan.

“Dominos Pizza Delivers.” This was a great value proposition because it said we deliver a hot, fresh pizza fast. We can get you your product quicker than the competition. This value proposition and strategy spawned a whole new mindset in getting that pizza delivered to your house.

“Have It Your Way.” With this value proposition Burger King wanted to let its customers know that when eating at a Burger King you could choose how you wanted your burger. You were longer relegated to simply taking what they had, you could customize your burger, and not have to wait.

“The Ultimate Driving Machine.” This value proposition from BMW is one of my favorites. With this statement BMW is telling potential customers that its cars are not just cars, they are precision instruments.

Each of these simple statements are more than just a tag-line or slogan for the organization’s marketing team. They give everyone involved in the organization a clear sense of what this company is all about. They give the organization an identity. They provide customers with a true interpretation of what makes these companies different.

Great value propositions are generally not something thought up in marketing or strategy meetings, they evolve over time or out of the organization’s need to set themselves apart to compete. They come from customers who tell you why they do business with you, or employees who tell you what they tell customers about your business. As a business owner when you tap into that, and clearly define your organization with all of your audiences, you are likely going several steps further than the competition.

I ran across this article today in regards to some nations hoarding food due to rising food prices and shortages of rice. There are many issues for the run-up in food prices over the last several months. The primary issue is the same one we see with oil, rising demand. Demand for corn, rice, and grain have been driven up by the increased demand for bio-fuels. On the other side of the coin we have seen some supply disruptions such as the flooding in the mid-western U.S. and the droughts in Australia. It is difficult for me to speculate on where this will all go, but the squeeze on food and energy is bound to impact business owners in the near-term.

I know many successful entrepreneurs. Some started their businesses, some put everything on the line to buy their own operation, and some inherited their business as part of a succession plan. I have often tried to pin down what I believed were the personal characteristics that all of these people shared. What are those traits that help make them successful entrepreneurs? I have yet to come up with a good list. An article in today’s New York Times has a pretty good list of character traits that are helpful if you want to run your own show. I like the list, although I would say that this is really a list of what it takes to be successful in business. If you fall short on too many of the items then you are probably going to face some stark challenges not only as an entrepreneur, but also as a manager in any organization.

Oil prices have crested $140 per barrel, and now some are predicting $170 is just around the corner. The stock market is now flirting with true bear market territory. The economy has lost more than 300,000 jobs this year, and consumer’s are not in a very good mood. So much for the idea that the economy is strong, and we have just been trying to talk ourselves into a recession! Over the past year I have posted several articles about my concerns in regards to the economy. I have pointed out that the jobs data has been on a progressive downward trend since 2006, that we have not yet reached the peak in regards to mortgage resets, and that we have an economy that is flirting with recession. I have also pointed out that all of this does not mean business as we know it stops, it just means we will have to work harder to maintain and grow the business we have. Despite all of this data, and all of the challenges we face, there are still industry experts and analysts going on T.V. telling us that this economic downturn is simply a figment of our imagination manufactured by those who apparently have an interest in seeing the U.S. economy slow. To those who believe that we allow the national media to talk us into downturns and upswings I would like to point out a couple of realities.

•  In regards to oil, when demand outstrips supply then prices go up. People continue to tell me about all of the untapped oil reserves, and that the market is really being driven by speculators, but the reality is global demand for oil is rising faster than supply. Until this fundamental issue shifts and oil producing countries can pump crude faster than we can consume it, we will continue to pay higher prices at the pump. This is not a environmentalist’s conspiracy, it is an economic reality.
• If you export a large percentage of your manufacturing base to low cost labor markets, then job growth will slow. You cannot expect to ship hundreds of thousands of jobs overseas, and at the same time expect our job market here at home to grow as it did in the past. Many folks have expressed the idea that globalization in the long-run is healthy for our economy, that it gives American Consumers access to low priced goods in the marketplace, and it creates new sources of demand for other goods manufactured in the U.S. There is a certain disconnect with reality here, if a business can manufacture a plastic toy in China for one-tenth what it can in the U.S., then why would it not do the same with a car, a computer, or a circuit-board. Until we create laws that put us on a level playing field with all our trading partners then we will be at a disadvantage.
• The housing market will be a mess for some time, and it is a mess because aggressive lenders wrote loans to folks whose ability to repay that loan was suspect. The bloated inventories of unsold homes will take some time to bleed off. We are not going to wake up next month, and have a sudden turn-around in housing. It took years to create this problem, and it will take years to fix it. The investors and financial institutions who heavily purchased mortgage backed securities will suffer the losses, as well as the homeowners who will continue to see the value of their largest asset decline. 

Despite all of the bad news there is a good reason to be confident today. The pendulum has swung and many analyst now recognize some of the major issues we face. Accepting a problem is usually the first step to fixing it. We also know that the economy operates in cycles, that every downturn is followed by growth, and every period of growth is followed by contraction. As business owners our job is to manage our business for the realities of the marketplace, and be prepared for the next bull run!

My wife and I have been together for 17 years, we have been married for 16. Of those 17 years we have worked together for more than 10.  So when I ran across this article today in The New York Times about women hiring their husbands, I could not help but take notice.  The article provides some insight into the challenges of working with your spouse, and it has some interesting tips about compensating each other.  For me the bottom line is, if you are going to work with your mate then you must be a true team player.  If you desire to dominate your professional relationships, then working with your spouse is probably a recipe for disaster.  If you view marriage as a 50-50 proposition, and respect each other’s point-of-view, then an entrepreneurial venture with your spouse may be your path to matrimonial harmony.  

The Department of Commerce said today that their final take on first quarter Gross Domestic Product was that the economy grew 1 percent to start 2008.  This is marginally better than the .6 percent growth in the final quarter of 2007.  Some analyst are pointing to this number as an indication that the economy has dodged a recession.  I would like to see an uptick in second quarter numbers before I make that assessment.

An article in today’s Financial Times has me pondering this question.  The article asks why the Boards of Directors of the major financial institutions failed to understand and communicate the environment in which these institutions find themselves today.  It reminded me of a mid-western Fortune 500 company that recently moved its top 200 people from a mid-sized city to one of the offices near the World Trade Center in Manhattan.  The logic being they would be closer to their customer.  Keep in mind this is an international business with customers all over the globe.  When I heard about that decision I wondered (aloud) how the Board rationalized the decision to spend hundreds of million of dollars to move these folks.  How was this in the best interest of the shareholders? 

As a board member for several closely-held, for-profit businesses I have always viewed my responsibility as one of protecting the shareholder’s best interest.  Too many board members look at their duty as protecting the CEO’s interest and their board seats.  This leads to a great deal of capitulation in the board room.  Board members are afraid to challenge management, and are more likely to go along to get along.

For me the idea of governance has always been a stop-gap measure.  The responsibility of a savvy board member is to coach management without being overbearing.  Get Senior Managers to move in a general direction not by force, but by gentle persuasion.  Good board members help promote a clearer strategy for the business, voice concern when they believe management is headed down the wrong path, and understand shareholder needs.  When board members focus on these things, everyone wins.

The U.S. Federal Reserve lefts rates unchanged yesterday after their June meeting.  Although the Fed is concerned about stimulating economic growth, several inflation indicators have been strong enough to force a neutral stance.  The challenge is another decrease in rates may result in higher oil prices, and energy driven inflation.  Increasing rates may put the brakes on any stimulus the Fed has tried to provide so far. 

The price for a barrel of oil has almost doubled over the last 12 months.  As I write this post crude prices are at $136 per barrel after starting the year around $70 per barrel.  The natural tendency in our system when something goes haywire is to find someone to blame.  Some will say it is the fault of oil companies who are gouging consumers, some will say it is the fault of environmentalist who opposed offshore and ANWR drilling, and some will say it is simply investors trying to push up commodity prices to make money.

The New York Times has an article this morning about Congressional Hearings into rising oil prices, and the search for who is to blame.  The irony here is that few people would say that we have an infinite supply of oil.  Most industry analyst indicate that oil is a commodity in which the demand is increasing faster than new sources of supply.  We all know from Econ 101 that when demand outstrips supply prices go up.  Until this trend is reversed, until consumer behavior shifts, and people look for ways to cut their energy usage (and cost), prices will continue to rise.  There may be days, weeks, or even months where prices will fall due to other economic issues, but over the long run oil prices are likely to continue their march upward.

At this point placing blame is pointless, what we really need are Congressional Hearings focused on solving the problem!

The Conference Board released their survey of consumer sentiment for June, and the news was not good.  The index slipped to 50.4, the lowest since it hit 47.3 in February 1992.  This is really a follow up to an article I posted Monday in which we discussed the three major issues holding down consumer spending oil prices, the housing slump, and labor markets.  The consumer sentiment data is a good indication that Americans are feeling uneasy about the current economy.

It is pretty clear that the U.S. economy has slowed over the last few months.  A soft housing market, declines in new job growth, and higher energy prices have all slowed consumer spending putting the brakes on the economy.  On the other side of the coin there has been a debate about the prospect of inflation.  The Fed’s solution to each problem is quite different, to stimulate growth the Fed will reduce interest rates to spur development.  To hold down inflation the Fed will raise rates to reduce the money supply.

The prospect of energy driven inflation has always been on the radar, but two stories this morning caught my eye.  The first was about an increase in iron ore prices, the second was about Dow Chemical raising its prices, and adding a fuel surcharge.  Both of these are significant because they signal the prospect of big increases in raw material prices.  Unless the Fed’s recent rate cuts take hold, and growth turns, then we are likely facing 1970’s style stagflation over the next several months.  Stay tuned! 

Yesterday I posted an article on the current state of our economy and the three “big” issues I see going forward.  Today we received more data on the housing market, and it shows the price declines are continuing.  There was some positive news in the report, which showed the decline in major metropolitan areas was less than previous months. This will lead many to speculate that housing is on the brink of a turnaround, the reality is that we likely still have a ways to go.

Last week I met with several different business owners, at some point during each conversation they all had the same question, how long will the current economic conditions last?  Some of these folks own businesses that are doing very well despite some of the economic headwinds, and some are feeling the direct effects of an economy that has slowed.  All of them are concerned about where we are headed, and how long it will last.

The truth is I do not know.  I can only speculate, which I will be more than happy to do, but we are trying to assign predictability to an unpredictable event.  We have a pretty clear idea of what the major issues are, we just don’t know how long they will continue to burden our overall economic health.  I see three major issues that are causing our current rough air, and here is my take on where these things are headed.

1. Home prices – This can be termed several different ways, the housing market, the subprime crisis, or the credit crunch.  The bottom line is that it all pretty much means the same thing, a slow housing industry.  The median price of a home in the U.S. continues to drop in most areas.  This drop is primarily caused by decreasing demand, as supply increases prices tend to fall.  In the housing market supply began to increase as mortgage defaults rose.  The number of unsold homes in inventory has steadily risen meaning many buyers have more choices when making a home purchase.  Until inventories turn we can expect prices will continue to fall.  As prices fall, and credit tightens, home owners are left with fewer financing options, and less equity in what is most American’s largest asset.  This means they have less access to cash for other purchases.  The problem is that the wave of mortgage resets is still in front of us rather than behind us.  Although 2007 was a big year for resets, 2009 and 2010 will also be big years.  My guess is that we are still at least 24 months away from a turnaround in the housing market.
2. Job Growth – The last time our economy generated more than 200,000 jobs in one month was the middle of 2006.  Job growth peaked in 2005 and has been on a steady downward trend since 2006.  During the last recession at the beginning of this century it took the job market over three years to recover.  My guess is that new job growth is going to continue to lag into the second or third quarter of 2009.  This means that the economy is going to be generating fewer new consumers, so like the housing market the dynamics will keep overall consumer spending down.
3. Oil Prices – The price of a gallon of gas is not going to come down.  There are many folks out there who will tell you that we are in a bubble, and oil prices will soon fall.  At the end of 2005, in the wake of Hurricane Katrina, we were paying $2.20 per gallon, prices peaked at $3.00 per gallon in 2006, and by the beginning of 2007 we were back to $2.20 per gallon.  Since then prices have gone to $4.10 per gallon, and there does not appear to be any end in site to the steady rise.  There may be a period of time in the future where gasoline prices fall, they may fall back below the $4 national average, but they won’t stay there long.  As long as gas prices continue to rise faster than average wages consumers will spend a greater percentage of their income on energy, and less on discretionary goods.  I would expect this to last until consumer behavior changes.  American consumers will shift from larger less fuel efficient cars to smaller more fuel efficient vehicles, and hybrids as well as other forms of transportation.  Inflection points such as this take a long time to work through the economy, so I would not expect any relief at pump over the next few years.

Our overall bottom line is that we expect the current economic lull to last into 2009.  When the housing market and job growth begin to shift we will then likely see a shift in consumer spending, and the broader economy.  Despite our view on the economy we always remind our clients that just because the economy has slowed does not mean it has stopped.  There are still opportunities out there for you to grow your business, as a business owner you just need to understand the environment you are operating in, and adjust your business for the realities of the marketplace.

I work with many different types of business owners, and many different business sizes. I have clients ranging from start-ups to $30 million entities. Although I am getting a mixed bag of how folks are doing in today’s economy, I do hear about a lot of economic anxiety and uncertainty. So if your business is newly minted, and you are struggling to get past the first few months, then remember you are not alone. There are many folks who are gambling in a tough environment to get their business going.

The New York Times has a nice piece on three businesses trying to get started today. I blogged about one of these last year. As you have seen, we typically only hear about entrepreneurial successes, we rarely hear about failures. Keep your head up, stay in the game, and keep plugging away. Always remember, where you start is not an indicator of where you will finish.

If you have spent anytime on my blog, then you probably realize I am very much a blocking and tackling kind of guy. I believe most businesses fail because they don’t do the simple things well, rather than because they didn’t create some big unique strategy. Given that I like articles and advisers that promote the idea of sticking to business basics.

Here is a piece from USA Today’s Small Business section. The piece is geared towards staying competitive against big box retailers, although I believe the advice given is pertinent to any small to medium sized business that is trying to compete in today’s hyper-competitive environment. These are really the basics, differentiate your offer, find great people, and keep your cost down. This is not rocket science, but you would be surprised at how many people don’t follow these simple guidelines.

I was meeting with a client yesterday helping him create a short-term plan for his business. Our discussion led to succession planning, and it reminded me of some basic steps all family business owners can follow when they try to tackle moving their business from one generation to the next.

Step 1 – Decide where you are headed – Too many business owners start down the path of succession without ever asking themselves if they really want to go that way. Before starting the succession process, you should determine if that is your preferred exit strategy. Passing the business from one generation to the next may not be the ideal way for you to maximise the value of your investment. Make sure you are mentally prepared for the challenges and set-backs that can occur in family succession plans before you jump on-board.

Step 2 – Get Commitment – Make sure your kids really want the business, and don’t be insulted if they don’t. Many times the next generation has seen first hand what you went through to start and grow your business, and they don’t want to go through the same things. Just identifying a potential successor is only half the battle, you need to make sure they will have a passion for carrying the entity forward.

Step 3 - Train – Like any position in your business, you need to have a good idea of the skills your successor will need. Once you have decided who will take over you need to make sure they get the training necessary to operate the business. It is critical to expose them to all aspects of the operation, and be patient. You did not learn the business overnight, and neither will they.

Step 4 – Set A Date – When you arrive at the point where you believe your successor is ready, you need to set a date. Many family succession plans that fail do so because the outgoing generation never commits to when they will actually be out. You need to set a date and stick to it.

Step 5 – Outline Duties – When you know when the transition will take place, outline what the duties and guidelines will be for each family member involved in the succession plan. This helps prevent the inevitable conflict that occurs when one generation steps on another’s toes.

Step 6 – Get Out of The Way – The individual who takes over your business will make mistakes. He or she will likely do things differently than you did, and they may have a different long-term vision for the business. You may not agree with everything your successor does, but that does not matter. If you want him or her to embrace the business, then you must allow your successor to make his mark.

There are myriad consultants, books, advisers, and speakers out there on the subject of family succession planning. Don’t try to go it alone, use one the many sources available to help make your succession process smoother. 

Housing starts fell again in May after a rebound in April. Starts fell 3.3 percent, and the annualized rate is down 32.1 percent. The decline was a little worse than consensus forecast, and is an indication that the housing slump is far from over.

Many business owners are concerned about rising energy cost, and are looking for ways they can bring those costs down. Today’s Wall Street Journal has an article with some suggestions on how business owners can do that. Some are the simple things, and some are more complex, but they can all be beneficial in taking some of the teeth out of the energy bite.

I ran across this article in today’s Wall Street Journal. Although I am sure the reorganization at Nokia that is the basis for this expert’s advice was beneficial, I don’t believe creating tension amongst the troops is the best way to grow your organization. It strikes me that sending contradictory goals to different managers will get contradictory results, not setting a clear vision will result in confusion, and not creating deep customer relationships will create an opening for your competitors.

Perhaps these ideas are things that will work in a large global organization, or perhaps this is the expert’s strategy of creating something so unusual that folks can’t help but take notice. Either way it seems to me that in a closely held business the best options are to focus on establishing direction for the team, creating a culture where they can succeed, and developing the controls to keep the business on track. This is not a unique notion that turns a lot of heads, it is just the basics, and if you focus your business on the basics you will likely be able to move it forward. 

U.S. inventories were up .5 percent in April, and sales increased as well causing some analyst to speculate that the Fed may have to raise its second quarter GDP forecast. This combined with better than expected retail sales in May was a spot of good economic news. Although the broader economy still appears to be soft, and inflation concerns are growing, today’s data may indicate that the U.S. economy has already bottomed and is starting to head back up. On the other hand, the bump in retail sales may be a one-time jump due to government rebate checks getting into the hands of taxpayers.

This article from today’s Wall Street Journal has me thinking about the bite business owners are facing due to rising cost. The impact of rising energy prices is prevalent everywhere, and we all feel the pain every time we fill our gas tanks. I saw some news over the weekend that motor scooter sales in Ohio are up 25 percent in 2008. When I look at the Rough Air Cost Index I see nine months of what appears to be prices groping for direction. There is no definite, identifiable trend, perhaps that is what causes folks to worry most.

Like the ripple effects from the subprime crisis and downturn in housing, we know that higher energy cost will ripple through the economy. We know that businesses will need to start increasing prices to keep their margins intact, and we know the end result will be inflationary pressure across the board. The problem is that we just don’t know when all of this will really start to have a major impact.

There is not much doubt that we are currently in a difficult business environment. Consumer and business spending has slowed, prices are climbing, and we are all feeling the pain at the pump. I have talked to several business owners lately who are working through the current challenges, and are trying to steer their business through the rough air. Many of these folks are facing the same challenge, a contracting market and rising costs. By the time these entrepreneurs talk to me they have already made significant cuts in their operational expense and now they are searching for guidance to help them keep things moving forward.

Here are some of my suggestions:

1. Understand which pain is worse – As I mentioned many of these business owners have already made significant cuts in overhead; however, often there are other cost saving opportunities that the owner does not want to reduce. Sometimes this is because of an emotional attachment to a particular project or investment, and sometimes they fear the emotional pain they will experience by making the change. Always remember, although that major cut may hurt today, that pain will only be temporary. Not making enough adjustments and losing the business is permanent.
2. Understand and structure for your break-even – If your market has contracted you need to understand what your new, consistent level of business is. If your business has dropped 15 percent, then you must structure your operation to run 15 percent smaller than before. If you can get your hands around what you believe the volume will be going forward, and you structure your business for that volume, you will be well positioned when the market turns.
3. Communicate – Everyone handles the issue of sharing the financials with their teams differently. Whether you share the financial information or not, you need to at least make sure your employees understand the challenges facing the business. Everyone in the business is in it together. The owner is not the only person capable of dealing with the challenge.
4. Differentiate – You can never stop selling, and when markets contract you must work harder to create a clear differentiation between you and your competitors. Your only path to short term stability is by taking market share or opening new markets. To do either you must have a clear value proposition.
5. Lean on others – Make sure you find sounding boards, people you can talk to about your business challenges. Don’t carry the weight of the problem on your own, work with your mentors and colleagues to help work through the challenge. If you have an advisory board, lean on your board for support. Don’t try to confront the problem on your own.
6. Have an outlet for stress – I walk three miles every morning, and try to play golf at least twice every week. Spending endless hours pouring over financial statements will not change those statements. There is no need to dwell on the problem. The stress of managing your business during a downturn can be overwhelming. You need to find an outlet for that stress.

Some of your competitors will survive the tough economic conditions, and some will not. For those who make it through there will be a tremendous market opportunity once the smoke clears. A business owner who makes the tough decisions today will be in a prime position once things begin picking up. Always remember during these challenging times, with each day that passes, you are one day closer to getting through the rough air.

According to the American Automobile Association average gas prices topped $4 per gallon for the first time in its most recent survey. The New York Times has an interesting piece this morning on how gas prices impact different areas of the country. Although we are all feeling the squeeze of the extra cash to fill our tanks, some get hit harder than others.

My biggest concern about rising energy cost is the impact on the broader economy. Every time prices jump oil companies are taking more money out the consumer’s pocket. The average American has less to spend on discretionary goods, which helps drive our economy, and is paying more just to get to work each day. I believe we may be reaching an inflection point in regards to our addiction to foreign oil. At some point consumers will alter their behavior and decision making to reduce gasoline consumption. This could mean greater opportunities for mass transportation, and urban living as consumers try to reduce their daily commute cost.

The challenge is that we are a long way from a fundamental shift in consumer behavior, which means that higher energy cost today are just another anchor weighing down the U.S. economy. 

I have had more than one colleague connected to the financial industry mention to me lately that we have yet to see the full impact of the credit crisis. Many will point out that mortgage resets will not peak until 2010, and we are getting a slight rest from resets in 2008. I ran across this article in The Financial Times this morning which points out that the big issue for some regional banks may be home equity loans.

I believe the point that needs to be emphasized here is that we are still a long way from a rebound in the housing market. This means that average home prices nationally will likely continue their downward trend, and inventories of unsold homes will remain at record highs. As I mentioned on this blog almost a year ago, there is a ripple effect to all of this, and until this issue is resolved we are likely in for a long period of slow growth.

Friday’s news was not good. The jobs report came in weaker than expected with a jump in the unemployment rate to 5.5 percent. On top of that oil prices rose to a new record, going up more than $10 to $139 per barrel. All of this prompted a market sell off, and the Dow dropped 400 points, the biggest drop in 15 months. Before we all start to panic, I would suggest that nothing changed yesterday. We already knew we have a soft economy with a soft job market, and we already knew we are dealing with rising oil prices. There were no big surprises, just confirmations of trends that have existed for the last several months. We are in an economic downturn, in time the winds will shift and the economy will head back up. No reason to panic about things we already knew! 

We just released our most recent data for the Rough Air Demand Index and the Rough Air Cost Index. The data did not change from last month, demand is still soft, and prices are still rising. After April it appeared that some of our demand measures were pointing to slight improvement; however, today’s new job numbers, and continued contractions in manufacturing and housing are suppressing any potential growth.

Overall cost are still getting pressure from higher energy and food prices. I am starting to see a consistent media narrative which indicates many businesses are beginning to suffer under the weight of $130 oil. Airlines are cutting back and raising prices, and automotive manufacturers are dropping their big SUV production. It looks like we are in for a long, hot summer!  

The U.S. Department of Labor reported that the economy shed 49,000 jobs in May, the fifth month in a row the job market has contracted. The U.S. economy has lost over 300,000 jobs this year due to the downturn in housing, manufacturing, and the credit crunch. The unemployment rate jumped to 5.5 percent, the highest level in more than three years.

I am sure most of you have heard the news, it has essentially been the only topic on cable for the last 12 hours, Senator Hillary Clinton will suspend her campaign on Saturday and endorse Barack Obama for president. The general election of McCain versus Obama has begun in earnest. One of the amazing aspects of this story is how the inevitable front runner, Clinton, was defeated by a candidate who seemed to come out of nowhere. I imagine pundits will study the Clinton campaign for years and give detailed analysis of how and why she lost.

The most fascinating part of this primary season for me has been that the party that appeared to be in disarray at the beginning of the year settled on its nominee quickly, and the party that appeared to be unified took six months to figure out what to do!

Higher energy prices are beginning to take their toll on the U.S. airlines. The industry, which has been struggling for some time, is now in the process of making more cuts due to a slow economy and higher operating cost. I expect this is not the last of airline cuts we will hear about over the coming months.  

I was meeting with a colleague over coffee this morning, and we were discussing some of the current challenges business owners are having raising new capital from banks. He indicated that he expects interest rates to start going up later this year and continue through 2009. The common belief is that higher energy and food prices will have an impact on the economy at some point, and the U.S. Federal Reserve will have to do something about it.

An article in today’s Wall Street Journal reinforces this notion, and overall concerns about current economic conditions. The three things that are continuing to haunt our economy are housing, energy, and credit. Until we see a shift in the current trends economic growth will continue to be light. 

I listened to GM Chairman and chief executive Rick Wagoner’s press conference this morning when he announced the closing of three assembly plants due to higher fuel cost, falling SUV and truck demand, and overall environmental concerns. He announced GM would be closing our local assembly plant, which has built their mid-size SUV. This is another tough blow for manufacturing in Dayton, and is indicative of many of the challenges facing automotive cities like ours.

Manufacturing contracted for the fourth month in a row according to the Institute for Supply Management’s Index of Manufacturing Activity. Although the index came in at 49.6 indicating a slight contraction, the measure was slightly better than April and better than expectations. The uptick in activity was primarily driven by cheaper exports. The report also showed an uptick in inflation as oil prices continued their upward March. The indications are that over the next few months we may see a shift in the U.S. Federal Reserve’s strategy from one of growth stimulation to one of controlling inflation!

For those of you looking for some summertime reading, here is an article from The New York Times on four small business books that break the traditional mold. Although it seems every author in the business genre feels it is their duty to convince you of your ability to be successful, these selections, for the most part try to get you understand that success in business requires hard work. These books also have a basis in reality by letting would be entrepreneurs know that success is usually due to being good at all things, not just one thing.

I was having lunch with a colleague recently and we were discussing a business he had recently acquired. After some negotiation he was able to buy this business for considerably less than the owners originally wanted, and less than an offer they had early in the process which fell through. I saw this article on The New York Times website this morning and it reminded me of that conversation, and the challenging times we are in.

The number of businesses for sale appears to be growing at a pretty rapid clip. This could be because some entrepreneurs are feeling squeezed due to the challenging economy, or simply because the inventory of businesses for sale is increasing due to a difficult credit environment. Either way, if you are in the market to do a transaction today, and have the resources to pull it off, now may be a great time to buy.

I am not a big believer in trying to time markets, but if the right opportunity comes along entrepreneurs may want to jump now while conditions favor the buyer!

Over the holiday weekend Alan Greenspan indicated that he believes the chances for a recession in the U.S. are still greater than 50 percent. Although some recent data has been better than expected, Greenspan feels recession chances have come down, but are still prevalent. Rising energy prices, along with a continued decline in home values, are still weighing on the U.S. economy. A looming recession may not be as long or as deep as initially projected, but a contraction is still likely to occur this year.

I am not a huge Ben Stein fan, I have found that many times I do not agree with his views of the economy, although he has a piece in today’s New York Times that I believe pretty much hits the nail on the head in regards to oil. The current acceleration of oil prices does look like a bubble, that does not mean we don’t have a long term energy issue. One look at any downtown parking lot, and you can quickly understand how much Americans depend on their cars, and the petrol to power them. Our government needs to lead the way, and create a reasonable energy policy that looks at every option, and not just finding more sources of oil. We are powering our economy on a depleting resource, time is running out, this will be “our moonshot.” 

The New York Times has a good article in their business section this morning on oil prices and where they are headed. One Goldman Sachs analyst is predicting oil is headed for $200 per barrel. T. Boone Pickens, oilman and corporate raider, is projecting oil to go to $150 and remain there for the rest of the year. There are even some analyst who are saying oil is in a bubble and will be falling back down to $70 per barrel later in 2008.

So it seems perfectly clear, either oil prices will continue to rise, they will rise to a peak and stop, or they will fall! The bottom line is that instability in oil producing countries is creating instability in oil markets. Currently demand is outpacing supply, and that is a metric that does not appear to be changing soon. I would argue if prices were to drop in the short term, it would be just that, short term. The long term trend of prices at the pump will continue to be up. At this time next year we will probably be wringing our hands about $5 per gallon gasoline, and just what we can do about it!

Oil prices continue their upward march todayas prices moved closer to the $130 mark, peaking over $129 per barrell. Some analyst are expecting $150 in the near term, that is more than 50 percent higher than just a few months ago!

The U.S. Producer Price Index, released today, grew less than expected last month as gasoline prices eased slightly; however, prices at the core level (with volatile food an energy numbers removed), rose more than expected. The bottom line is that the inflation animal is trying to sneak out of its cage.

The Conference Board released its Index of Leading Economic Indicators today. The index rose .1 percent after five straight months of declines. Today’s data indicates that the U.S. economy remains weak, but has not fallen into a recession.

Oil closed today above $127 as energy prices continue to take a bigger bite out of the American Consumer’s wallet, and the prospect of energy driven inflation has some U.S. Federal Reserve policy makers pondering raising interest rates, although many think that is off the table until 2009.

It appears that some analyst are indicating that the worst of the credit crisis may be in front of us rather than behind us! They also continue to point to their concern about consumer spending in the U.S. due to energy prices. All in all none of this is good news for an already shaky economy!

We will get a fair mix of growth data and some inflation data this week. Monday we will get a peek at the leading indicators. Tuesday we will get some inflation data when the Producer Price Index is released. Thursday we will get data on jobless claims, and Friday we will get existing home sales. Don’t expect any of this data to create a “sea-change” in the current perceptions of U.S. economic conditions. As long as oil prices continue to rise, and the housing market continues to tumble, our economy will remain in slow-motion.

I won’t repeat the post I have had the last several weeks in regards to oil prices, other than to say higher energy prices can’t be good! Oil did peak over $127 today, another new record! Housing starts were better than expected, and consumer sentiment is down again. It is very apparent we are stuck in a cycle, and will likely be in that cycle for some time.

For those of you who have been living in a cave this week, the U.S. presidential election appeared to solidify with Barack Obama’s win in North Carolina, and narrower than expected loss in Indiana. The result is a media narrative that has concluded Senator Obama will be running against Senator McCain this fall. In March I posted an article about our assessment of the Clinton/Obama race. I believe it is ironic that the two candidates have spent almost $100 million since the beginning of March, with the pledged delegate lead only shifting by 5 delegates in favor of Obama. Seems like a tremendous waste of resources to me!

Oil prices neared $126 per barrel today as investors continue to speculate that higher demand and strained supply will push prices upward! Last month I posted an article about oil hitting $125 in the short term, it would appear that T. Boone Pickens’ predication has come true. I filled my gas tank last night, I paid $3.80 per gallon! Energy prices are going to continue to climb. We have a natural resource with a perceived limited supply, and increasing demand. Unless market dynamics shift we should plan on paying $5 per gallon at the pump sometime next year!

I love stories like this one, partly because they reflect the great entrepreneurial spirit that exists all around us, and partly because this is how many successful ventures get started. Some folks believe you have to quit your day job to get a new venture going. Although if you are successful you will eventually have to cross that bridge, in many cases if you are just starting out you may need to juggle a full-time job, and a start-up business. No one ever said it would be easy.

More and more universities are offering a business major in entrepreneurship. Some of these programs have  unique opportunities for students, and give them a true entrepreneurial experience. I ran across this article in The New York Times which discusses some of these programs, and their successes.

Here in Dayton we have one of the top five entrepreneurship programs in the country at the University of Dayton. I count the Founding Director of this program as a close friend and advisor, and I have had the opportunity to work with entrepreneurship students as they navigate their college curriculum. If you have a child heading off to college with a dream of business ownership, I would suggest checking out one of these programs, like Dayton’s, to provide them with a great foundation for business ownership.

Oil set a new record going over $122 per barrel today as analyst from Goldman Sachs projected that oil prices could hit between $150 and $200 in the next two years. That could take the price at the pump to somewhere between $4.50 per gallon and $6.00 per gallon by the summer of 2010! That is an additional $2,000 per year out of the average consumer’s pocket. It really looks as if the days of cheap gas are long gone!  

One of my business mentors and I were having breakfast recently, and we were discussing entrepreneurial behavior. On occasion we have both witnessed business owners and executives who will keep dumping resources into a project despite strong indicators pointing to failure. I have encountered this challenge many times myself, and have had to make the difficult decision of pulling the plug on major initiatives out of regards for the organization’s long-term success.

Any project in business is not a “career suicide pact.” Just because you started an initiative does not mean you are obligated to ride it all the way into the ground, it does mean you have a commitment to know your business limits, and stay within those boundaries. I always suggest that before you begin a major initiative build a set of internal measures that will help validate success or failure. You must know how far you are willing to go, and be prepared to pull the plug when you reach your threshold.

Too many executives and entrepreneurs play the business game based on Vegas rules. They keep pumping money into a lost cause hoping for a big payout despite diminishing results and resources. We believe your best bet is to know your limit, and pull out when you get there. You can always live to fight another day!

Oil prices went over $120 per barrel briefly this morning as concerns about potential supply disruptions in Iran and Nigeria, and better than expected data on the U.S. services sector pushed prices up $3.

The U.S. Services Sector unexpectedly grew in April. The Institute for Supply Management released their April survey this morning which came in at 52.0 versus 49.6 in March. Any number over 50 is considered an expansion of the sector. The expansion surprised many analyst who were expecting services to contract in again in April.

Although the past week was pretty busy with the release of GDP data, the employment numbers, and a Fed announcement, this week should be pretty quiet. Monday we will get the ISM Non-Manufacturing Survey, the manufacturing survey showed another contraction last week. Wednesday we will get some pending home sales data, and Thursday we will look at jobless claims for the past week. All in all this should prove to be a relatively quiet week.

I updated the Rough Air Demand and Cost Indexes with our lastest data. The bottom line, demand is still soft, and cost of doing business is rising. It looks to be a long-hot summer! I would add one caveat. April’s job growth numbers were better than expected, and the ISM Manufacturing Survey appears to be hovering in the 48 range. To me these both indicate that although we have not hit the bottom of this downturn, we are likely very near it!

For the fourth month in a row the U.S. economy lost jobs. U.S. employers cut payrolls by 20,000 people in April, this means the economy has lost 260,000 jobs so far this year, that offsets about half the jobs added during the last half of 2007. Although the jobs number came in better than forecast, the decline still indicates that the economy has reached a point of stagnation!

The U.S. Federal Reserve cut interest rates one-quarter point yesterday; however in their notes they indicated that further rate cuts may be on hold for awhile. Fed Governors believe with rates down to 2 percent, they have provided enough stimulus for the sluggish economy for the time-being.

According to the U.S. Department of Commerce, one of the major factors contributing to the sluggishness in the first quarter has been the slowdown in consumer spending. Many analyst have been expecting a pullback in discretionary purchases for the last several months. The downturn in housing, the credit crisis, and higher energy prices are forcing consumers to pull in their reigns. The average American is now spending more of his income to heat his home and gas his car, and he has much less access to additional credit.

Consumers must now get adjusted to their new reality. As fuel prices continue to rise, and credit cards get maxed out, folks must modify their lifestyle to meet new needs!

The U.S. economy grew slightly in the first quarter of this year, after growing slightly in the fourth quarter of last year. Preliminary estimates indicate that Gross Domestic Product grew at a rate of .6 percent in the first quarter. Most analyst were expecting the economy to grow modestly in the first quarter, and then retract in the April through June period. Given the current data, rising energy prices, a continued downward trend in housing, manufacturing, and consumer confidence, and rising food prices, we suspect economic growth is going to get worse before it gets better.

The Conference Board’s consumer confidence survey fell again in April to 62.3 from a revised 65.9 in March. This is the second measure of consumer sentiment in the last week that has shown a large decline. The University of Michigan’s consumer index, which was released last Friday, hit a 26 year low. Consumers are concerned about a slowing economy, a deteriorating job market, and rising food and energy prices. At this point many consumers are getting squeezed from both ends!

I ran across this article in Inc Magazine which gives a good description of the types of business buyers you can expect to encounter when selling your business. I believe the article pretty well covers the types of buyers out there, although I think they missed one key type. In the article they do not mention the strategic buyer. This is the type of acquirer who sees your business as a good fit to something they are already doing. Generally they will be able to pick up some immediate cost or market synergies with the acquisition; therefore they will pay a higher multiple for a good strategic opportunity. I believe they are the least common type of buyer, and the one most business owners are looking for!

There were two pieces of news this past week that peaked my curiosity. The first was an article in Friday’s Financial Times that BMW was taking a $370 million charge due to concerns about bad debt and falling prices in the U.S. A European industrial company getting hit by the U.S. credit problems is big news, primarily because it provokes the question as to what the impact the slowdown in the U.S. will have on the rest of the world.

The other story I have been following is all the talk about food shortages, and food riots in the developing world. I did not think too much about it until The Wall Street Journal ran a story Friday that suggests stockpiling food is a better investment in the U.S. than putting your cash in a money market fund. This came on the heels of stories about Sam’s Club and Costco limiting the number of bags of rice that could be purchased per customer in their West Coast stores. There is little doubt that we will be experiencing some food inflation in the coming months, the push on bio-fuels, and overall increases in energy costs, are putting upward pressure on food prices. News such as this adds to the unease in an already difficult U.S. economy!

The BMW story makes me wonder how far the credit crisis will spread. So far it has largely been contained to the financials and housing; however, a spread into the automotive sector could have a pretty significant impact down the line. I do suspect that much of BMW’s writedown is due to the falling dollar. Since they are based in Munich and do business in euros, a sharp drop in the dollar means less profits coming out of the U.S. I suggest watching not only foreign based automotive companies, but also other industrial companies based in Europe.

Because of bio-fuels, and energy inflation, rising food prices are likely something we need to get accustomed to over the next several months. Rising food and energy cost are taking more money out of every consumer’s pocket. If this continues then I would suspect the slowdown in consumer spending to be more widespread, and last longer than originally projected. That does not spell good news for an already slow economy.

The coming week may provide some answers about where the U.S. economy sits today. Tuesday we will get more consumer confidence data, and Friday we will get the all important jobs number for April. The big day, however, will be Wednesday when the U.S. Government announces their first estimate for GDP growth in the first quarter of 2008. This will be the most watched piece of economic news we have had in quite some time! 

The University of Michigan released their April consumer confidence numbers today which fell for the fourth straight month and hit their weakest point since March 1982. The index fell to 62.6 from 69.5 in March. Rising fuel prices have driven inflation concerns, while a slowing economy is motivating many consumers to spend less. The survey also indicates that nine out of ten economist now believe the economy is in a recession. 

It is tornado season here in the Midwest, and in a few short months it will be hurricane season along the Atlantic Coast. Just last week there was an earthquake in Indiana, Kentucky, and Ohio. If you have a disaster recovery plan now is a good time to review it, if not then you should get started putting your plan together today.  

We believe there are three major pieces to creating a disaster recovery plan. They involve preparing your business for a potential disaster, creating a plan to help restart your operations, and knowing how you will deal with the aftermath.

Preparing your business for a potential disaster involves thinking about the probable and the improbable. The idea is to train your employees what could happen and what each of them will do in the event a disaster strikes. Once you have a plan for what people should do and where they should go, you should practice, practice, practice. Drill the process into everyone’s head, you could be saving lives. Some key points in creating the first piece of a disaster recovery plan are:

• Identify potential disasters for your business
• Create a safety and response team
• Create an evacuation procedure and identify who will make sure everyone is out of the facility
• For tornadoes, identify tornado safe areas of your facility
• Put an emergency kit in each of these areas, flashlights, radios, batteries
• Identify and train those who will render first aid before emergency workers arrive
• Designate who the spokesperson for the business will be in the event of a disaster
• Review your insurance coverage before a disaster strikes
• Practice your disaster drills on a regular basis

In the immediate aftermath of a disaster, once the extent of the damage has been determined, there needs to be a process to get the business up and running again. There will be a delicate balance here that involves the emotional well being of your employees and their families, and the financial health of the business. A business owner must be sensitive to both and create a plan that ensures the health of both the employees and the business. Some keys to this stage are:

• Have an understanding of the financial implications of restarting operations
• Create a crisis counseling plan for employees and their families
• Know where your business will go if you cannot occupy the same facility
• Have a plan for getting phones, computers, and production back up and running
• If you are a manufacturing business identify resources that can help you procure inventory quickly
• Have someone designated to talk to customers and suppliers and keep them informed

The U.S. Commerce Department reported today that new home sales fell this past month to the slowest pace since 1991. The median price of a home dropped 13 percent, the biggest drop since July 1970. This is on top of a drop in existing home sales reported last week.

The dismal news in regards to the housing market was followed by an unexpected drop in durable goods orders. New orders at manufacturers fell by .3 percent in March, further reinforcing the notion that the U.S. economy has slipped into a recession.

Recently we acquired a small company that is based here in Dayton, Ohio. In May we are closing another business that is in this same general market. Between the two operations we will have one sales office, and two manufacturing locations. Our plan is to consolidate those manufacturing operations into one facility. This leads us to the inevitable question of whether we should lease space, or buy a building. 

This is a question that plagues many small business owners. Once their business has started to grow, and they are generating a respectable cash flow, the question of whether to lease space for their business or buy space for their business comes up. The answer of course is different for everyone. It is dependent on the amount of space you need, your comfort with continuing cash flow, and if you want to invest in real estate. If buying a facility for your business fits your needs, it can be a profitable venture.

If it does fit your needs then owning your facility will allow you to build equity in an investment over an extended period using cash flow from your business. If you borrow to buy or build your facility you will get a tax deduction on the interest you pay on the loan. You will also get a tax deduction on the building’s depreciation; however, you will have to recapture the depreciation as a gain when you sell the building. Most will suggest that you create a separate LLC to hold the real estate. This helps limit some liability for your primary entity and the primary entity will earn a deduction on its rental expense.

If your business has the cash flow to do it, being able to build long term equity in an asset, while using cash flow from the business, can be a profitable venture!

I ran across this article in the Small Business Section of The New York Times which discusses the challenges some entrepreneurs are having raising their rates in today’s difficult economic environment. Several years ago I attended a management training class led by Larry Steinmetz, who owns High Yield Management out of Boulder, CO. Larry’s specialty is teaching people how to sell at prices higher than their competitors. Larry has written a couple of books on the topic and still does some seminars around the country. You can look at his site, and I suggest at the very least getting a copy of his book, it is worth your time.

Oil prices hit another record today. In midday trading prices for crude exceeded $119 per barrel, making T. Boone Picken’s prediction of prices exceeding $125 in the near term pretty likely. Crude prices have been skyrocketing in recent weeks causing prices at the pump to hit new records. Higher energy prices are just one more concern weighing on consumers.

One of the things that I help many small businesses with is creating an advisory board. An advisory board can give a business owner the objective advice they need to run their business better. Many times, business owners can get to a point where getting true objective advice from their teams becomes difficult. Employees may respect the owner, they may even fear the owner, and they may be afraid to give the owner objective feedback.

An experienced advisory board can also help guide the new business owner. Whether it is a start up business, or a business that is acquired, an advisory board can help the business owner get over many humps, and prevent them from making some common mistakes. Keep in mind, just because it is a start up business does not mean prospective advisers will not be interested in serving on the advisory board.

For a family business, or any business with multiple partners, an advisory board can be the objective influence all of the owners need to keep them working together effectively. I have been in more than one situation where the advisory board has been the critical force in keeping a business moving forward, despite friction among the owners or the family.

The process we use for helping small business owners create an advisory board is pretty straightforward. We have three major steps:

1. Identify business needs – We work with business owners to help them identify the strengths and weaknesses of the management and the owners. It is also important to understand the direction the owners hope to take the business. The goal in the first step is to create a profile of what type of advisers will be best for the business.
2. Identify candidates – Once you have an idea of what expertise the business may need in the long run, you can begin to put together a list of prospective candidates. What backgrounds will be most important? Do they need to be a financial expert, a marketing expert, a technical expert, or a generalist? Don’t be afraid to approach someone about being on the board, most people will be flattered when you ask.
3. Create a system of governance – This includes setting boards terms, board compensation if any, and managing board meetings. Poorly run meetings where the board members are not prepared in advance, agendas are not created, and information is not shared will result in a board that is not effective. Like most things in business, execution is the key to being successful.

Here is a quick article I found that gives some good tips on creating an advisory board. 

The most common question I get from other business owners today is where do I think the economy is headed? When talking to entrepreneurs about what they are seeing in today’s climate, you can garner many different views about where we stand today. Some are telling me their business has never been better, and they are growing like crazy. Others are pointing to a soft environment, and they are taking a direct hit to both their top and bottom lines. The only real consensus is that the overall economy is softer. The biggest concern is how long will it last?

Here are the major things I believe you should pay attention to as we go forward:

1. Job Growth – New job growth has been trending down for quite some time. Although the unemployment rate looks respectable, the economy has not been adding jobs at a level which would indicate economic growth. For the last several years I believe our job growth numbers have been feeling the residual effects of outsourcing. Although I don’t believe this is an issue that will ever go away, companies will always be looking for cost reduction methods, I do believe that at some point we will stop bleeding jobs to low cost countries. For consumer spending to get on track job growth will need to stabilize, it doesn’t have to great, it just can’t be negative.
2. Energy Prices – Rising energy prices impact everyone from the Soccer Mom filling up the gas tank on her SUV to the Fortune 500 manufacturer. For the consumer higher prices at the pump leads to less discretionary cash for other consumer purchases. This is great if you are an oil company, it is not so great if you are selling flat-screen TVs. For business higher energy cost means it cost more to heat and power your facilities, it cost more to travel, and some raw material prices will rise. Until consumers get adjusted to the new reality of $3-$5 per gallon gasoline, this issue will continue to weigh on consumer and capital spending.
3. Tight Credit – The lending institutions need to work through their losses, and go through some consolidation as the stronger animals eat the weaker ones before they start taking credit risk again. The lack of easy credit will also weigh on consumer spending for some period. The tight credit is having some impact on small businesses as they try to raise capital, although stable banks are still loaning money to stable enterprises.
4. Housing – We should get a breather on foreclosures in 2008 as mortgage resets slow. There is still a lot of unsold inventory out there so some of this excess will need to bleed off before housing reverses its downward trend. The tight credit environment will continue to lend to the housing woes, and falling home prices will give consumers less discretionary spending power. In certain areas of the country we expect the housing market to be difficult for some time.
5. Capital Spending – I saw some news this past week that IT spending was slowing. If consumers are spending less, then I would expect capital investment to slow. Businesses will be forced to operate in a more conservative mode as they face the doubled-edged sword of tight consumer spending and rising energy cost. In most companies capital spending is an area that gets restrained when business slows. Although business executives will continue to invest in new equipment, they will first focus on the bottom line, and cash flow before making those capital committments.

The current slowdown is something that just has to work its way through our economic system. In some cases we are currently paying the price for decisions that were made in the 1980s and 1990s, and in some cases we are feeling the adverse effects of high oil prices due to continued instability in oil producing countries. Once consumers and businesses adjust to their new reality, the economy will then start a new growth track. I expect the current slowdown to last through 2008, and the economy to begin ticking upward in 2009. We have probably not seen the last of the Fed’s rate cuts, and we are not feeling the full impact of those cuts just yet. I believe by the end of this year we will begin to see the efforts from the Fed payoff and the coming tax rebates have an impact. Until then we will be dealing with a less than desired business environment.

Running any business can be a turbulent ride, whether you are a one man show or have 1,000 employees, there will always be some rough air just ahead. As a business owner or manager you are not only tasked with the challenge of executing those well laid plans, you also must deal with putting out the fires that spring up every day. For many owners the challenge of balancing these two things often prevents them from getting to the next level.

There is certainly not a shortage of resources out there that people can turn to when they need management advice or guidance running their small business. There are millions of voices telling you what you must do to be successful, I am but one of those voices. Each of these experts will lay claim to the idea that they know the secret. They will tell you they have the answer to business success, and they can teach you one trick that will allow you to take your business to the next level.

The truth is that there is no secret! There is no easy answer to building a successful business, and you most certainly will not find it in anyone’s book, not even mine! Success in business is rarely about one big event, it is usually a compounding of small victories that eventually leads to a positive outcome. We often referred to our family business as a “40-year overnight success!”

I believe most entrepreneurs and managers understand what it takes to be successful in their efforts, but we all seem to be looking for the path of least resistance. We scramble for the quick answer and instant solution when we should be preparing for the long-haul! Although getting there will be different for everyone, here a few things I believe can help you build a successful organization.

1. Plan – I don’t care if you create a one-page-plan, or a detailed business plan you can take to the bank, every organization needs direction. Yes this will take time, and it is not easy to do, but if you don’t create a plan you will just be swinging blindly hoping to hit something.
2. Measure – It makes no sense to create a plan unless you have a method for measuring execution. Keep your measurements simple, but make sure they help you understand if your plan is taking your business down the right path, or down a dead-end road. How can you determine success if you don’t measure?
3. Lead by Example – As a manager or business owner you must set the expectation, once it is set you must live that expectation. Don’t ask your team to give 110 percent if you are only willing to give 80 percent. Too many organizational leaders expect more from their people than they do themselves!
4. Treat People Well – Whether it is your employees, your customers, or your business partners, take the time to treat everyone well. I am not suggesting you should be a pushover, but you will catch more flies with honey than with vinegar. Taking the time to applaud and reward victories will cost you very little, and will go a long way towards building great relationships.
5. Be Frugal – People always say that you must spend money to make money. I believe you have to show a profit before you can make money. Don’t try to spend what you don’t have in hopes that throwing money at the problem will result in something great. Take the time to understand your cost, and what you can afford. Make sure your business lives within its means!
6. Be Honest – Many times in business the first time you get caught lying to someone is the last time they believe you. Building trust with everyone you work with, suppliers, customers, and employees is a key to building a successful business. This means sometimes you will have to share the bad news without sugarcoating it! If you build a reputation for honesty, people will believe in your vision!
7. Understand your Investment – Any time I look at a business opportunity, whether it is a piece of real estate, an acquisition, or equipment for our plant I always measure my expected return against other investments. If you are going to invest your capital and time into a venture, make sure you have a clear picture of what you will get in return. Also, know when to say when. Every entrepreneur and manager will make bad investment decisions, if things are not going well pull the plug. It is better to live to fight another day than to keep dumping cash into a lost cause!
8. Never Stop Selling – I am not talking about the high-pressure, sign on the dotted line sales pitch. I suggest you never stop talking about what your business can do for others. You should always be prepared with that 30-second elevator speech that says this is what we do and how we can help you!
9. Have Fun – Life is way too short to be involved in a venture that you do not enjoy. I always advise people that if you face each work day with dread, then you need to ask yourself if you are doing what you really should be doing. Folks who are not happy with their work are rarely successful at it!

I am relatively certain that to some my suggestions will seem too simplistic. They believe that to be successful in business you need some complex formula that few understand. To others these nine suggestions may seem too difficult, they will see them as too many courses to digest.

Most of the successful people I know in business got there because they did the simple stuff really well. They left the complex formulas and theories to the management gurus, and focused on things we can all understand!

There is not a boat-load of economic news coming out this week, but there are a few significant items. Data for existing home sales will be released Tuesday, and new home sales data will be released Thursday. We will also get the most recent news in regards to durable goods demand on Thursday. We will close out the week with more consumer sentiment data from the University of Michigan. I do not expect major breakthroughs in any of this data, it will likely show more of the same, and reinforce the perception that the U.S. economy is in or near a recession.

I have been hearing from my sources that getting credit for you business is becoming more difficult. Although the banks may not be the fertile ground entrepreneurs need, there are still folks out there willing to invest in start-up companies. I ran across this article in the times which reinforces the idea that capital has not completely dried up. For those of you trying to borrow from the bank I would suggest you revisit the article I posted last year about what you should focus on to make the bank happy.

This is becoming habit, oil prices hit another record today, going over $115 per barrel, this is 77 percent higher than last April. T. Boone Pickens, who heads the BP Capital Hedge Fund, said today that he expects prices to go over $125 per barrel as global demand continues to outpace production.  The price of a barrel of oil has grown four-fold since the beginning of this decade!

Consumer prices rose less than economist expected in March as the U.S. Consumer Price Index came in at .3 percent. Cheaper clothing helped defray the increases in prices at the pump, and some food prices. This morning’s good news pretty much stops here. The government also released new data on home starts and building permits, both were lower than expected. Oil prices also hit another new record as the dollar fell again against the euro. The prospect of energy driven inflation is still a concern for the U.S. Federal Reserve.

Someone once told me that business valuations are an art, not a science, and most every entrepreneur I know believes the value of their business is much higher than it really is. So if you are business owner that is ready to sell your business, you need to understand the difference between fantasy and reality when trying to understand the value of your business.

The fantasy is the story we hear about from our colleagues or we read about in Inc Magazine. The entrepreneur starts a new business, the business grows, he or she sells it for hundreds of millions of dollars, and retires to some remote carribean island. This is the high multiple fantasy. The market may only be paying 5 time earnings for a business in your segment, but yours is worth 50 times earnings. Often entrepreneurs will base the value of their business on what they are earning from that business today. They will calculate what they make from the business now, then they will calculate how much cash it will take to earn the same from investments. In their minds that number becomes the value of their business.

The reality is much different. Quite simply the value of your business is what someone is willing to pay for that business. A prospective buyer looks at the business from an investment return standpoint. There are generally two pieces to forecasting an investment return, one is financial and one is strategic. The buyer will start with the financials and do a simple cash flow analysis, plug in some growth rates, and create a model that indicates how much the business is worth as it stands today. If the buyer is more strategic, they may plug in additional sales and potential cost synergies that can drive the value. There are things an entrepreneur can do to drive the perceived value of their business, we suggest the following.

1. Have a growth story – The bottom line is usually the bottom line. If you have a track record of revenue and earnings growth and can help the buyer rationalize an aggressive forecast you can drive the value of your business. If your revenues are stagnant and earnings are going down don’t expect an unusually high multiple. You need a growth story.
2. Display market segment leadership – Buyers, especially large corporate buyers, love to buy the market leader. If possible establish leadership in your market, if you cannot be the leader in your market, create a new market where you can be the leader. Market leadership will get you a premium.
3. Don’t be the business - If the buyer believes some portion of the revenue or earnings are at risk if you walk out the door, they will reduce their perceived value. Make sure you have a management team in place that seems to run the business autonomously from the ownership. A strong management team that is going to stick around helps the buyer rationalize continued strong performance.
4. Invest in intellectual property – The value of your business will go up if you have a series of solid patents or a strong brand. The value of intellectual property is pretty arbitrary, this favors the seller. A strong intellectual property program helps the buyer rationalize revenue security.
5. Image is critical – When the buyer shows up to tour your facility make sure things look great. This means the facility is clean, organized and well kept. This also means your business appears as though it is governed well. Strong planning systems, processes, and infrastructure will give the buyer that warm and fuzzy needed to get to your value.

If you are planning to sell your business, don’t make the classic mistake of assuming the value is whatever resources you need to sustain your lifestyle. Understand the value of your business, the realities of selling it, and how you can increase the value. This will help you get top dollar for your business. For more information on exiting your business pick up a copy of my book, Rough Air Ahead, at your favorite retailer.  

It takes more than a great idea to build a business! One critical aspect of getting your company off the ground will be raising the cash to get started. I speak with many prospective business owners, and all of them have the same question, “Where do I get the money to fund my new venture?” I always respond by walking them through my fundraising checklist.

As a prospective entrepreneur the first thing you must do is assess your needs. I always ask how much money the entrepreneur needs to get started and how much to carry the business through the first year. Entrepreneurs need to estimate how long it will take to get their new business to the point where it is generating positive cash flow. I always recommend they assume a worst case scenario, and then multiply it times two. This will give the prospective business owner an idea of the cash needed to get started.

After you know your cash needs, develop a list of resources. I suggest starting with personal wealth (many times this is not much). How much cash do you have on hand, and what collateral do you have? Is there equity in your home you can borrow against? I also advise entrepreneurs to start a family and friends list. Who do they know that would be willing to front them a loan for their venture? If you can’t convince your family and friends you have a great idea, then how will you ever be able to convince a stranger?

There are four common methods I discuss with entrepreneurs for funding their new business venture.

1. Bootstrap – If the market opportunity is unknown, you have little cash, and your family has already disowned you, a bootstrap may be your only option. This is where you work to get the business going without a cash infusion. This requires the new business owner to gain the trust of potential vendors, and make sure customers pay on time. The gestation period for a bootstrap is usually quite long, but the benefit is a debt free business. Our family business was a bootstrap. The founders worked other jobs while they got their business going at night and on the weekend. It took four years before all three founders could work for the business full-time.
2. Self-Financed – If you are lucky you have some extra cash to invest in your great idea. Sometimes self-financing may be using credit cards or equity in your home. The bottom line here is you are personally vested in the new entity, you are putting your money where your mouth is. Just make sure you know how much you will need to make it work. Don’t get halfway there and decide you have gone too far. A successful entrepreneur I know in Dayton started his business with a desk and $1500 in credit cards. Today that business is a $400 million publicly traded company.
3. Bank Financing – If you are a true start-up with no cash, getting money from the bank will be tough. Once your business is established and successful every bank in town will line up to loan you money, although banks are not in love with start-up capital. A bank needs something to loan against. If you are buying a business bank financing is the place to look. If the business has assets that can be leveraged, and you have a good track record, then getting bank participation is the way to go. A Small Business Administration (SBA) backed loan is also a potential source of capital when buying an existing business. If you want to be an entrepreneur or business owner, make sure you develop a great relationship with your banker. The SBA site has some resources for lending.
4. Venture Capital – If you have a major market opportunity that you want to capitalize on immediately, then venture capital is the route for you. The VC investor will expect a much higher rate of return than a traditional financing partner, although they are also generally willing to take more risk. The National Venture Capital Association has a member listing on their site that you may find helpful. Be prepared for a long search when trying to find venture capital, and make sure you have a great story to tell. The typical VC firm only invests in one percent of the deals they see, you will need to work hard to be that one percent.

Raising capital for your new business will be an adventure in itself. If you get over this hurdle, you will go a long way towards making your business a reality. In my book Rough Air Ahead I cover the ways to raise money for your business, and the keys to getting it done!

The labor department reported that the producer price index, prices companies pay at the wholesale level, rose 1.1 percent in March. This was triple economist expectations. Prices excluding food and energy were up a more modest .2 percent. This highlights my earlier post about energy prices. As long as oil continues to hit new records I would expect measures like the producer price index and the consumer price index will continue to rise. The real risk becomes a bout of energy driven inflation leading us to a period of “stagflation.” This is an issue I wrote about here last October.  

I have a feeling that I will be able to save this post and just run it over and over again for the next 12 – 18 months. Oil crested above $113 today hitting a new lifetime record. Prices rose due to concern about a falling U.S. dollar, and some supply disruptions caused by weather in Mexico. The dollar is likely to continue its downward trend as the U.S. Federal Reserve eases monetary policy to stimulate growth, I don’t expect this to change in 2008. We will inevitably have additional supply disruptions as we go throughout the year, these things happen. The bottom line is that oil prices will continue to rise, $4 per gallon gasoline in the U.S. is probably not too far in our future.

Retail sales rose slightly last month mainly due to an increase in gasoline prices paid at the pump. Sales were up .2 percent in March after a big drop in February, retail sales of gasoline were up 1.1 percent. Sales at food and beverage stores also rose last month, which has some analyst suggesting this is a reflection of commodity price pressure. My bet is that people are just eating and drinking more due to stress, I know I am!

We will have a fair amount of new economic data to sort through this coming week. By Friday we should have a better feel for how the consumer is doing, and if energy driven inflation is sneaking into the economy. We will get retail sales on Monday and housing starts on Wednesday, both of these will provide some feel for just how gloomy consumers are. The two big inflation measures will come in starting Tuesday with the producer price index, and then the consumer price index on Wednesday. We will also get some manufacturing data Wednesday when we get the industrial production numbers, and finally Thursday we will leading indicators release giving us a feel for where we might be headed. All in all we will have quite a pile of data to sort through this week, let’s hope there is a pony in there somewhere!

I just finished signing up one of our new businesses for a health insurance plan. Although the plans were not cheap due to our size, they were better than I expected. Getting health insurance for a small company can be challenging. We thought about using the local chamber, or one of the other organizations we belong to; however, I ended up just dealing with my regular insurance guy. I think we were lucky, and he did well for us. Here is an article I ran across in The New York Times last month on getting health insurance for you small business. The article has some good ideas on what you can do to insure yourself and your team!

U.S. consumer confidence fell to a 26-year low according to the University of Michigan’s measure of consumer sentiment. The bad housing market, tough credit environment, slowing economy, and rising gas prices all have consumers in a foul mood. Perhaps we are all in need of another “malaise” speech from one of our leaders! 

Over the last few weeks I have met with several business owners who are trying to raise capital for their business. Typically they come into my office with high hopes, and they all have the belief that they will be able to raise millions of dollars in VC in the blink of an eye. All they need is two minutes in front of that investor, and they can sell their idea! These folks typically leave my office without their rose colored glasses.

I ran across this article from Inc Magazine on raising VC funds, there are some good tips on what to do if you are going the venture capital route. Here are some additional suggestions to keep in mind:

1. Aim at a large market – If the market potential for your product or service idea is too narrow don’t expect investors to get excited. Lifestyle businesses do not attract VC investors. You must be able to demonstrate that your idea has a large potential, with a quick return.
2. Do your homework – Before you meet with an investor make sure you know who they are. Don’t walk into a meeting unarmed!
3. Highlight your team – Investors don’t want to bet on individuals, they like to bet on teams. You need to show that you have a strong, experienced team, that can execute!
4. Know the numbers – VC investors will only commit to 2 percent of the opportunities they look at. Even if you get the chance to present your odds of winning are low. Be prepared for a long-haul, and understand how hard you have to sell.
5. Contacts – Although I agree with the article that a compromising picture of an investor would be helpful, just knowing people in the game will get you started. If your contacts are not interested, they may know someone who might be!

Getting investors interested in your business is tricky business, but if you do your homework, and do it right you can nail down that “big fish.”

Crude prices peaked over $112 today, and gasoline went over $3.40 per gallon. Prices increased due to government reports which showed inventories lower than expectation. Today’s spike reinforces forecast that show gas prices reaching $4 per gallon by this summer’s driving season.

Not long ago I posted an article in regards to the rising cost of a barrel of oil, and the inevitable impact on gasoline prices. Currently analyst are projecting crude prices to average $101 per barrel this year, and $92 per barrel next year. These of course are the same analyst who expected prices to average $50 – $55 per barrel in 2007, which ended the year with an average closer to $72. The question is where are prices headed, and what is the impact.

There are two issues driving oil, and subsequently, gasoline prices higher. The first is the falling dollar, and the second is growing global demand. It appears that neither of these will be going away in the short term. The weakness in the U.S. economy has prompted the U.S. Federal Reserve to lower interest rates, which has been driving the value of the U.S. dollar lower. Given the current condition of the U.S. economy I would expect the Fed to continue to cut rates for the next few quarters. The Fed Funds rate currently stands at 2.25 percent. Although the Fed does not have a lot of room to cut, there is still some ammunition left in the gun.

As the value of the dollar falls the price of imports tends to rise. Since oil is generally priced in dollars oil producers must raise their price as the dollar falls to cover the currency shortfall. Back in September when interest rates stood at 5.25 percent, one euro was equal to $1.39, today one euro equals almost $1.60, and interest rates are now 2.25 percent. At that same time in September oil was trading at $70 per barrel versus $108 per barrel today. It is safe to speculate that as the Fed lowers interest rates in the coming months, the value of the dollar will fall, and the price of oil will rise.

The other oil price pressure is coming from demand. Global demand for oil continues to rise while countries such as China, Russia, and India see unprecedented economic growth. This would not be an issue if there were an infinite supply of oil in the ground; however, conventional wisdom does indicate that our supply of oil is finite; therefore at some point in the future, whether it is in 50 years or 200 years, we could run out of crude supplies. So as demand rises, and supply shrinks, we get more people fighting for a smaller available pool, this allows suppliers to aggressively raise prices without fear of the customer going someplace else.

If oil prices are going to continue to rise, regardless of economic conditions, what is the impact? The consumer impact is clear to all of us. The average consumer is spending $1,800 more per year on gas than they were six years ago, this could increase by another $1,000 by the end of 2009. This is just for gasoline, as gas prices rise, the cost of doing business rises as well. This can drive prices up across the board, taking more money out of the consumer’s pocket. At some point consumer behavior will shift as they move from larger less fuel efficient vehicles to smaller vehicles. This is what we saw in the late 1970s and early 1980s when Japanese imports began to take center stage. Rising energy prices will also likely spur faster development of alternative energy sources.

The cost of doing business for the average organization will rise as oil prices increase. The cost of heating facilities, travel, materials, and other expenses will increase along with the price of a gallon of gas. Businesses will either have to increase prices to cover these cost or they will have to settle for lower profits. My guess is that most will increase prices. As an example our small business center has seen about a 30 percent increase in the cost of heating our facility. It is difficult to get that back through cost reductions in other areas of the business, raising prices becomes a must.

As I have mentioned on this blog before, it seems to me that too many experts tend to forget about the traditional characteristics of supply and demand as they attempt to convince us that oil prices will stabilize. Although I do believe there are times when prices can stabilize for 12 months or more, I believe the reality is as demand increases and perceived supply shrinks prices are going to continue to go up. Until we see some major shift in the supply and demand relationship in the oil sector, I would plan on shelling out more cash every time you fill up, and dumping that large SUV for a used sub-compact! 

Crude prices jumped more than $2 in trading yesterday as speculators continued to worry an imbalance of supply and demand. Prices finished the day just over $109 per barrel, which is just $2 below the record set last month. Prices are up 70 percent from just one year ago. The rise in oil has been reflected in gas prices across the country. The average price for a gallon of gasoline is currently $3.40 per gallon. Some analyst are expecting gasoline prices to hit $4 per gallon later this year. These increases ripple through the economy as manufacturers have to adjust prices for higher energy cost, and consumers have to adjust spending to cover the higher cost of filling their gas tank. Prices are continuing to rise despite a slowing U.S. economy.

The head of the National Bureau of Economic Research, Martin Feldstein, said yesterday that the U.S. has been slipping into a recession since December. Mr. Feldstein said that some analysts have been a little slow to acknowledge the slowdown, but all of the data from the 1st quarter of this year has been trending down including, employment growth, manufacturing, and new orders. Mr. Feldstein says they expect this recession to last a bit longer, and be a bit deeper than the last two.

If y0u were reading this blog last Fall then you may have taken the time to prepare your business in the event of a slowdown. If not here are some tips for managing cash when times get tough! 

Every small business owner know the secret to entrepreneurship is being able to manage and generate cash. The best are able to do this in any economic environment. These secrets are really all about the basics in any business. If you do the blocking and tackling, you will successfully navigate any rough air you encounter. If you want to manage the tough environments start with these basics:

• Receivables – Stay on top of your AR (accounts receivable). Make sure your customers are paying on time and talk to the ones who are not. Don’t let others use your money to finance their business.
• Inventory – Keep inventory under control. The last thing you need is a pile of cash sitting in inventory. This is all about keeping your overall business cycle short.
• Discretionary Expense – If you are feeling the heat of a difficult economy start trimming discretionary expenses. In most businesses there are always expenses that are wanted but not needed. Be diligent during a slowdown.
• Capital – To conserve cash get stingy about capital investment. Force your teams to perform their due diligence before using cash for capital investment.
• Efficiency – A more efficient workforce will drive earnings and cash. Find out what you need to measure to ensure your workforce is operating efficiently, and then drive maximum utilization.

There are many ways to build cash in a business. These are some simple reminders that you can focus on which will help you build cash in your business all the time.

I posted this article last Fall, given all of this week’s economic news I thought it would be good to review!  It is raining here today. Perhaps the gray skies and wet streets are contributing to my rather foul mood, or maybe it is the fact that I have spent the last couple of hours reviewing economic data, and the data is painting a picture that I really don’t want to see. The information is piling up and the odds of a looming recession are growing quickly. I was having coffee this morning with a local business reporter and something she said triggered a thought that our current economic crisis may get much worse before it gets any better.  I hate to be a pessimist, because it runs counter to my beliefs; however, it is getting harder and harder to ignore the information in front of me. Currently we are faced with a housing market that has not reached the bottom, new job creation has been trending down for seven months, oil prices are rising, stocks are confused, and consumer confidence is trending down. I hate making predictions because none of us can predict what is going to happen tomorrow much less what will happen in the next 12 months, and the optimist in me says this is just a slowing economy, no big deal! The realist in me says we are headed for a recession, and it will begin to show its ugly head within the next three quarters.  So if a recession is where we are headed, what should a small business owner do? I remember the recession of late 2000, early 2001. Our business declined about 5 percent, while the market we were in declined 25 percent. We were insulated from the decline because of some new products that were helping us grow in other areas (hopefully your business is insulated as well). Many of our competitors were not insulated and it took considerable time for them to recover. As a small business owner, we suggest you start talking to your employees now about what might be down the road.  I have posted several articles in regards to contingency planning, and now is a good time to get your managers together and create a plan to help deal with any downturn in your business. This would be a good start, but as a leader you cannot forget your employees. I am not suggesting you take the “sky is falling” approach and scare everyone into looking for new jobs, although I am suggesting you have a candid conversation with all of your employees about the current economy and your concerns. Keeping your employees informed about any potential slowdown the business faces not only raises their awareness, it also prepares them for any changes you may have to make in the future.In 2001, I already had a process in place for keeping the employees informed about how the business was doing, and where we saw it going. Early in 2001, we began talking to our employees about the potential of a slowdown in the economy. When that slowdown hit and we were forced to reduce our expenses, no one was surprised. That still did not make reducing our workforce easy, but having everyone prepared ahead of time made it easier! Keeping the employees informed and engaged helped them understand why we were taking the actions we did.Here are some tips for leading your employees during a downturn:

1. Be Open and Honest - If you expect your business to slow, make sure the employees understand.
2. Educate Your Teams - Make sure your employees know this is not an isolated business issue, but an overall economic issue.
3. Listen to Their Concerns – The business is just a part of their lives, don’t neglect the broad personal impact of an economic downturn.
4. Reassure Them  – Have a plan, you don’t need to lay it out there, just make sure they know you have a plan for dealing with a downturn.
5. Make the Tough Decisions – If the time comes, be prepared to do what is necessary to move the business forward .

A broad downturn in the economy will have far reaching consequences. Your employees will feel stress on the professional level, and on the personal level. Make sure your business is prepared to deal with the challenges that may be looming on the horizon.  

The Rough Air Demand Index for February hit new lows as declines in manufacturing, services, employment, and housing have all weighed on an already shaky economy. As reported here earlier today, the U.S. economy has lost more than 200,000 jobs so far this year with more losses in the financial sector expected over the next few months. The worsening jobs picture comes on the heels of a crisis in the housing sector and financial markets that have been rocked by a subprime fallout. Over the last few months the U.S. economy has likely fallen into a recession!

The inflation picture has stabilized slightly in the last few weeks primarily because oil prices have stabilized. Although crude remains over $100 per barrel, the inevitable climb towards the northeast corner has stalled, but likely not stopped. A stable inflation picture is giving the U.S. Federal Reserve more leeway when it comes to focusing on stimulating growth.

As the picture of a stagnant economy has continued to develop, I still hear voices in the wilderness claiming the slowdown is media hype, or a figment of our imagination. These people seem to be more concerned about defending a particular political ideology than with figuring out how to solve our current economic challenges. One cannot run and hide from the data, it is what it is. Our best bet now is to focus on our businesses and prepare for the next period of economic growth. 

The U.S. Department of Labor reported this morning that the economy lost 80,000 jobs in March, and the unemployment rate increased to 5.1 percent. The unemployment rate is now the highest it has been since 2005, and the job loss in March was the highest since March 2003. This is the third month in a row the labor market has contracted giving further credence to the premise that the economy has slipped into a recession. The U.S. economy has lost 230,000 jobs in the first quarter of 2008. 

The Institute for Supply Management released their services survey for March today. The index, which rebounded slightly in February, stayed above 50 in March. The Chairman of the U.S. Federal Reserve testified before Congress yesterday indicating that the U.S. economy could be slipping into a mild recession. Friday’s employment data should provide some clues as to whether or not the economy is already in a recession. 

Here is an article from an Inc Magazine blogger with some suggestions on how you should go about selling your business. There are some good suggestions here, and the article gives some good feedback on what information a buyer will want when they are looking at your business as a potential acquisition. The comments about not “over-selling” the business are key, you don’t want to do anything that may damage your credibility with the buyer.

The author mentions the financials, and I would stress that financial trends are much more important than what you did in the most recent accounting period. Buyers are going to look at the previous three to five years to gauge what they believe is an average annual growth rate and average returns. The overall financial trends are one of the single most important aspects of determining purchase price when buying or selling a business.

Another key piece is too ensure you have a clear understanding of the value of the business. Remember this value is not based on what your income needs are, it is based on what kind of return a buyer thinks they can earn from the operation. Many business owners set their expectations too high when they start the process of selling their business, and they become dissillusioned with the process. If you want to increase the value of your business, look at the business from a buyers point of view, and force yourself to justify the buyer’s potential investment. If you have to rationalize the price based on what may happen, be prepared, because buyers are more likely to look at what has happened. They want you to prove it!

The ADP Employment report which provides markets with a preview of what the government’s labor data may reveal for the month, came in relatively weak in March. According to ADP the economy may have added 8,000 jobs last month, although this does not indicate that job growth was flat at best in March. This could be a pre-cursor to some bad employment data on Friday.

Having been around small businesses and entrepreneurs for more than 15 years I have had the opportunity to be a front-row spectator to more than one failing business. Although each situation is different, there are some common characteristics that come to the surface as the organization drops to the floor.

I have watched with great anticipation as the fight for the Democratic Presidential Nomination has unfolded. It appears to me that over the last few weeks Senator Clinton’s primary campaign message has been the continued relevancy of her effort to seek the highest office in the land. It reminds me of the business owner who sits in front of his banker begging for a little more time. He will say, “This is turning around, I know it, just give me one more month!”

This is the position Senator Clinton’s campaign team now finds themselves in. They are sitting in front of the voters, the super delegates, their contributors, and the party leaders and begging for just a little more time. I believe this campaign is starting to exhibit the traditional signs of a failing enterprise. The signs look something like this:

• Infighting – Any organization that finds itself in trouble usually ends up with folks pointing fingers at each other to find out who is to blame. As the stresses mount, and troubles bubble to the surface those in charge look to make changes, and stem the tide of defeat. Many times the end result is one or two high-profile defections, as the best and brightest escape to greener grass.
• Lack of Direction – Once the infighting starts and the leaders look for scapegoats, the search for a new strategy begins. As the problems continue to mount it seems a new strategy is announced every few weeks. After some time it appears there is no strategy and the organizational leaders are just swinging wildly in hopes of hitting something. The end result is a lot of unhappy people in the organization, biding their time until the next opportunity comes along. As their level of concern for the overall outcome drops, many people begin to freelance what they believe the direction should be. All the outside world sees is “chaos.”
• Circling the Wagons – As outsiders begin to pick up on the subtle hints of frustration within the organization’s ranks, the loyal soldiers and leaders circle the wagons. They begin to tear down their critics, even if those critics are friends. They fail to listen to anyone that may point out potential issues, and in some cases they indicate those people making suggestions are the root cause of their problem. Without a clear strategy, and an unhappy staff, the best they can do is attack those they feel are attacking them.
• Irrational Rationalization – In the political world this is known as spin. The leaders of the organization begin to rationalize every failure. They “can find one million reasons for each time they fail, but not a single excuse!” No matter how silly their rationalization appears to outsiders, no matter how flawed their logic, they will find a way to make it appear absolute to themselves, and anyone who will listen. This is that point when the leaders of the organization begin to make comments that defy reality!
• The Financial Mess Surfaces – Most enterprise failures are not about the failure to reach goals, but about the failure to keep the coffers full along the way. At first the financial issues will be a low murmur among industry insiders. Some may say that they heard someone mention that the organization is having trouble paying its bills. The organziation’s leaders will “rationalize” these late payments by saying vendors are getting invoices to them late, the invoice was lost, or some other administrative issue. Slowly but surely you will learn of vendor complaints, more people will talk, until it becomes public knowledge. Once it becomes public knowledge you can bet that the problem is far worse than anyone really knows.

Many times with an enterprise failure the last person to know, or understand the problem, is the organization’s leader. They may just be the last holdout of hope, or in the worst case scenario they never get it. Even after the venture fails they believe they were somehow wronged by an intervening force.

Is the Clinton Campaign a failing enterprise? I don’t know, but from the outside looking in it appears to me that is an organization that is going through the process of failure as events and time spiral out of their control. Like many before them, they are now sitting in-front of those who will decide their fate, and begging for just a little more time so they can turn this thing around!

This story is not getting a tremendous amount of play, although it could cause some folks myriad headaches over the next few days. Although gas prices will fluctuate over the next few months, I would bet that overall a gallon of gas will be more expensive in 18 months that it is today. This is a problem that is not going to go away.

I ran across this article in The Independent, a U.K. newspaper, in regards the the U.S. economy being in a “depression.” They cite the rapid increases in the number of Americans on food stamps as evidence. The article